Running a construction business is not easy. You face numerous challenges, from meeting project timelines to securing tradespeople to growing a profitable business. One challenge you shouldn’t face is with your builders risk coverage.
However, over the years, we’ve seen some mistakes made when purchasing builders risk insurance. In this article, we highlight five mistakes to avoid, with actionable tips to do so. Let’s jump in with a quick overview of what builders risk coverage is.
Builders risk coverage is insurance that protects buildings and structures while they are under construction. A typical builders risk policy will cover financial losses in the event of fire, vandalism, or weather-related damages.
Not understanding what you’re responsible for in regard to your builders risk insurance may render your policy invalid. Most builders risk policies come with conditions, called warranties, that construction companies must adhere to.
In the case of builders risk coverage, a warranty is a specific guarantee made by the construction company (the insured party) to the insurance company issuing the policy. Warranties outline certain conditions or actions that must be taken. Typical warranties for builders risk may include fencing around the project site, site security, and lighting to name a few. Warranties will vary based on the size and scope of the project.
To avoid any misunderstandings of your responsibilities, it’s best to work with a broker who has experience in the construction industry. They will have the knowledge to evaluate the warranties in the quotes they receive for your builders risk coverage, find the best policy for your project, and clearly outline what you’re responsible for.
With any luck, your estimated number of new starts is greater than what you thought it would be at your annual review with your broker. While this is great news for your business, if you don’t inform your broker of the increase in the volume of new starts, you will be putting your builders risk coverage in jeopardy.
Here’s an example to highlight this mistake. At the start of the year, you estimated you would build a couple of houses, but instead, the new home market has taken off, and you ended up building ten homes. However, your builders risk policy limit was only in line with the two homes you told your broker you were going to build. In this scenario, you would be uninsured for any losses above your catastrophic limit.
To circumvent any possible exposure, it is up to you to contact your broker, if you go above the number of homes you estimated to build. They will be able to adjust your policy accordingly when the market changes in your favour, ensuring your projects are protected.
Builders risk coverage is timebound. That is, the policy has an expiration date based on estimated completion date of the project. Therefore, if there are delays or your project runs longer than anticipated, it is critical to communicate with your broker to get an extension on your policy.
Unfortunately, this isn’t always top of mind for builders in the midst of trying to get their project completed. Despite this, it is incredibly important, as if the policy expires, your project isn’t covered, putting the financial health of your business at risk.
A best practice is to note in your calendar when the expiration date is for your builders risk policy, and give yourself a note to connect with your broker one month out from its expiration to give them an update on your project. That way, they will be prepared in the event you need an extension on your builders risk coverage.
Like most things in life, leaving it to the last minute to secure builders risk coverage can be a big mistake. Your broker needs time to source and negotiate multiple quotes from insurers, to get you the best possible policy that fits your needs at the most affordable rate.
To avoid this, connect with a broker, like the ones at Buildsure, 1 month before the start of your project. They will consult with you to understand your project, explain different coverage options, connect with their markets for multiple quotes, and provide their recommendations.
Much like your construction company is different than your competitors, so are insurance brokers, and not all are specialists in construction insurance. To avoid this, look for a broker who has extensive experience in construction insurance and a track record of success partnering with builders.
When you partner with a broker like Buildsure, you not only get strategies and best practices for protection but also cost savings by gaining access to specialty programs for construction companies. Through their industry know-how, they’re able to tailor an insurance program for you, like Buildsure’s builders risk frame rate. It’s tailored builders risk coverage starting at .035/month, which is significant savings over a standard builders risk policy.