Brokers – here’s what you need to know about construction insurance

Paul Lucas  00:00:06

Hello everyone and welcome to the latest edition of insurance business TV where we are laying the foundations for success in the construction insurance market with Victor insurance managers. The construction industry has been rife with challenges over the last few years. COVID Of course tested the landscape with a host of new risks and regulation, which was in turn exacerbated by supply chain issues at an increase in severe weather events, issues surrounding finding skilled labour and the challenges that have accompanied rising interest rates and inflation. And it’s fair to say this is arguably the most testing period for the sector in recent memory. Challenges, however, presents opportunities for brokers and today I’m delighted to welcome Jeff Benson, Builders Risk Programme Manager at Victor Insurance Managers a leading global managing general underwriter. He’s going to look at the current and future state of the market and offer some vital tips for retail brokers operating in the space. So Jeff, welcome to insurance business TV.

Jeff Benson  00:01:07

Glad to be here. Always look forward to talking about builder’s risks, my favourite line of business,

Paul Lucas  00:01:14

We hope to keep you happy today. Tell us about how the construction insurance market has developed over the last 12 months.

00:01:22

Yeah, we in builders risk and other name for builders risk is course of construction. So we’re involved in, you know, all types of different construction projects. And what we’ve seen in the last 12 months is an extension of projects taking longer and costing more. And obviously, that affects not only the overall economy, but it affects the builders risk line of business. And you know, some of these things that continue to be a plague almost on the construction industry, could be supply chain situations, skilled labour, things that were taking eight months or taking 12 months, 12 months taking 18 months. So we’ve had to adjust, when you write insurance on projects that are being built, you have to adjust to make sure that exposures are adequately covered. And it’s been quite a challenge over the last 12 months.

Paul Lucas  00:02:12

Yeah clearly a lot of adjustments have had to be made. But you talk to us a little bit more about the industry trends that you think brokers need to be aware of.

00:02:21

Yeah, so from a risk taker for the carrier standpoint, in course construction coverage, you have to they have to ask themselves, how long do they want to be on a project. So what the brokers need to be very careful of is, maybe they write a policy for 12 months, and now it’s time to extend it. And perhaps the carrier that was only original 12 months does not want to be on it any longer. So now you have a project that’s pretty far along, and I have to go to the market to try to find another carrier. And it can be very difficult. So just a little tip for the brokers is try to work with the carrier upfront on that, you know, if you think it’s gonna go over 12 months write an 18 month policy or 24 month policy, that’s number one. Number two would be, as the as your policy closes on expiration, get on the phone and talk to your underwriter. Because if they’re not going to extend it, you do need to go to the market and see what you can do. That’s just kind of staying ahead of it. And communication is so important with your underwriters.

Paul Lucas  00:03:20

Well, we both mentioned myself at the top and you and your first answer about the supply chain and skills, labour issues that are facing the industry. What steps can be taken to mitigate these risks? Because they seem largely beyond the control of the companies themselves.

Jeff Benson  00:03:37

Yeah, I don’t know if the insurance industry can help in those situations. All we’re trying to do is cover those expanded exposures. And so what we can do is assuming that it’s probably going to continue, I don’t think it’s, I don’t have a crystal ball. But I don’t think these things are gonna go away anytime soon. So what we have to do as insurance professionals is make sure that the coverages are going to place for these additional exposures.

Paul Lucas  00:04:03

I mean, everything that’s going on in the landscape right now, always Victor differentiating itself?

Jeff Benson  00:04:09

We’ve always prided ourselves on being having a very extensive coverage form. I always go back to that it’s the underwriter in me. So when you look at our coverage form, there’s a lot of automatic coverages built in with very high sub-limits. This kind of differentiates us from other markets in the insurance marketplace. So I would say coverage is number one of how we differentiate ourselves. And probably number two would be easy to doing business. We have a quote binding issue portal. So we make it very easy for the broker, answer a few basic questions, hit a button and get a policy and get a quote, hit another button and get a policy. So I would say broad coverages and ease of doing business that’s how we differentiate ourselves.

Paul Lucas  00:04:52

Well, diving into that, that coverage elements a little bit more. Are there any particular policy features that you think brokers should be paying particular attention to?

Jeff Benson  00:05:02

Yes. So everybody seems to understand the hard cost of building a house, we’ll talk about how you have labour materials overhead. Everybody understands that. But there’s other exposures there like soft costs, which are a reoccurring expense in the case of a covered loss. A lot of brokers and builders and even owners and structures that are being built don’t proceed. So for example, if there’s a fire, and now you’re going to have to rebuild after the fire, you have certain exposed certain expenses that reoccur interest on construction loans, architect fees, engineering fees. So builders risk is a great, great way to cover those additional soft costs. Victor, we build that coverage in automatically, which is very unusual in the marketplace. And we’re proud of that. That’s just that’s one. Debris removal. So you’ve had a fire now you’re going to have to pay to remove the debris before you can start construction to repair it. Not all forms are the same. So that’s the other word that I preached a lot of times to the agents and brokers is that don’t assume all the forms are the same. They all have very different coverages very different supplements. I’ve heard people say, oh, yeah, my form has debris removal, but maybe it’s $5,000 instead of $100,000. Big difference. So just read the forum, understand what you’re selling. That’s what I always tell the brokers. And if there’s a confusion on any coverage, pick up the phone and call your underwriter. I’m a little old school, but I still like talking on the phone. So

Paul Lucas  00:06:39

That’s great advice. And there’s a lot to be said for or sticking to phone calls, I think but do you have any other tips or key messages for brokers who are looking to navigate the current landscape in the construction space?

Jeff Benson  00:06:51

Yeah, I know I’ve already said this, but I keep going back to this is basically it to me, it all comes down to communication. So you have a risk, and maybe you had shorted the way you thought it was going to be at the beginning. But as the project goes along, the exposures change. We have something called a contract change endorsement, the values are going up. We thought it was gonna be a million-dollar house. And now it’s a million-and-a-half dollar house, it’s 1.5 million. So what you need to do is communicate that change quickly as possible to the underwriter. So they can increase the coverage. Otherwise, we have all kinds of issues of coinsurance and nobody wants to be underinsured. And as I talked to my fellow property underwriters around not just builder’s risk, but all property underwriters. Underinsurance seems to be one of the if not the biggest problems you have. Because the brokers and the builders and developers don’t seem to they understand that prices are going up, things are costing more taking longer. But they don’t translate that into maybe I better change my coverage that I wrote a year ago. Probably I can keep going. Those are some of the major points, I think. 

Paul Lucas  00:08:03

Fantastic tips. Jeff, it’s been great to have you with us and best of luck to you and to Victor Insurance Managers for the year ahead.

Jeff Benson  00:08:11

Well, thank you very much for your time. And like I said, I’m a big proponent of builder’s risk horse construction. And we think we do a very good job of it here, Victor, but I do appreciate your time today too.

Paul Lucas  00:08:22

Yeah, no doubt about it. And if you’re looking for more building blocks of success, then make sure you keep it right here and insurance business TV.