How agents can add value to the builders risk sales process
It starts with understanding the product, knowing the appetite of the insurers in the market, and studying the competition.
Builders risk insurance is easy to quote and bind. The product is sold by a number of carriers, some offering a highly automated online process with little intervention. This means an insurance professional doesn’t have to be an expert in the course of construction insurance to win the account!
That’s both good news and bad news for the agent. Good news because it can be nearly effortless for you. Bad news because it’s just as easy for your competition.
So how do you add value to a sales process that does almost everything for you?
It starts with understanding the product, knowing the appetite of the insurers in your market, and studying your competition. More importantly, it’s recognizing that this is still a person-to-person sale. And the biggest value you bring as an agent is making sure your clients get the right coverage to protect their construction risks. While builders risk policies are written on an inland marine form — usually on an all-risks basis, not every project will have or need the same scope of coverage.
Builders risk basics
Let’s quickly review what builders risk insurance does. Essentially, it protects a person’s or organization’s insurable interest in materials, fixtures and/or equipment to be installed during the construction or renovation of a building or structure. Typically, it covers physical loss or damage from a covered loss, such as theft, vandalism, fire, materials in transit and backup of sewers. With an endorsement, it could also pay for additional soft costs, business income, loss of rent and extra expenses due to a project’s delay, as well as flood and earthquake in some areas.
You’ll want to begin the sales process by examining the construction agreement between the contractor and the owner/developer. That’s where you’ll uncover the client’s needs. A few considerations:
- Is this a residential or commercial project? Residential is usually a one-to-four family home, while commercial can be everything from office buildings to multimillion-dollar sports arenas. Be sure you are aware of the various coverages and their limits.
- Is it new construction, a renovation or an installation? Remodeling an existing structure is different than building from the ground up. And not many contractors realize they may need a special type of builders risk coverage for installations. Pay careful attention to the type of job your client is doing.
- How far along is the project? A project that is already underway will be more difficult to insure. Make sure you have access to an insurer who is willing to cover a project, even if the work has started.
Know the policy’s terms
Understand the terms and exclusions in a builders risk policy. For example, is the owner of the project experiencing delays? If they anticipate the project taking more than a year to complete, does the policy allow for a renewal? During COVID-19, projects have been taking longer than expected. So know the renewal or extension options in advance and factor them into the policy recommendation you make. If you’ve cultivated a relationship with the underwriting departments of the carriers you represent, you can rely on them to help you make coverage decisions for your clients.
Personal lines customers may be tempted to rely solely on the coverage in their homeowners policy. Contractors and business owners may think their business or property insurance is sufficient. These policies will likely have gaps and restrictions that make the purchase of a standalone builders risk policy a good decision. You can add value by knowing how these policies differ not only in eligibility but also in the scope of coverage and limits.
More specifically, here are some additional protections your clients may need that are not standard to most builders risk policies:
- Soft costs: These are additional expenses your client might incur that can be directly attributed to a covered loss. They can include things such as advertising and promotional expenses; interest on construction loans; real estate and property tax assessments; commissions, fees and legal expenses; and insurance premiums. It is very important that agents (and their clients) understand the difference between hard and soft costs and how they are defined in the policy.
- Business income: Generally available for any size commercial project, this endorsement is designed to cover lost income and additional expenses such as loss of rent, loss of business income and certain extra expenses.
- Changes in project value: Change orders during construction may increase the value of the project to the point that it exceeds the policy’s limits. Endorsements are usually available that provide additional coverage of up to 10, 20, or 30 percent of the project’s value.
- Installation floater: Trade contractors, such as plumbers, electricians, welders and carpenters, may need installation floater coverage to protect their materials or inventory when in transit or in temporary storage.
- Flood protection: Coverage for flood exposure is available in many locations and can be added as a policy endorsement. An endorsement is often less expensive than purchasing separate flood insurance through the National Flood Insurance Program.
- Contractors equipment: A contractors equipment policy provides business coverage for construction machinery, equipment and tools of a mobile nature used in contracting, installation, erection and repair, or moving operations or projects.
Remember, it’s your job to protect the client from costly losses and exposures. That means identifying and explaining potential risks and recommending the appropriate specialty coverages and endorsement options they need. Don’t let the ease of binding a builders risk policy lull you into thinking it’s a slam dunk. Many factors go into selecting the right coverage for a client. Make sure you are adding value to the sales process.
Steve Bristow is senior vice president and head of operations for US Assure, where he oversees the company’s builders risk and insurance services operations. US Assure exclusively distributes, underwrites and services Zurich’s builders risk insurance program across the U.S.
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