state construction – builders builders... · what is builders risk insurance? • builders risk...

Download State Construction – Builders Builders... · What is Builders Risk Insurance? • Builders Risk is…

Post on 05-Aug-2018

220 views

Category:

Documents

2 download

Embed Size (px)

TRANSCRIPT

  • State Construction Builders Risk Moderator: Texas State Office of Risk Management

    Todd Holt, Deputy Executive Director,

    Speakers: Arthur J. Gallagher & Co. Michael, Gillon, ARM, Area President

    Chris Connelly, ARM-P, ARe, Area Senior Vice President Nick Terlecki, Producer Associate

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    What are we talking about today?

    1. Builders Risk What is Builders Risk? Types of Builders Risk Programs Project & Contractual Concerns Advantages & Objections to Owner Programs Texas SORM Case Study

    2. OPPI (Owners Protective Professional Liability) Types of Professional Liability in Projects OPPI Overview Advantages of OPPI OPPI Case Study

    3. Questions and Answers

    Todays Agenda

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    What is Builders Risk Insurance?

    Builders Risk is coverage designed to cover physical damage to property in the course of construction Physical damage resulting

    from covered perils (i.e. fire, water damage, wind, earthquake, etc.)

    Typically applies to the work, regardless of location (at construction site, off-site storage, in-transit)

    4

    Coverages Can Include:

    Soft costs to cover additional expenses caused as a result of covered loss, such as architect fees, interest expenses, real estate taxes, etc.

    Extra Expense: the additional amount by which the cost of completing the project exceeds the cost had damage not occurred

    Delay in Start Up: insures against income loss or specified additional expenses, that result from a delay in the completion of a construction project beyond the expected completion date as a result of covered property damage

    Damage to Existing Structure: extends coverage to remaining structure which is not part of construction project

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS 5

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Builders Risk in Action Hurricane Harvey

    6

    Site Preparation

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS 7

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Builders Risk in Action Hurricane Harvey

    8

    Physical damage to facility, equipment

    Damage to Existing Structure

    Extra Expense Dewatering Mold

    Remediation Delay in Startup?

    Coverage Elements

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Contractor or Owner can purchase In either case, premium is built into overall project cost Contractor mark-up is common

    Coverage can be provided under an owners existing property insurance program or via a separate policy

    Individual Policies or via Master Builders Risk Program

    9

    Ways to Cover Builders Risk

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Master and Rolling Builders Risk Programs

    Master BR Programs Provides automatic

    coverage for projects at pre-set rates for a defined period (typically multi-year)

    Ease in administering multiple projects

    Certain limits may be shared across all projects

    10

    Individual Policies Designed for one project

    specifically Each project requires

    separate underwriting and policy

    Dedicated limits per project

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS 11

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Who absorbs policy deductibles? Preventable losses Force majeure clauses for

    natural hazards? How to handle owner-

    furnished equipment PE may purchase for sales

    tax exemption Transparency

    Whose interest is protected? Claim proceeds

    What happens if contractor is replaced mid-project?

    What if entity accepts partial substantial completion?

    P3 (Public-Private Partnerships) who controls terms?

    12

    Project & Contractual Concerns Key Considerations for Builders Risk Insurance

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Project risk is held regardless of owner or contractor BR purchase

    Importance of clear contract terms Recommend deductible/ risk-sharing with contractor to avoid

    moral hazard Clear on natural hazard deductibles (who holds the risk for larger

    deductibles?) Critical to understand insurance policy terms

    Are you sharing risk with unrelated entities? If so, is there transparency on the volume/exposure of these

    projects? What happens if policy limits are exhausted?

    13

    Key Takeaways for Owners

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Advantages of Owner Placement

    Transparency and control of policy terms, deductibles, limits

    Clear who holds risk and at what levels

    Includes all work, including owner furnished equipment

    No sharing of limits across unrelated entities

    FEMA Eligibility Continuity of Coverage

    14

    States Maximizing economies

    of scale to reduce costs Contract certainty

    through involvement with ORM & agency facilities/ procurement departments

    Engagement with agency customers

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Texas SORM Example (August 2017)

    Contractor Terms $219,000 Cost $25M aggregate wind Tier 1

    locations (across all projects) $15M aggregate flood limit

    (across all projects) $10k All Perils Deductible

    5%, minimum $250k Named Storm

    No soft costs or delay in startup Limited coverage details

    15

    Owner Terms $81,350 (63% Reduction) Full limits $51M per occurrence

    wind Full limits $51M aggregate

    flood $10k All Perils Deductible

    $100k flat Named Storm $2M soft costs/delay Transparent coverage terms,

    including permission to occupy

    $51M University Library Project, Tier 1 Wind/Flood Area

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Texas SORM Example (February 2017)

    Similar Outcomes 52% Reduction in Builders Risk

    Insurance Costs Lowered deductibles for named

    windstorm and flood Damage to Existing Building

    Included Permission to occupy Escalation clause included Identified contractual issues for

    acts of god resulting in purchase of delay coverage Contract terms critical to

    understanding exceptions to liquidated damages

    16

    $60M University Basketball Arena, Large Scale Renovation

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS 17

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Objections to Owner Programs

    Common Objections Want 100% of project risk on

    contractor until time of project completion Is this actually happening

    with current contract terms? Liquidated damages

    provisions have limitations Is the owner providing

    apples to apples Is the owner now absorbing

    more deductible risk?

    18

    Challenges to Adoption of Owner Programs Fighting the status quo Risk management vs.

    facility management / procurement

    Contractor pressure

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Launch of Texas SORM BR Program

    Building program ground-up Agency engagement before

    product rollout Advisory group created Identified critical agency

    components TFC contract manager for

    all agencies except universities

    Higher Ed education campus by campus

    Understanding what procurement/contract changes required for owner purchase

    19

    Short-term Initiatives Individual underwriting first Establish market rates across the

    State Identify common challenges and

    benefits Individual agency guidance on

    contracts and policy terms

    Long-term Goals Create master statewide BR

    program Automatic addition of small

    projects Quote turnarounds within 48-72

    hours Automation where possible

  • OPPI (Owners Protective Professional Indemnity)

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Construction projects are exposed to risks that result from the negligence design professional, such as architects and engineers Ex: collapse as a result of negligent design of structure

    components of structure Common ways to transfer these risks

    1. Professional Liability Insurance required by contract 2. Project-Specific Professional Liability Insurance 3. OPPI (Owners Protective Professional Indemnity)

    21

    Professional Liability in Construction Contracts

  • 2017 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS

    Lowest Cost Option Low policy limits Many firms only carry $1,000,000 in total limits Shared Limits Traditional policy limits cover all projects undertaken by the firm

    and can be eroded by other claims and defense costs Annual policies provided on a claims made basis that must be renewed to maintain

    coverage Inconsistent terms, no guarantee of the quality of the coverage provided since each

    policy will have its own unique coverage terms and conditions In the event of claims, several policies may be triggered, and their limits may be

    used to resolve disputes related to who caused a loss rather than to inde

Recommended

View more >