Wood Frame Construction Rates Heating Up
How to Ensure Cost-Effective Builder's Risk Coverage
2017 ended with the construction industry firing on all cylinders. For the first time in over a decade, the overall industry is optimistic that the construction marketplace will continue to expand. Along with the increased construction activity predicted for 2018, however, comes the demand for builder’s risk capacity.
Builder’s Risk insurance is a specialized coverage used to protect a person’s or organization’s insurable interest of a construction project during the actual construction process. This coverage is usually purchased by the general contractor performing the work or the owner(s) of the project itself.
Many of these insured construction projects are designed to be built out of wood frame construction. Wood frame is typically used in residential, single-family home projects. However, over the last few years (and for the foreseeable future), wood frame construction has also become extremely prevalent in commercial developments such as affordable, mixed-use commercial, mid-rise apartments, senior living communities, schools and sports facilities.
Because the construction industry is more competitive than ever, wood has become the material of choice – even over steel or concrete. Wood is often readily available, delivers quickly, easy to use and environmentally safe – resulting in shorter construction schedules and significant cost savings.
On the other hand, there are also some cons with wood frame construction and the fire hazard associated with it. Wood itself acts as the fuel to a fire and, in many cases, can cause large or even entire losses of a building or surrounding buildings. Also, wood is less resistant to termites or moisture problems in comparison to steel or concrete structures.
2017 was one of the costliest years for natural disasters in recent history. In the United States alone, there were over $300 billion in damages caused by fires, floods and storms. These catastrophic events will increase reinsurance costs resulting in overall increased property and builder’s risk rates. Although these increases should be minimal, you can expect larger rate increases for building structures located in catastrophic areas or buildings of wood frame construction.
Despite underwriting for wood frame projects becoming more stringent, there are still many insurance carriers willing to provide builder’s risk capacity. It’s important to understand who these players are. The level of capacity offered in the market will vary greatly among them, especially for projects greater than $30mm, single building structures and projects located in catastrophic areas. The number of carriers will narrow quickly.
To ensure successful, comprehensive and cost-effective coverage placement, you should provide the following:
- Thorough site plans. The carrier needs complete understanding of the project.
- Complete underwriter construction schedule. This way, the carrier will be able to identify max exposure at any given time.
- List of any security measures that will be taken by the owner or contractor during the construction process. Will the site be fenced? Will there be a full-time security guard, cameras or portable alarm system security devices?
- Resumes of both the owner and contractor. A proven, successful track record is important for the carrier’s comfort level.
- Proximity of the fire department to construction site. Due to the increased fire hazard of wood frame projects, the fire department range is crucial.
- Broker carrier relationship. It’s important that the carrier is comfortable with agents specializing in this type of risk.
Have questions about your builder’s risk insurance or want to learn more? Talk to a member of the ‘A’ Team today.
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