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How to Simplify Complex Builder’s Risk Claims

To ensure accurate claims and the ability to recoup costs without penalties, builders need an adjuster who knows the process.
By: | March 1, 2017 • 6 min read

Builder’s risk coverage may be among the most complex and least understood policies in the insurance industry. In fact, it’s not unusual for contractors to forgo it altogether, relying instead on inland marine and property policies, which tend to be narrower in scope.

For large projects, builder’s risk policies are an absolute necessity. Purchased by either the owner or the general contractor, builder’s risk policies cover all parties with an insurable interest in a construction project. It protects them from loss caused by direct physical damage to materials and some types of equipment onsite.

Although a builder’s risk policy seems straightforward enough, an inexperienced adjuster will quickly discover just the opposite to be true. The definition of a “loss” under a builder’s risk policy is not always easy to determine, and proactive collection of information is needed to properly adjust a claim.

“The process for handling builder’s risk claims is different from your standard property loss,” said Philip Ambrose, Senior Executive General Adjuster with Engle Martin & Associates, a national independent loss adjusting and claims management firm. “Contractors and owners need an adjuster with experience and expertise who understands the process and can handle the complexity.”

Claim Complexity

Philip Ambrose, Senior Executive General Adjuster

Builder’s risk claims require swift action to ensure all the right information is collected from the start. First, there’s the business of assessing the extent of the physical damage.

“You may have a water damage claim that starts on the roof, but the water trickled down and damaged sheet rock and insulation in the wall as well as flooring materials and paint in some of the units that have been finished,” Ambrose said. Often, a third-party construction consultant or engineer will need to be brought in to estimate the cost to repair and replace the damaged materials.

That’s just the beginning of the claim. Calculating the cost of labor for those repairs presents another hurdle.

The workers already onsite for the original project will also be the workers handling the repairs, in most cases. Therefore, a system needs to be established to track which workers are doing those repairs versus work for the primary project, and how many hours they spend on those repairs. The adjuster also needs documentation of their job classifications and wages.

“You have to meet with all of the subcontractors involved who did the work originally and who will be doing repairs. You have to explain what’s covered and what information you need from them such as daily time sheets, wage details, material invoices, etc. in order to document the claim,” Ambrose said.

“Most of the subcontractors won’t interrupt all of the work they’re doing on the rest of the project, but will dedicate a few key personnel to take on the repairs needed. It’s key to get those contractors to identify the individuals performing the repairs and provide their wage rates based on the original contract,” Ambrose said.

It’s also critical to know whether overhead and profit are factored into the hourly rates.

“A typical builder’s risk policy includes a valuation clause that allows for a fair markup including contractor’s reasonable profit and overhead not exceeding the percentages in the original contract,” Ambrose said. Subcontractors need to be aware of that limit. Submitting a claim for a dollar amount greater than what is allowed by the valuation clause could result in a coinsurance penalty.

Factoring in Delays

A builder’s risk policy is unique in that it covers a wide variety of “soft costs” stemming from a single incident, but the specifics vary from policy to policy.

Most policies also include a “delay in opening” endorsement that outlines exactly what soft costs are covered. Those could include any extra expenses incurred during a delay caused directly by the physical damage. Interest expenses on construction loans, advertising and promotional expenses, additional licenses and permits, real estate taxes and assessments that are levied during the delay of a building’s opening, project administration expenses, and the cost of renegotiating contracts could all apply.

However, subcontractors may not be aware what is or is not covered under their endorsement and will submit a wide variety of claims to try and recoup as many of their costs as they can. Extra storage costs, for example, are typically not covered. Some additional equipment, like scaffolding, may be subject to sub-limits. Each insurance policy may differ regarding coverage for soft costs per the endorsement.

“The status of the project needs to be continually tracked to determine how much delay can be attributed to the original loss,” Ambrose said. “This is another instance where a reputable construction consultant, who is familiar with project schedules, should be engaged.”

Adjusters should also know to ask for prior change orders, data reports, and meeting minutes, which could all provide clues as to how the repairs have affected the workflow and what is causing delay. A standard request for information will outline what’s needed, but adjusters need to move fast.

“If you don’t make it clear from the beginning what information you’ll need, all you can do is collect receipts after the work is finished. However, that doesn’t provide a complete picture of the repair process,” Ambrose said. “The adjuster needs to sit down with the project manager, general contractor, and the owner and delineate the materials needed.”

Experience and Expertise

What happens when a project suffers a physical loss, and their builder’s risk claim is not handled correctly? For one thing, it can result in further delays to the repair work. But it also can affect whether or not that claim gets approved quickly, and whether the owner or general contractor recovers all of their extra expenses.

“For example, a property could suffer a $100,000 loss from physical damage, but a claim for $3 million could be submitted if the subcontractors were unsure of their coverage or limits and included a bevy of soft costs associated with the delay,” Ambrose said. “How do you parse through it? How do you ensure the claim is accurate and that the builder can recoup their costs without penalties?”

The answer: an adjuster who knows the process.

Engle Martin has a dedicated team of Executive General Adjusters (EGAs), within the Construction & Builder’s Risk Group, each with at least 20 years of experience in handling construction claims, and each adept at the specificities of builder’s risk claims.

Most of those EGAs have prior job experience with insurance companies where they handled these claims on a regular basis. They know the right experts and consultants to call, the right questions to ask, and how to work through the process.

“Our team has developed expertise when it comes to builder’s risk claims and there is no substitute for that,” Ambrose said.

To learn more about Engle Martin, visit http://www.englemartin.com/.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Engle Martin & Associates. The editorial staff of Risk & Insurance had no role in its preparation.




Atlanta-based Engle Martin & Associates is a leading national independent loss adjusting and claims management provider. Privately held and owner operated, the firm delivers a comprehensive line of property and casualty claims service offerings.

Insurance Executive

A Leader for Turbulent Times

Lloyd’s CEO Inga Beale is tasked with guiding the venerable insurance market through Brexit and the demands of the fiercely competitive global specialty business.
By: | July 6, 2017 • 12 min read

Underwriters at Lloyd’s are accustomed to taking on complex, even daunting, risks. The company’s leader looks at the world today and sees plenty of opportunity, but also much to be concerned about.

“Political instability is something that troubles me more than anything else because I think there is now more uncertainty across the world than there has ever been,” said Inga Beale, CEO of Lloyd’s of London.

“It feels that all of the norms that I grew up with are being challenged — openness, globalization, acceptance, inclusion — on a global scale.”

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Appropriately, we’re sitting around a table in Beale’s modern glass-fronted office at the top of the Lloyd’s Building — itself a vision from the future — to talk about Brexit and Lloyd’s newly announced Brussels subsidiary.

Add to the mix Donald Trump and the threat of nuclear attack from North Korea, the bombing of Syria and a spate of terrorist attacks across Europe, and it’s clear we are living in the most dangerous period certainly since the Cold War, or possibly ever, believes Beale.

That belief received even more chilling reinforcement when terrorists detonated a bomb at an Ariana Grande performance in Manchester, England on May 22.  Twenty two people, some of them children, were killed and more than 50 wounded in that attack.

Three years ago, it was Beale herself making world headlines with her appointment as the first female CEO in Lloyd’s 329-year history. But now Brexit and other seismic disruptions to world order have taken center stage.

Lloyd’s announced at the end of March that it would establish a new European subsidiary in Brussels in time for January 1, 2019 renewals so it can continue writing risks for all 27 European Union (EU) and three European Economic Area states after the UK exits the EU.

Currently, it uses its passporting rights to serve EU customers from London, but the expected loss of those rights after Brexit necessitated the establishment of a new subsidiary.

For now though, it’s business as usual, said Beale, with the UK remaining a full EU member for at least two more years. She added, with a reassuring smile, that there will be no immediate impact on existing policies, renewals or new policies written during that time.

“We were campaigning very much to remain in the EU before the referendum because we knew what the likely impact [of leaving the EU] would be on Lloyd’s,” said Beale, whose impressive resume includes stints with GE Insurance Solutions, Zurich and Canopius.

“We rely very much on our licensing network, and being part of the EU means that from London we can write insurance and reinsurance for all of the EU countries with our passporting authority.

“But with the UK exiting the EU, it now means that we lose those licensing powers to offer insurance with immediate effect. To counteract this, we have determined to set up a subsidiary within the EU, meaning that about five percent of our global revenues will have to go through this subsidiary because it is insurance business offered to our EU-based clients.”

Beale and her team also negotiated that most of Lloyd’s underwriting business will remain in London, as will the majority of the transactions and decision-making powers. Meanwhile, the manpower needed to run the new Brussels operation will be in the “tens rather than hundreds,” she is quick to point out.

“It’s not a huge raft of people having to move over,” she said.

“Lloyd’s will continue to do 95 percent of its business as it has always done — it’s only the other five percent that will have to go through a separate legal entity, and we’re not anticipating any further changes to our business model as a result.”

Beale, whose dual role is both supervisor and advocate for the market’s 100-something member underwriting syndicates, says that the franchise board chose Brussels over other locations including Luxembourg, Dublin and Malta because of its “robust and quality” regulatory regime.

“At the time, I didn’t even know that reinsurance existed, but once I discovered it I absolutely loved it.” — Inga Beale, CEO, Lloyd’s of London

It also provides access to a multilingual talent pool, is near to London, and, most importantly she stresses, is located in a member state with a “very high certainty of staying in the EU.”

“We want people who reflect our customers,” she said.

“The London insurance market is littered with people from all over the world because London is such a global insurance hub, so we need experts here who speak the language and understand the different cultures.”

North American Footprint

Despite its large European market, it’s the other side of the pond where Lloyd’s really thrives. Approximately 46 percent of its business comes from the U.S., mainly California earthquake and East Coast hurricane risks, she said.

Lloyd’s also remains the No.1 excess and surplus lines insurer in the U.S. and the largest non-U.S. domiciled insurer, she added.

“We have done really well in terms of growing our E&S market share over there,” she said.

“That’s our sweet spot; those non-standard risks that are hard to place.”

By contrast, Beale said that reinsurance has become a much more competitive market with new entrants offering alternative types of reinsurance putting a squeeze on prices. As a consequence, Lloyd’s has focused more on insurance, she said.

“We have also done well in Canada and with our delegated authority through our Managing General Underwriters and Managing General Agents,” she said.

“It’s this very local and specialist distribution channel that has been our success story across North America.”

In January, Beale was made a Dame Commander of the Order of the British Empire — the female equivalent of being knighted — and is also the Association of Professional Insurance Women’s Insurance Woman of the Year for 2017.

“What concerns us most is not individual risks such as earthquakes and hurricanes, but rather assessing the aggregation of our exposures to financial and liability-type risks with no geographical boundaries.” — Inga Beale, CEO, Lloyd’s of London

As the person directing Lloyd’s, she is also acutely aware of the shift in power towards emerging economies, with McKinsey recently reporting that 67 percent of commercial insurance growth will come from those markets by 2020.

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In response, Lloyd’s has focused its efforts on Asia and Latin America, transferring more than half of its managing agents to its Shanghai and Beijing platforms; and it was recently granted final approval to open a reinsurance office in Mumbai, she said.

“That’s where the future’s going to be,” she said.

“We know that a lot of the business is no longer coming to London in the traditional way, hence we have set up a Singapore platform and platforms in China, and opened up an office in Dubai as well as in India to be closer to our clients and brokers there.”

Lloyd’s profits last year were flat at $2.7 billion, while GWP was up $3.9 billion.

The market made a profit despite taking a $2.7 billion hit for major claims — the fifth highest such total since the turn of the century — primarily due to Hurricane Matthew and the Fort McMurray Wildfire in Canada.

Although natural disasters are Lloyd’s bread and butter, its real strength is in insuring complex risks, from cargo ships and satellites to political and terrorism risks.

Lloyd’s Role in Cyber

It’s the aggregation of those harder-to-quantify risks such as cyber security that concerns Beale most. Expected to grow to $7.5 billion in global premiums business by 2020, cyber is a big focus for Lloyd’s. It has a 25 percent market share and aggregate limits of approximately $650 million per risk, she said.

“What concerns us most is not individual risks such as earthquakes and hurricanes, but rather assessing the aggregation of our exposures to financial and liability-type risks with no geographical boundaries,” she said.

“We saw that with the financial crisis and the collapse of Fanny and Freddie, and its impact on Greece, but now it’s cyber.

“We have interviewed numerous risk managers and they are telling us that they are only insured against less than 10 percent of the risks that their businesses face on a daily basis. Our challenge is to make sure that we are continuing to adapt as fast as their businesses do and that we are delivering the relevant products that they need.”

Another area where Lloyd’s has seen an uptick is political and terrorism risk, said Beale.

The U.S. standoff with North Korea, Brexit and a swath of ISIS terrorist attacks across Europe have only exacerbated the problem, heightening fears among those countries’ citizens and tearing whole communities apart.

“We would love to get to a stage where a client can track something being quoted or a claim being paid, just like you do with a package being delivered [to your home].” — Inga Beale, CEO, Lloyd’s of London

Just witness the anguish of the victims and families in the Manchester concert bombing.

“We have seen a dramatic increase in demand for these types of products because of the political instability everywhere at the moment, particularly for companies that are trading cross border with countries where governments can suddenly intervene at a moment’s notice,” she said.

“Similarly, businesses are looking to protect themselves against the ever-growing threat of terrorism, which is where Lloyd’s can step in to give them the confidence to keep on trading.”

Reforming Lloyd’s

Within Lloyd’s itself, Beale has been at the forefront of trying to modernize the aging institution. Despite its modern metallic and glass exterior, inside Lloyd’s there’s still very much what some might term a stuffy “old boys’ club” culture.

Men are required to wear a tie and women weren’t allowed into the underwriting room until 1972. Brokers still walk around with leather slipcases crammed full of paper.

The Lloyd’s headquarters on Lime Street.

Beale’s predecessor, Richard Ward, tried to modernize Lloyd’s but left plenty for Beale to address in that respect.

Beale committed $700 million over the next five years to upgrade Lloyd’s aging computer and IT systems, with the end goal of achieving one-touch data capture to speed up the premiums and claims process.

“It’s about following that data all the way through the process from the client to the intermediary and the underwriter, and the processing of the premiums and claims,” she said.

“We would love to get to a stage where a client can track something being quoted or a claim being paid, just like you do with a package being delivered [to your home].”

Another area Beale is keen to shake up is diversity within Lloyd’s itself. Currently the market is two-thirds male, while only 11 percent of the whole London insurance market are non-UK nationals — a damning statistic that Beale is all too aware of.

“The Lloyd’s market doesn’t reflect the demographics of the whole of London and we are very conscious that we’re not tapping into all of the available talent that’s out there,” she said.

“We need to cut out the old ideas, try to challenge the unconscious bias and create an environment that is welcoming for people who are a bit different.”

Beale has also been pushing the [email protected] initiative, currently in its third year, and in September Lloyd’s will host the third annual Dive In festival to promote diversity and inclusion in the insurance industry.

In addition, 95 percent of the Lloyd’s market has already signed up to its Diversity & Inclusion charter to improve diversity, she said.

“To attract the best talent we need to modernize and look at how we can change our working practices and hiring decisions for the better,” she said.

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“There’s a vast amount of work that we are actively doing to encourage people to be more open and seek more diverse talent.”

On a personal level, Beale readily admits that she was late to the leadership game, and it was only her mentor, Annette Sadolin at GE, who convinced her to take her first promotion.

That lack of confidence is something that, as a leader, Beale has witnessed in her own team and she is keen to help overcome.

“Annette became very much a mentor for me throughout my career, so whenever I have had to make key decisions I would always ask her view,” she said.

“The key lesson that I have learnt from her is that things move so quickly and you need to take opportunities when they come along that give you exposure to something new, even if they don’t seem like a natural career path at the time.

“For me, being a leader is all about inclusion and being passionate about the people you work with because you need to inspire and motivate them. But there is also nothing more rewarding than watching people progress their careers.”

A Truly Global Journey

Beale, who initially harbored ambitions of being an architect, admits that she “fell into reinsurance,” starting as a trainee international treaty reinsurance underwriter at Prudential Assurance Company in London in 1982. But once she had a taste there was no turning back.

“At the time, I didn’t even know that reinsurance existed, but once I discovered it I absolutely loved it,” she said.

“I fell in love with the global nature of the risks that came to London; one day you could be looking at a piece of business from Chile, the next from Australia.”

But, back then, working in a male-dominated industry where she was the only woman among 35 men, Beale struggled to fit in. So she quit and went travelling for 10 months.

It was during her time as a receptionist at the BBC in Sydney, Australia that Beale worked under her first female boss, a formidable woman, she said.

Inspired by her boss’s strong work ethic, Beale decided to return to the insurance business.

She soon landed a job with GE Insurance Solutions in Kansas City, where she held various underwriting management roles, before being appointed president of GE Frankona and head of continental Europe, Middle East and Africa for GE Insurance Solutions in Germany.

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After 14 years at GE, Beale moved to Switzerland with Converium as group CEO in 2006.

Two years later, she joined Zurich Insurance Group as a member of the group management board in Zurich before being appointed global chief underwriting officer, prior to her appointment as group CEO at Canopius in 2012.

The breadth and depth of her experience makes Beale a natural fit for the demands of the Lloyd’s top job.

There’s no doubt she’ll be drawing upon every ounce of that expertise and experience to keep Lloyd’s at the cutting edge of this harrowing new world we live in.

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]