“The hardest to place [builders' risk policy] is where there is catastrophe exposure: flood, windstorm and earthquakes,” says Claudia Hrody, director of marketing for insurance broker Hub International Scheer's operation in Westmont, Ill.

Indeed, the standard market has no appetite for this risk class, and the only place to turn is the E&S market. Depending on the size and value of the project, it may take two or more carriers to provide required coverage.

Other risks that can be difficult to place are frame [wood] construction buildings because of their susceptibility to fire.

Another challenging placement is construction in protection class 10, which are properties where there is no local fire department or fire-suppression equipment close by, says Dan Brimer, brokerage manager in St. Louis for the excess-and-surplus lines broker Burns & Wilcox.

THE PRICING PICTURE
What has been the impact on pricing of this pullback of capacity? Opinions differ.

Kurt Colden, assistant vice president and account executive for insurance-broker Lockton, says programs continue to see decreases, ranging up to 10 percent on incumbent insurers where the client has a favorable loss experience. 

Colden notes that one reason the market is not seeing a hardening is because international carriers are entering the marketplace, replacing whatever capacity is lost from domestic carriers limiting their capacity.

But another observer says diminished capacity is starting to make a pricing difference. 

“From my perspective, we see a leveling off in insurance rates,” says Eric Zimmerman, head of engineering lines for the insurer Zurich North America. “Capacity is starting to be managed.”

IMPACT OF RMS VERSION 11.0
One issue brokers are anxious about is how the new RMS Version 11 catastrophe model will affect rates in the future. The model is increasing the dollar amount of catastrophe risk to which a carrier's books are exposed. The result, for some, is either an increase in catastrophe-exposure rates or carriers moving to reduce their overall exposure. 

“RMS V.11 has created a lot of stirring in the marketplace,” says Brimer, noting that companies that have used it in their calculation of catastrophe risk have increased their prices by as much as 60 percent in some cases.

John Tutera, senior vice president-construction for the insurer Hiscox USA, says some insurers are addressing the issue by increasing deductibles. Others are cutting their exposure because they worry it could affect their ratings if they do not increase their capital reserve in response to the model.

Farbman says that RMS V.11 could mean expansion of the Tier 1 territory (most-wind-exposed risks) by some carriers if the adopt the revision—which would affect the risks his firm focuses on in Long Island, N.Y., southern New Jersey and parts of Connecticut.