Oftentimes, the first requirement of risk management professionals is the builder’s risk policy. Is it required for your clients?
Well, it depends on many factors and the specific details of the construction project. Your client must review their exposure. This review starts with knowing the insurable interest.
What is Insurable Interest?
The establishment of insurable interest is critical in determining the right insurance package for your clients. But, what is insurable interest?
Insurable interest is the entity with financial interest in the construction project. This entity could suffer some financial loss in case the construction doesn’t finish according to plan.
Often, this party is the first-named insured. This could be your client, the building owner, subcontractors, or companies with an interest in the project.
- A building owner has an insurable interest throughout the construction of the building as he or she can suffer direct damage during the project. This damage could equal the project fund and payments to your client.
- Your client (as the general contractor) will have an insurable interest from the start of the construction until the final payment. They can sustain damage related to the project, such as labor, profit.
- Subcontractors have insurable interest from the time they are hired to the time of acceptance and payment by your client. The damage as that of your clients is the same for the subs.
What is the right insurance for new construction?
Assuming that your client doesn’t have any property insurance policy, their next move is to get Commercial Builder’s Risk Package NY. Alternatively, your client can agree with the owner of the building.
Regardless of who buys the insurance, the coverage, inclusions, exclusions, and other conditions should be the same. Aside from the builder’s risk, your client still has other risks, and they must protect themselves from these risks and costs.
- Interruption of business income during construction, which is applicable when the building can generate income immediately while the project is still ongoing
- Legal fees, financing, engineering, and architectural
Using the insurable interest concept, your client must establish the interest of each party involved. The named insured is also the same regardless of who bought the policy.
Why? Because the named insured is the first person to receive notifications on cancellation, nonrenewal, changes on the policy, and responsibility in the deductible.
Is Builder’s Risk Appropriate for Building Renovation?
If your client’s project involves renovation, the builder’s risk policy might not be needed. However, this principle applies when your client has their property insurance.
Personal property insurance might be sufficient to cover small projects. Still, it depends on the coverage your client has. The important thing is to have enough coverage if something happens during the construction of the building.
About renovation, your client can use the ISO-defined meaning of building to determine what facets of the construction need insurance.
What is an Installation Floater?
This is a coverage that subcontractors can use to protect themselves from construction exposures. It is recommended if these subcontractors are not covered in the builder’s risk policy. However, before getting any, the subcontractor must talk to your clients first to avoid duplication.
Installation floaters are great, but they may complicate settlement. Moreover, these floaters can add up to the total bidding and construction costs. As a result, uncompetitiveness could arise.
However, there are situations where the installation of floaters is necessary. First, every valuable installation done in the building being constructed needs this installation floater. Second, your client or the building owner doesn’t have a builder’s risk.
In the case where there’s no builder’s risk, the subcontractor or your client can get an annual policy that sets maximum installation exposures. Your client reviews this policy regularly to ensure cost-effectiveness.
Is Builder’s Risk Always Required?
Generally, lenders and risk management experts require that your client gets a builder’s risk policy. Sometimes, the construction project has enough funds to cover incidental and accidental costs.
So, to answer the question, it’s not always required. But, having a policy under your client’s name can reduce expensive costs such as litigations. Moreover, the builder’s risk ensures that the construction process continues as planned. It eliminates delays and is cost-efficient, too.
Conclusion
Whether it’s builder’s risk, personal property, or installation floater, your client should always understand the different risks involved in any construction activities. Construction is a risky business, and anything could happen. Protection from expensive costs can save your client’s business.
About Snyder Specialty
Snyder Specialty, LLC is a New York-based underwriting facility that provides a range of property and liability solutions for personal and commercial lines. Specializing in coastal properties and hard-to-place risks, Snyder Specialty expands your current capabilities with proven solutions for complex risks. Find out more about the company’s range of services by calling (718) 362-8039.
