A complete guide to builder's risk insurance

Every year, weather delays 45% of construction projects worldwide, costing companies billions of dollars in extra expenses and lost productivity, according to Forbes. This is problematic for businesses in this sector and the overall United States economy, as the construction industry contributes 4% to the total Gross Domestic Product.

Ultimately, when builders struggle, the country follows suit.

Whether you have 45 years of construction experience or it’s your first day on the job site, having the right protection during the building phase can be paramount to successfully completing projects with minimal injuries or setbacks.

Unfortunately, as commercial property is being worked on, several risks can completely halt a project or injure workers. If your team isn’t prepared, it can be detrimental to production budgets and deadlines. Want to learn more about builder's risk insurance and discover how you can find the right coverage plan? Let’s get started.

What is builder’s risk insurance, and why is it important?

Builder's risk insurance is specialized coverage that protects individuals and businesses involved in new construction or renovation projects. Also referred to as course of construction insurance, this plan covers damage or loss to a building, an existing structure, or one under construction.

This type of coverage is generally temporary, as it’s typically only needed until the construction is completed. For example, a policy goes into effect the same day the associated project contract for a commercial property is signed, with coverage typically ending when that space is fully built. While this is the most common approach, other policies may have different signals that start and end the coverage.

The importance of builder’s risk insurance can’t be overstated.

Protection against loss and damage

Builder’s risk insurance helps protect projects from widespread financial loss from unexpected events or natural disasters that can severely deplete a company’s budget and halt production. The National Centers for Environmental Information found that, in the U.S. alone, there have been 373 weather and climate disasters since 1980, where the overall costs reached or exceeded $1 billion. This adds up to about $2.645 trillion of damage due to storms, including many construction company losses.

And these numbers only account for weather-related damage. There are still hundreds—even thousands—of incidents that involve other covered property where costs are extremely high. The National Equipment Register states the average cost of a single instance of equipment theft is $30,000, but this amount can be much higher. For instance, a $165,000 Caterpillar loader was stolen from a construction site in Michigan in 2021. This resulted in severe financial losses and time restraints for the construction company. While not all instances of theft will cause this level of damage, it’s important to be prepared just in case.

Financial risk mitigation

Construction projects require a large amount of supplies and equipment, meaning property owners and crews will bear the financial burden of replacing items if they get destroyed. With this type of coverage, individuals can reduce the risk of being held personally responsible for financial loss. Most building or renovation projects already cost thousands—even millions—of dollars. Extra expenses and unexpected costs can put companies in debt before a job is completed.

Additionally, builder’s risk insurance protects the financial interests of various stakeholders involved in funding projects, including the property owner, general contractor, lenders, and subcontractors. When a building organization continuously loses money due to unforeseen circumstances, these stakeholders are less likely to work with them in the future, costing industry professionals valuable business. Preventive care and proactive action can keep investors from losing money, encouraging them to continue funding projects and working with construction companies in the long term.

Security from disputes and legal issues

When legal disputes occur—as they’re mostly unavoidable in the construction industry—companies can be better protected with the right risk policy. Whether it be a claim that a property owner files against a builder to seek compensation for damages caused during construction or another type of legal action taken against a construction company, having financial help with expenses can be advantageous.

According to JD Supra LLC, the current economic and trade environment leads to unique builder’s risk claims. For example, construction delays cause increased interest expenses, ultimately impacting the overall construction cost. This often results in claims for higher interest rates on variable-rate loans or higher rates on permanent financing. On top of that, legal action can also be taken due to complicated refinancing agreements that slow construction progress or drive indirect effects on project capitalization.

Ongoing success and productivity

With more economic protection and business best practices put in place, construction companies can enjoy the freedom to invest time and money into bigger projects and receive more ROI. While it doesn’t completely rid businesses of financial hardship, a builder’s risk insurance policy puts builders in a much safer position. This enables them to grow their organization and remain productive.

What does builder’s risk insurance cover?

Builder’s risk insurance covers a wide variety of damages caused by natural events, explosions, and vandalism, including:

• Arson
• Backup sewers, drains, or sumps 
• Collapse
• Construction material in transit
• Debris removal
• Fire or lightning
• Property damage
• Theft
• Vandalism
• Windstorm or hail damage

Generally, you can choose other additional coverage options, like flood and earthquake liability insurance, if your state demands such protection. In addition to the security of direct damages, course of construction insurance also helps pay for the total construction cost of indirect complications impacting a covered property. This can include project delays or lost income due to weather damage, theft, or vandalism of an existing structure, renovation, or other covered property or its associated equipment or building materials.

However, it is important to note that builder’s risk insurance doesn’t cover all types of damages. For instance, harm to a project site from specific events like terrorism, wear and tear, employee dishonesty, mechanical breakdowns, poor workmanship, and faulty construction material aren’t generally covered.

If you own a building or construction company, builder’s risk insurance can be extremely beneficial. Eligible buyers of commercial risk coverage include builders, general and subcontractors, retail companies, and school districts, just to name a few.

How much does builder’s risk insurance cost?

The price of construction insurance will depend on the insurance company you choose to partner with, as well as these factors:

• Construction project location
• Duration of job
• Type of construction
• Values at risk

Our team works with you to assess your specific vulnerabilities, protection requirements, and location’s weather conditions to ensure your company gets the right amount of coverage for a price that won’t hurt your bottom line.

Choosing the right insurance plan

Finding the right agent or broker is a make-or-break part of getting builder’s risk insurance. It's essential to have a partner who understands your construction business and can help protect your team from different risks.

Here are some crucial questions to ask before selecting an insurance partner and coverage plan:

• What is the scope of the project?
• What aspects of the project are most at risk and need protection?
• How much money is in the budget for this project, and can I afford any delays or disruptions?
• What is the time frame for the job?
• How could the construction project location negatively impact the construction results?

We constantly work to innovate advanced technology to minimize losses and help construction companies have more resources to protect themselves. For example, water-sensing technology is now being used to anticipate losses before they become catastrophic. Our team is dedicated to boosting security and preventive measures so businesses can recover quickly from natural disasters and accidents.

Want to learn more about builder’s risk insurance and other construction-specific securities? Reach out to one of our construction risk specialists to discover the various insurance policies we have available.