1. Supply Chain and Inflation
If you are in development, it should come as no surprise that projects across the country are experiencing (often significant) delays – many due to the same factors: worker shortages, inflated labor and material prices, and supply chain issues.
Delays in project timelines require extensions of insurance coverage, which, in some cases, can be very often hard to obtain. In extreme scenarios, carriers are walking away due to these delays and replacing coverage for projects has become more and more difficult.
In addition to of the above obstacles, reinsurance costs are on the rise, with the average insurer experiencing a 30%+ increase in reinsurance costs. These costs are often passed through directly to end insurance buyers
In addition, carriers are also pushing developers to reconsider project limits as the costs of material and labor rise exponentially. The concept is called insurance to value (similar to loan to value), and it is one of the most scrutinized factors in project underwriting today
2. Challenges Finding Limits for High Value Projects
The need for capacity (aka limit) is critical, especially for larger projects, more and more of which are now being subject to new and more restrictive policy terms, additional exclusions and project warranties.
When taking into account higher reinsurance premiums, underwriters are now faced with a difficult decision – quote higher premiums or offer lower limits. Unfortunately, many underwriters do both! This means that more carriers are needed to offer the same limits – the end result is higher premiums for end insurance buyers.
3. Catastrophe (CAT) Exposures
Rates and deductibles will continue to rise for development projects in hurricane / tornado prone areas, wildfire, and other catastrophe exposed areas.
4. Geographical Transitions in the Residential Construction Market
The trend of people moving to urban areas from suburban areas through the past decade has finally shifted. After the pandemic, people are now trending towards suburban areas – one major reason is that more and more people than ever before are working remote/working from home.
One factor that underwriters consider when reviewing new development deals is the projects exposure to criminal acts. Suburban areas tend to do better on the ‘crime scale’ than projects located in urban area For areas that have a higher crime score, carriers often require additional protections or policy warranties such as enhanced security, lighting, monitored security cameras, fencing, and more. Without some or all of these additional protective measures, underwriters may choose to decline to quote altogether.
5. Water Damage
You may be surprised to learn that the biggest cause of loss for builders risk insurers is water damage. From pipe bursts to floods to hurricanes… And when you consider multistory projects…the loss amounts just keep adding up….
Underwriters have identified this trend and have attempted to combat it by:
1. Requiring developers to utilize water damage mitigation technology
2. Levying Increased retentions/deductibles on policies for claims arising from water damage
Achieving Success
The Odell Studner Real Estate Practice Group specializes in construction and development projects; we speak and understand ‘real estate’ – whether it be GMP contracts, GANTT timelines, ALTA site plans, architect renderings, project pro-formas and/or detailed scope of work – we know the lingo and how to communicate with both developers and underwriters.
Our team works hard to develop customized/unique strategies to position your project in the market to best leverage our relationships with underwriters in order to achieve the results our clients have come to expect over the years.
Do you have the coverage you need?
To protect your property, talk to an experienced insurance broker today. The team at Odell Studner can help you find the coverage you need to guard against losses. Connect with our team today to learn more!
