Builder’s Risk: 2016 and Beyond
What can you expect in the builder’s risk market in the year ahead? While there will be no shortage of capacity, careful differentiating of this capacity will be critical in 2016 and beyond. Here’s why.
1. The need for technical expertise never fades. Hard market or soft, technical builder’s risk underwriting is always in fashion. “Even ‘traditional’ mixed use real estate projects are pushing the envelope as contractors and owners deploy the newest environmentally smart materials and advanced technologies,” said Rob Tricamo, Vice President, Construction Property, Berkshire Hathaway Specialty Insurance (BHSI). “When certain industries, such as energy, rebound, there will be a surge in complex risks and the need for educated insurance capacity. Similarly, large port infrastructure expansion projects along East Coast waters driven by work on the Panama Canal are best serviced with technical capacity,” Tricamo noted. While you can’t be certain where or when challenging risks will emerge, you can be certain of the need for specialized expertise for builder’s risk exposures.
2. The call for natural catastrophe capacity will continue. Construction projects in catastrophe-prone areas will continue to increase in the year ahead. Owners often have no choice but to build in these vulnerable regions and satisfying lender requirements for builder’s risk insurance limits for these projects is a challenge. Not all insurers have the appetite to provide this coverage in quake, flood and windstorm regions – or the financial wherewithal to do so year to year. “Buyers of builder’s risk insurance will be looking for insurance partners that can provide stable catastrophe capacity yet recognize that improvements in construction materials and methods and stricter building codes help improve the construction risk,” Tricamo said.
3. Long-term relationships are key. Construction projects are increasing in size and becoming more technically innovative, which translates to longer, more complex completion cycles. Contractors, owners and developers need insurers with a long-term perspective — insurers that can provide financially stable capacity and are willing and able to adapt coverage to the buyer’s specific construction exposures over time. “Only a large, stable insurer can be a solid partner throughout the construction cycle of an evolving project. Builder’s risk underwriters must be flexible in addressing coverages to individual risks and have the financial strength to pay claims years after project mobilization,” Tricamo said. For builders in high-stakes natural catastrophe zones, worries about a carrier’s long-term commitment and financial fortitude are especially pronounced.
Insurance industry mergers and acquisitions have ramped up uncertainty. Indeed, in 2016 we could see fallout from last year’s industry consolidation. “As newly combined carriers look at the deployment of their jointly owned capacity, we may see some volatility in the marketplace when they seek to offload aggregated exposures,” Tricamo explained. Chances are, more mergers and acquisitions are coming down the pike – making it essential that brokers and insurance buyers consider a carrier’s long-term prospects. “Brokers and insureds need to be even more selective in ensuring that the carrier they pick will be financially strong and independent for the entire project duration, however long that turns out to be,” said Tricamo.
BHSI: DELIVERING ON ALL COUNTS
Berkshire Hathaway Specialty Insurance (BHSI) launched its Builder’s Risk product in 2014, in what Tricamo calls, “a natural extension of the company’s deepening property and specialty lines expertise.” Builder’s risk is part of BHSI’s full suite of insurance products for the construction industry.
“We provide large-scale, long-term builder’s risk capacity, backed by BHSI’s technical underwriting experience and strong balance sheet,” he said. “Our focus when working with our customers is to understand their risks better than the rest of the market,” Tricamo said. “With that level of technical knowledge, we are comfortable with our underwriting decisions and commitment to providing sizable, stable capacity for both ordinary and extraordinary builder’s risks.”
BHSI’s technical expertise also extends to claims. “The quicker a builder’s risk claim is settled, the sooner our customer can get their project back on track,” Rob said. BHSI has the skillset, mindset and culture to deliver excellent claims service. “When losses occur, our commitment to our customers — and to living up to the reputation of our trusted brand name — is evident,” he added.
BHSI’s Builder’s Risk team is focused on large commercial projects constructed in catastrophe-prone areas, with heavy wind or earthquake exposure. “Our financial strength, risk appetite and technical acumen to insure these volatile exposures allow us to be a long-term solution for contractors, developers and owners who are seeking support for their growing enterprises in these vulnerable regions. It is a true differentiator for us,” Tricamo explained.
“Our financial strength creates pricing and coverage stability for customers,” he added, noting that BHSI does not rely on reinsurance markets, which provide capacity to insurers but can also influence pricing, terms and conditions.
“Our builder’s risk solutions come from thinking outside the box, which requires a special kind of talent and creativity. It’s something we have built our team specifically to do, and something we will continue to do every day, as we bring highly valued certainty to the construction sector in 2016 and beyond,” Tricamo noted.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Berkshire Hathaway Specialty Insurance. The editorial staff of Risk & Insurance had no role in its preparation.