BUILDING, RENOVATING, REMODELING AND RESTORING: NAVIGATING BUILDERS RISK INSURANCE

Home construction was delayed by tornado damage  (Image via Wikipedia)

As a risk manager for numerous property owners, I am frequently encountering situations where Builders Risk insurance would benefit my customers.  Having recently left the world of normal people to enter the realm of insurance and risk management, I can still remember how confusing insurance can be.  Hopefully this will help someone to navigate the waters of Builder's Risk insurance.

For anyone who has ever decided to build, renovate, remodel, or restore a building, Builder's Risk insurance is generally a requirement of the loan.  However, even those who are working with their own funds can benefit from purchasing a Builder's Risk policy.

Here are some things that you can put together to help your agent provide you with the best Builders Risk coverage.

1. Projected Costs:  Maintaining a list of cost estimates and keeping your insurance agent updated as these costs change can help you ensure adequate coverage.
2. Project Details:  In providing detailed information, you can provide will help you agent "sell" the project to an underwriter.  Not only will it help you communicate better with your agent, it may help the underwriter conceptualize the project.  Underwriters are more likely to discount premiums when they understand what they are insuring.
3. Contracts:  Contracts frequently require certain limits of insurance.  In giving your agent complete copies of all contracts involved with a project, they will be able to provide you with appropriate insurance solutions.
4. Projected Dates:  It is paramount that your insurance agent is kept informed of projected start and end dates.  Shopping your insurance can take time and good agents will utilize that time to provide you with a combination of the best coverage and pricing.  Keeping them informed of your projected starting and completion dates will help them stay on track.
5. General Contractor:  Who is your general contractor?  Why did you select them?  A brief description of your general contractor and their track record can help "sell" an underwriter on your insurance and save you money.
6. Other Structures at the Site:  What other buildings or structures are at the site?  Will any of them be at risk of becoming damaged due to this project?  What is being done to protect the other structures?
7. Safety:  Provide your agent with a list of any safety precautions that have been or will be made.  Some items to consider are: lighting, fencing, and security.  Although, these features may reduce your premium, more importantly, they should reduce your stress level when the project is underway.
8. Storage of Building Materials:  Where will materials be stored before they are installed?  The basic ISO coverage for these materials only covers them if they are within 100 ft. of the scheduled location.  Additional distance from the site and additional storage locations may be added by endorsement.  What measures will be taken to prevent theft of these items?
9. Soft Costs:  When unforeseen events happen that delay the completion date of your project, additional expenses are usually incurred. These may be: additional interest charges on loans, advertising expenses, additional contractors costs, real estate taxes, consulting fees, equipment rental, premiums for extended insurance terms, refinance charges, and architectural and engineering fees.  Essentially, soft costs are all costs associated with a project except for labor and materials.

When should you shop for Builder's Risk insurance?  If possible, you should begin shopping three to four months before the projected start date.  This will allow your agent time to understand the project and to approach multiple insurance carriers, allowing them to compete for your business.  Be sure to keep your agent informed of any changes to your start date so that they can time the inception of the policy accordingly.The policy should begin when construction or demolition begins.  Once work is being performed, Builder's Risk insurance is the appropriate form of insurance.  Here's a handy flow chart to illustrate this.

When the project nears completion, make sure that your agent is ready to provide you with Property and General Liability insurance to take the place of the Builder's Risk insurance.