Source: XL Group Insurance, Construction Insider, January 2013
By: Mark Kulas, AVP – Construction Property
It’s not just for GCs any more.
As a General Contractor, are you confident that your investment in the project is protected when the owner secures the Builders Risk insurance? XL Group’s North America Construction team now offers a product that includes a suite of coverage options. And these days, it’s not only GCs considering the policy!
In most instances, owners will secure the Builders Risk coverage under a Project-Specific Builders Risk policy, leaving the General Contractor to work under a coverage that may not be adequate. With project costs increasing year after year and the transfer of risk moving to the GC, it is becoming more apparent that broader protection is needed for all parties involved and to keep the project moving—this added protection is available through a Master Builders Risk program.
There are a number of principal benefits to maintaining an MBR program:
1.  Alternative to Owners Builders Risk.  With MBR coverage, the General Contractor has greater flexibility to structure a program that suits the specific project, thus having greater confidence that all involved parties are better protected from a loss.
2.  Favorable Terms.  A Master Builders Risk (MBR) policy, an annual/renewable policy, offers the General Contractor a suite of coverages that includes:

• locked-in scheduled rates and deductibles
• increased capacity for High Hazard Catastrophe Zones

3.  Coverage Options.  There are additional coverages available in the MBR that cannot typically be obtained in a stand-alone Builders Risk policy:

• Difference in Conditions (DIC), better known as Contractor’s Wrap-Around
• Deductible Buy-down

4.  Flexible Reporting.  The MBR program allows more than one project at a time to be bound either Quarterly
(Reporting Form) or on a Per Project Basis (Certificated Endorsement). The differences are as follows:

• Quarterly (Reporting Form) provides the Contractor flexibility to report the project within the quarter of project inception
• Per Project Basis (Certificated Endorsement) is provided at time of project inception

Having the flexibility to report the project at a later date (Reporting Form) allows the contractor to go to bid, confident in what the cost for the insurance will be. This alleviates any worries about securing the right Builders Risk coverage from standpoints of both pricing and coverage. When considering pricing and coverage, it is important to remember the above-mentioned additional
coverages available under the Master Builders Risk.
5.  Endorsement Options.  If it is decided that the Builders Risk will remain under the owner’s control, the Contractor can secure coverage under the Difference in Conditions (DIC)/Difference in Limits (DIL) endorsement otherwise referred to as Contractors Wrap-Around. This coverage affords the MBR client security wherein the MBR form will wrap around the owner’s policy form and fill in any gaps in coverage the primary form may have.
6.  Consistent Coverage Form.  Having a consistent form (and understanding what the form covers) can help the contractor when reviewing the contract requirements.  If an owner secures the Builders Risk policy, some assumptions maybe made by the owner of coverage.  And if the owner does not place the Builders Risk with the same carrier, the form may not be as broad. A limiting form exposes the General Contractor and Owner to costs outside the scope of the policy, thus reducing profits,
increasing project costs and, in some instances, extending the project timeline, which may impact other insurance coverage.
7.  Catastrophe Sub-Limits.  Since MBR clients generally report all projects through their MBR program, an underwriter has the ability to provide higher sub-limits for catastrophe prone areas. This occurs as the spread of risk maybe greater, helping to offset any additional costs associated with increasing capacity. With Hurricanes, Earthquakes and Floods becoming more frequent and severe, the ability to provide higher Catastrophe Limits to a MBR client gives the contractor a leg up in their bid.
8.  Better Relationships.  The consistent flow of projects through the Master Builders Risk program increases the interaction between Insurance Carrier and Master client.
Master Builders Risk policies are no longer reserved for General Contractors; owners are beginning to see the long term benefits a Master Builders Risk policy has (as long as you build multiple projects in any given year). With a more encompassing coverage form, locked-in rates, higher sub-limits and enhanced terms and conditions available for MBR clients, it is becoming more apparent that you save on long term costs with a MBR program.
Some important factors to consider when partnering with an insurance provider for MBR programs:

• What type of capacity does the carrier provide?
• What type of Catastrophe Capacity does the carrier provide?
• Is the form considered broad?
• Is the program flexible?
• Does the carrier provide loss prevention services?
• What is the experience of the carrier in handling MBR programs
• Is the carrier a committed long term partner with the Construction Industry?

To learn more about how the XL Group North America Construction team can help you craft an MBR program for you or your client’s project, visit our website, www.xlgroup.com/insurance.