Builder’s risk insurance is a specialized type of property insurance that offers extensive protection against various risks and dangers that may arise during construction and renovation projects. One of the major risks it covers is water damage, which can cause significant financial losses and delays in the project.
Even though builder’s risk insurance is not always mandatory, it’s not a “nice-to-have” either. It is crucial to stay informed about this essential coverage that enables owners, developers, and contractors to minimize financial risks and ensure the smooth completion of the project.
What is builders risk insurance and what does it cover?
Builder’s risk insurance, also called construction insurance, is a special kind of protection that focuses on keeping building projects safe from a wide range of risks. It provides coverage for residential and commercial projects and is designed to be flexible and customizable to accommodate each specific project. To this end, coverage varies wildly between insurers and the amount of coverage, the cost and the deductibles depend on the specific type of project.
For anyone in the construction business, it’s essential to understand which perils are covered (and which are not) and how much insurance you may need.
Typical coverage includes:
- Protection against perils: This includes safeguarding projects from potential hazards like fire, theft, vandalism, natural disasters, water damage, and other risks that could disrupt or damage the building and materials involved, not to mention any people who may be on site.
- Tailored risk extension: Besides standard coverage, builders’ risk insurance can be extended to include project-specific risks based on the construction site.
Water damage is now recognized as the second most frequent cause of loss during construction. Because of this, insurers require developers and construction companies to implement water leak detection systems like WINT before providing builders’ risk insurance (otherwise they may exclude it from the policy).
What does builders’ risk insurance cover?
Generally, builder’s risk insurance for construction sites will comprise two main categories: hard costs and soft costs.
Hard cost coverage
Hard costs include the price you pay for any material property and tangible assets like materials, structural elements, pipes and equipment. Sometimes referred to as “sticks and bricks” insurance, most losses in this category occur due to fire, theft, vandalism and of course, water damage.
Soft cost coverage
Losses that are not tangible, such as project delays, also make up part of most insurance policies. If we consider that a leaking pipe could pause a project for days or even weeks, the costs really stack up. These could include anything from the cost of labor to reinspection fees, extending licenses and permits and even the cost of bringing in a cleaning crew to deal with waterlogged foundations.
How much does builders risk insurance cost?
The cost of builders’ risk insurance depends on several factors, including the project’s size, location, duration, and estimated value. Typically, the premium is a percentage of the total construction cost. It’s important to note that the cost can differ among insurance companies, so getting quotes from multiple providers is recommended to compare prices and coverage options.
Typically, premiums range from 1% to 5% of the total construction cost. For example, if a construction project is estimated to cost $1,000,000, the builders’ risk insurance premium could fall between $10,000 and $50,000.
Past claims also affect future premiums, which means that as a developer, you may face much higher monthly fees if you’ve claimed a lot. And there are also deductibles to consider. The cost of the monthly premium is not the only price you’ll have to bear if you claim. Your deductibles could have a huge effect on your project’s bottom line, sometimes adding up to hundreds of thousands of dollars.
To help developers and construction companies mitigate the cost of high deductibles, WINT and HSB are offering an innovative water damage warranty specifically designed for building projects. With this warranty, builders and construction companies can get financial relief of up to $250,000 in the unlikely event that a WINT system cannot protect against water damage.
Who provides coverage?
Multiple reputable insurers offer coverage tailored to construction projects. One standout provider is HSB, a subsidiary of Munich Re. With their expertise and financial stability, HSB offers comprehensive coverage against perils like fire, theft, vandalism, and water damage. Their deep understanding of the industry ensures customized solutions and valuable risk management guidance, making them a trusted choice for construction project protection. Selecting a reliable and financially stable insurer to ensure seamless claims processing and timely payouts, providing the necessary protection for your construction endeavors, is important.
Who pays for builders’ risk insurance?
The responsibility for payment typically varies based on the construction contract. The project owner or property developer often takes out the policy. The cost is factored into the overall project budget and is usually assigned to the contractor or subcontractors. These arrangements are laid out in the contract terms and agreements to make payment terms transparent and clear.
How builders’ risk insurance can promote responsible construction practices and sustainability
By aligning with ESG initiatives, builders’ risk insurance promotes responsible construction practices, sustainability, and project resilience. In addition, it can help to optimize construction projects by:
- Ensuring that projects have sufficient funds to reach completion, even when setbacks threaten to stop them altogether.
- Reassuring investors that their assets are protected and ensuring they get the return on investment they’re hoping for.
- Helping builders keep their reputation untarnished.
In short, make sure you’re adequately protected
A few rules of thumb when it comes to insuring your next project: Always get a little more insurance than you think you may need, read the fine print, and make sure your site is protected with water intelligence solutions like WINT.
Collaborating with industry-leading companies like WINT allows professionals to focus on implementing innovative solutions without the burden of potential disruptions or financial setbacks. And understanding the coverage, costs, and stakeholders involved in builders’ risk insurance enables project owners and developers to make informed decisions and prioritize risk management for sustainable construction initiatives.
