In an ever-evolving construction industry landscape, having insights from those on the front lines is invaluable. The Construction Risk Connection Series by Procore Risk Advisors seeks to bridge the gap between curiosity and knowledge, providing a platform where industry professionals can get direct insights from leading experts.
Each edition of the series dives deep into pressing topics, trends, and challenges faced by construction companies. By posing pertinent questions to seasoned professionals with vast industry experience in insurance and risk management to surety bonding, we aim to shed light on areas that often remain shrouded in uncertainty.
From diving into the complexities of insurance markets to understanding the nuances of risk management, data, or technology, our experts break down subjects into digestible insights. Whether you’re a construction company executive, developer, a project manager, or someone keen on industry insights, the Construction Risk Connection Series is your go-to resource for expert opinions and advice.
For this installment, Michael Dantuono, Procore Risk Advisor’s technical brokerage officer, discusses everything from builder’s risk insurance trends to how contractors can shield their balance sheets from significant uncovered losses.
Q: How would you describe the current state of the builder’s risk insurance market for construction companies? Are there any notable trends or changes compared to the past?
A: We’re witnessing divergent trends in the market. Projects using non-combustible materials and those not in high hazard areas are seeing more stability in rates. However, increased frequency and severity of extreme weather events, such as hurricanes and wildfires, are driving up reinsurance rates, leading insurers to push for higher premiums and deteriorating terms. Rates for wood frame projects remain high and easing is not expected given the fire losses impacting the overall market. In addition, water damage losses continue to cause concerns for insurers across all industry sectors.
Q: What are the primary risks and challenges construction companies face with builder’s risk coverage, and how can they best mitigate these risks?
A: Solely relying on insurance for risk transfer isn’t enough. It’s crucial to implement protective measures like security and water leak detection systems. Even so, proper alert systems and workflows must be in place to address issues when they arise. For instance, water detection technology is becoming essential, with some insurers even mandating it. But it’s vital to ensure a comprehensive response plan, from notifications to issue resolution, is in place. Integrating the IOT devices into the Procore platform keeps everyone informed and provides a holistic risk management strategy.
Q: What factors should construction companies prioritize when selecting a builder’s risk insurance policy? Are there any standout coverage options for them?
A: It’s risky (no pun intended) to assume that a generic policy will meet a project’s unique needs. While some aspects of builder’s risk coverage are clear-cut, some intricacies can significantly impact protection. For example, committing to using certain security technologies and then not deploying them might lead to claims denial. Other policies might increase deductibles if certain systems aren’t active during a loss. Furthermore, policies that cover additional project-related expenses beyond property damage are vital. They can include costs like additional labor, equipment rental fees, and even pre-loss property protection.
Q: How do insurance carriers in the builder’s risk market manage claims, especially during construction incidents, and how can construction companies speed up the claims process?
A: Builder’s risk claims, particularly those causing project delays, are intricate. Utilizing technology to manage project details can streamline information flow to carriers. Procore’s single system of truth provides comprehensive documentation on projects, including schedule impacts before and after a loss, which can help ensure prompt and accurate claim settlements.
Q: Given market uncertainties, like natural disasters, how can construction companies ensure their builder’s risk coverage remains comprehensive throughout their projects?
A: First, understanding the nuances of the purchased coverage is vital. For instance, some insurers might treat storm surges differently, leading to varied deductibles or coverage extents. Before purchasing insurance, addressing contractual risk allocations is essential. Clear definitions of responsibilities, especially concerning force majeure events, should be in place, ideally crafted with legal experts knowledgeable in both indemnity and builders risk coverage.
Q: How can contractors shield their balance sheets from significant uncovered losses?
A: For major projects with specific geographic risks, parametric insurance offers a solution, allowing contractors to cover risks not typically insured due to high deductibles or sublimits. Moreover, contractors with a vast builder’s risk policy portfolio can utilize their captive insurance to manage various claims. Using captive insurance can offer multiple benefits, from better claim funding to premium reductions and overall risk diversification.