Innovative Ways to Manage Risk from Construction Defect Claims
By Mark Gromek, Chief Marketing and Underwriting Officer, Builders
As construction defect claims continue to rise and the general liability market continues to firm, carriers and agents alike are under pressure to find innovative ways to manage risk and maintain profitability. In today’s general liability insurance environment, innovation is not optional — it’s essential.
At the forefront of these innovations are policy strategies and non-admitted products, which are designed to provide coverage for high-risk construction needs that offer greater flexibility. These strategies and products are particularly effective at addressing construction defect losses, often exacerbated by improper maintenance of buildings, poor workmanship, and regional factors like high humidity that can lead to water-intrusion losses.
To counter these problems, insurers like Builders embrace underwriting strategies that acknowledge potential losses and construction risks. Builders’ expert team of underwriters thoroughly researches loss histories and accommodates policies jurisdictionally to provide relevant solutions without compromising on reliability.
A host of product innovations are necessary to protect policyholders while providing optimal coverage. These tools help ensure that losses do not accumulate across multiple policy periods, and that the party responsible for the damage — not the general contractor or insurer — is held accountable.
These products include:
Continuous and progressive damage exclusions
Risk-transfer endorsements
Anti-stacking endorsements
Territory-specific policy language
Granular segmentation by territory is also gaining traction. By evaluating specific geographical factors that impact losses, including the local legal environment, insurers can tailor products, coverage and pricing strategies to offer policies that reflect local market conditions.
Builders uses sophisticated strategies to ensure that premiums charged match the exposure for construction projects. For example, states like Florida and South Carolina experience higher claim frequencies and severities due to water intrusion losses relating to the construction envelope – siding, fascia, windows, doors, gutters, and roofing – that may have resulted from poor quality control practices, limited availability of skilled trades, or lack of owner maintenance. By taking these region-specific factors into account, Builders can appropriately offer coverage for its policyholders in these states.
Educating policyholders is another critical factor to limit liability and preserve the integrity of a construction project’s coverage. Agents should ensure construction company owners understand the benefits of quality control processes that prevent incidents from occurring in the first place. Additionally, agents should help clients understand how to implement effective risk transfer strategies in their contracts. This includes requiring subcontractors to indemnify the general contractor, maintain appropriate coverage limits, include waivers of subrogation, and provide certificates of insurance.
Yet no innovation in insurance can fully succeed without addressing excessive lawsuit abuse that is costing policyholders, insurers, and our economy billions of dollars. Third-party litigation funding and liability-expanding decisions by state Supreme Courts have contributed to a surge in construction litigation. Spurred on by the support of the business community, states like Georgia and Florida are starting to enact lawsuit reform to stabilize insurance costs and increase transparency and fairness for a more balanced legal environment. Hopefully, other states will follow their lead.
Builders’ goal is to provide construction clients with flexible, tailored options and far-reaching coverage. That means combining innovative product choices, strategic pricing, legal advocacy, and agent partnerships to meet the evolving needs of the construction industry.
With more construction defect claims on the rise, now is the time for insurers and agents to go beyond the basics and lead with expertise and agility to offer the far-reaching security construction companies deserve.
Are you looking for a way to protect a construction project? A property and casualty insurance leader, Builders is the reliable expert and workforce advocate providing deep partnerships, service excellence and financial strength. More than 32 years of leadership in complex construction risks have fostered exceptional expertise in workers’ compensation, injury prevention and best-in-class medical management.
Visit https://www.bldrs.com/products/builders-risk-insurance/ to learn more.