Why are Builders' Risk Policies so Expensive?

Builders risk insurance is one of the first significant costs a construction project will incur after it has broken ground. This is a special insurance that covers your investment in the building process, but most property owners and contractors are usually shocked at the cost. Ever wondered why the risk coverage of builders can be so expensive? The answer is the nature of construction risks and the worth of protection it brings.

1. High-Risk Environment

Construction sites are risky in nature. Whether it is heavy equipment or weather conditions, there are so many things that can break or ruin a building before it is complete. Insurers consider:

• Fire hazards caused by welding, electrical work, and flammable materials.
• Theft and vandalism particularly when costly equipment and materials are present at the site
• Damage caused by weather, such as storms, floods, or high winds
• Collapses or accidents in the construction stages

Because the risk of a loss is greater when a building is under construction than when it is in use, premiums are adjusted to take into consideration this increased risk.

2. The Project Value

The risk insurance coverage that your builders have is meant to cover the entire project value in the entire construction process, materials, labor, and some of the temporary structures. The larger your project and the more costly it is, the greater the payout to you in the event of something going wrong with the project, and the more you will pay in premiums.

For example, a $5 million commercial build will naturally require more coverage than a $200,000 residential renovation. Insurance companies need to estimate the possible maximum amount of loss they may incur and that is directly related to cost.

3. Length of Policy Term

The majority of builders' insurance policies are short term in nature, lasting the length of the project, usually 6, 9, or 12 months. The greater the policy term, the greater exposure the insurance company takes on. In the case of delays in projects and need to extend coverage, high premiums can be charged.

4. Location Factors

Pricing is so dependent on location. A project located in an area likely to experience hurricanes, wildfires, or earthquakes will be very expensive to insure compared to a project in a low-risk area. The cost can also be affected by crime rates, accessibility of fire services, and vicinity to water, even within the same city.

5. Customization and Coverage Scope

The broader your builders risk insurance coverage, the higher the cost. Although fire, theft, and some weather conditions are usually covered by standard policies, most contractors and owners purchase endorsements to cover:

• Earthquake coverage or flood coverage
• Soft costs (such as lost income or interest on loans because of delays)
• Off-site storage of materials on a temporary basis
• Transport insurance of materials in transit

The more coverage options you add, the more the insurer can pay out, thus the higher your premium.

6. Claims History

Insurers might consider your project as riskier and charge you more in case you or your contractor have a history of frequent or costly claims. Having good safety standards and employing skilled workers can keep your record positive.

7. Market Conditions

Builders risk insurance pricing, as with any insurance, is influenced by macro market forces. Increase in construction costs, shortage of materials, and rise in natural disasters can all lead to insurers making adjustments across the board.

Is It Worth the Price?

Although builders risk insurance coverage may appear costly, it is an essential protection for one of your largest investments. One storm, fire, or theft might cost hundreds of thousands of dollars, much more than the policy would cost.

After all, the cost is what you are paying to be covered. In its absence, you are bearing 100 percent of the financial risk during construction, which can be devastating in case of disaster.

Secure Your Investment Today

At Dunbar Bedding Field, we know your project needs the right coverage at to be successful. We are a team of experts in customizing builders' risk insurance policies that are both protective and affordable.

Do not expose your construction investment, contact Dunbar Bedding Field today to discuss your project and get a custom quote on builders risk insurance coverage that meets your needs and your budget.