As in most commercial lines, builders risk rates are likely to stay flat this year. But that doesn’t mean you can afford to put your book on autopilot.
Several construction trends are reshaping the way contractors approach their projects—trends that will have a significant impact on the builders risk insurance market. Here’s what you need to know in order to provide top-notch service to your builders risk clients in 2017.
Construction now requires greater collaboration in designing, planning and developing a project, says Peter Wilcox, national underwriting officer at Travelers. Blame the cloud and the Internet of Things (IoT).
“Everyone involved in the project now has this access,” Wilcox says. “It’s almost like every foreman of all the trades has smart devices they can use to check plans right then and there, take pictures of what’s going on, share it with people directly, share it with the architects, get immediate responses on the plans and drawings, and do what they need to do.”
Many contractors are even adopting wearable tech like smart glasses. “You can’t get all the experts out to the field all the time, so a good mechanic or tradesman will go up there wearing the glasses and someone else can actually see what’s going on,” Wilcox explains. “The workspace of builders risk is changing. It’s not just pounding nails and pouring concrete anymore.”
Whether it’s IoT devices, virtual design, building information modeling or something else, “that brings a need to start insuring the hardware, software, the data, the valuable paper—there’s electronic valuable paper now for these projects,” Wilcox explains. “You need to make sure that’s all secure and that there’s adequate coverage and limits for that part of the project.”
Offsite construction is another growing trend likely to impact your builders risk clients this year. Known as prefabrication or modular construction, the approach involves manufacturing certain pieces, pods or entire rooms in a controlled factory environment, then transporting them to the jobsite to join a larger property.
“It’s moving outside of that defined fence line that we used to have on a site,” says Wilcox, who notes the practice originated with prisons and is now similarly popular for hotels/motels, schools, college dorms and assisted living centers. “The builders risk isn’t just inside those four corners—it’s all over the place now. It could be worldwide, depending on where a piece is manufactured.”
Naturally, this shift offsite creates additional risks for insureds and their agents to understand. “Make sure the policy provides coverage for offsite construction,” Wilcox advises. “All the policies may read differently on it, but if it’s not in the policy, it can probably be endorsed. And make sure there are adequate limits.”
You’ll also need to pay attention to the transportation and storage risks involved—and make sure your clients understand that if one piece sustains damage before it arrives at the jobsite, it will almost certainly delay completion of the project.
For example, if a contractor is working on building a segmental bridge and the truck has an accident delivering piece 24 to the jobsite, “they can’t put up piece 25,” Wilcox points out. “They have to take down piece 23 and send it back to the factory, because the piece has to match up perfectly with the previous piece, and that can only be accomplished in the factory.”
As you assist your builders risk clients in navigating this changing construction landscape, keep these three importance pieces of advice in mind:
1) Offer adequate limits. “A lot of contractors that build continually may not be the best at bookkeeping, so when they start and stop new projects, they may fail to let us know in a timely manner,” says Christie Lucas, vice president of commercial product management at Erie Insurance. “For those types of risks, we suggest offering blanket coverage with the highest, highest limits so they can continue to add and delete, as long as they do not go over that blanket limit.”
“Many contractors or developers could benefit from master builders risk programs, where all projects are covered subject to certain terms and conditions,” agrees Sharon Primerano, chief underwriting officer for The Hartford’s marine practice. “Having a master builders risk in place can often make bidding jobs much easier, since the rate and terms for the most common projects are pre-determined.”
And when considering total insured value, make sure your clients take all work into consideration. “We were working on one the other day where the contractor forgot to include the site work, and an awful lot of dirt work was going on to improve the site,” Wilcox says. “Dirt work, drainage—all that goes into a building project. The more information everybody has about the project, the easier it is to find and fix gaps in coverage.”
2) Vet the subcontractor. Because most contractors hire subcontractors to assist in construction, they should verify that those subcontractors have not only certificates of insurance, but also adequate limits—“before they even enter the jobsite,” Lucas advises. “It isn’t going to do you any good if the subcontractor burns down your $3-million building and they only have $50,000 in limits.”
Lucas also recommends securing a waiver of subrogation and making sure the subcontractor is listed as an additional insured for both operations and completed operations for the project, “so that if they do anything wrong, their insurance will defend the contractor in a lawsuit also.”
3) Mitigate risk. Fire is always a concern at a jobsite. Projects that involve hot work such as welding and cutting require special monitoring, but “anything that could create fire should be mitigated,” Lucas says. Encourage your clients to take adopt safety measures such as no-smoking policies, proper storage and disposal of flammables, and keeping fire-extinguishing equipment on premises, Lucas advises.
“Especially with wood frame construction, the industry has seen a lot of major fires over the last three years,” says Wilcox, who recommends checking out fire prevention guidelines, codes and standards from the American Wood Council. “There are so many sources of ignition on a jobsite. And some of these fires that have made the news have started by uninvited people coming onto the jobsite after hours.”
To prevent theft and vandalism on a jobsite, “secure the jobsite and try to get locks on the doors as soon as possible,” Lucas suggests.
The first line of defense is the fence around the jobsite—“that’s a good thing to define their work area, keep construction activities inside and keep people out,” Wilcox says. “It does a good job for liability and for preventing people from just walking across the jobsite.”
But a fence is only one barrier, and it’s most likely inadequate standing on its own. “We like to look for multiple layers of protection,” Wilcox explains. “If the fence doesn’t stop them, what else can? Maybe it’s some kind of intrusion detection that senses someone coming onto the site. That might sound an audible alarm and alert the police or the construction company through a central station that someone is on the jobsite, and that they need to get someone there to investigate.”
In addition to security systems, Wilcox recommends using other sensors to monitor jobsite conditions. “It’s not just about the unauthorized person coming onto the jobsite. It could be loss of power, loss of heat—what if sump pumps are needed because of the high water table, and they fail? Now you’ve got a basement full of water,” he points out. “There are so many systems out there that are relatively inexpensive and can monitor the jobsite when no one’s around.”
What coverage exclusions and clauses do you need to warn your builders risk clients about? Keep an eye on IAmagazine.com and upcoming editions of the Markets Pulse e-newsletter to find out.
Jacquelyn Connelly is IA senior editor.