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      Builder's Risk 101

      This page is meant to serve as a 101 educational resource for Builder’s Risk (BR) insurance.

      What is Builder's Risk Policy Insurance?

      A Builder's Risk Policy in commercial insurance is a specialized type of property insurance designed for buildings under construction. It's essential for managing the risks associated with construction projects, from small renovations to large new builds. This policy is intended to protect the interests of those involved in the construction process, including the property owner, general contractors, and sometimes even subcontractors, against specific risks that occur during construction.

      Here's a breakdown of its key features:

      1. Coverage Scope: It generally covers the building under construction, as well as materials, equipment, and fixtures that are part of the building or on-site to be installed. The coverage often extends to property in transit and may include materials stored off-site, destined for the project.
      2. Covered Risks: Builders Risk Policies typically protect against damage from events like fire, wind, theft, vandalism, and sometimes natural disasters like earthquakes and floods, depending on the policy terms and geographic location. It's important to carefully review what perils are covered and any exclusions.
      3. Duration: The policy is temporary, usually aligned with the construction timeline. It goes into effect when the construction begins and terminates when the project is completed and the building is ready for use or occupancy. Some policies may require an explicit notification of project completion.
      4. Flexible Coverage: Builders Risk Insurance can be tailored to the specifics of the construction project. This means coverage limits, duration, and included perils can vary based on the project's scale, location, and complexity.
      5. Benefit to Stakeholders: This insurance benefits all parties involved in the construction project by providing financial protection against unexpected loss or damage. It helps ensure that funds are available to repair or replace the covered damages, minimizing financial disruptions to the construction timeline.
      6. Cost Factors: The cost of a Builder's Risk Policy depends on several factors, including the construction budget, project duration, type of construction materials, and the level of risk associated with the location. High-risk areas for natural disasters, for example, may see higher premiums.

      Builders Risk Insurance is a critical component in managing the financial risk of construction projects. It offers peace of mind and financial protection to property owners and contractors, helping to ensure that unforeseen events do not lead to significant financial losses or project delays.


      Critical Elements / Breakdown of the application

      Location/Property Value

      The location of the construction is a primary factor in BR insurance. The location determines the weather related risks, theft related risks and other state regulation based risks.

      The carrier will also want to know the proposed value of the construction project when it is complete. This is also used as the limit for the insurance policy.

      Type of Construction (Renovation/New)

      Another factor is whether the construction being done is a renovation or a new construction. Assessing the risk is different based on the construction type.

      Number of Locations

      The number of locations being constructed is also an important factor in a BR policy. This is only applicable to new construction projects where the builder is making a bunch of houses as part of the same project.

      Rating Factors

      The core rating factors for a BOP policy are:

      1. Location
      2. Project Value - Money value of the completed project
      3. Type of Project - New Construction/Renovation

      There are also other factors that go into making the decision to insure a business or not and how much premium to charge. But the above ones are the core factors.

      Liability Limits

      The liability limits of a BR policy are:

      1. Completed Project Value - This is the completed value of the project when construction will be complete. This is a free form number and there are no preset options from the carrier. Each construction project can have a different completed value and hence presets are not possible.

      Besides the standard limits mentioned above each carrier might have limits for various optional coverages included in the BR policy. Eg: Weather related claims, transport related coverage etc