Market Consolidation: What Does It Mean to You?
In the past fifteen years, the wholesale marketplace has experienced an extensive consolidation among brokerage firms: smaller firms sold to mid-size firms and mid-size firms sold to larger wholesale brokerages. Experts in mergers and acquisitions as well as executives in wholesale firms expect this consolidation trend to continue. The impact has been that larger wholesale firms can drive improved deals for particular accounts due to their carrier partners’ larger premium volume, which provides a competitive edge over smaller wholesale firms. Furthermore, a wholesale company you may have relied on in the past may be acquired tomorrow and its focus may change. The long-term relationship you develop with your wholesale broker is critical to insuring complex construction risks.
In construction exposures, your client’s insurance needs can change rapidly as they bid new projects. The days of a relatively easy standard-market package that provides robust coverage for contractors who build both commercial and residential construction are gone—today’s coverage design requires a more strategic approach. Today’s agent must consider not only what work the insured is doing today, but also what they might do tomorrow.
Coverage—The Right Coverage—Is Critical
For contractors, either having the right coverage in place as they contemplate bidding projects or a quick determination of coverage availability before they bid is critical to their success. Common examples of coverage requirements in this process include additional insured with completed operations, waivers of subrogation, primary non-contributory language, and per project aggregate endorsements. It is very common for a commercial contractor considering residential projects to have exclusionary language in his or her policy for tract-size limitations, condo/townhome projects, or in the worst case, a complete exclusion for any work in entire states.
The current construction boom on the Front Range means opportunity for retail brokers to produce new business and grow their renewals. Statistical reporting from Metrostudy illustrates that housing starts in the Denver metro area alone topped 11,500 for the trailing 12 months ending 2Q 2017. Of that astronomical figure, over 30 percent of those are detached homes, meaning condominiums or townhomes. Such opportunity for contracting clients comes with the risk of being underinsured or uninsured, and it is important that the retail producer exercise a high level of due-diligence, risk management expertise, and reliance on knowledgeable partners when entering into the construction arena.
The Importance of Crafting the Right Construction Coverage Package
While defenses are available in construction defect litigation, the current insurance climate for contractor liability is still problematic. Relying on defenses such as failure to mitigate damages or comparative negligence can reduce awards, but may not limit legal costs.
Having the right coverage is crucial. Without it, contractors may not be paid for the work they have already performed or bid on or begin new projects. If they do bid but cannot demonstrate adequate coverage or limits, they may lose the award.
Many things can go wrong on construction projects that do not cause bodily injury or property damage. Developers may require protection from cost overruns or mismanagement due to scheduling or plan supervision, for example. A contractor’s or construction manager’s professional liability policy can provide such coverage.
The typical construction manager’s policy, however, will not cover claims arising out of the performance of architectural or engineering work. While some carriers will endorse these additional services, many retail agents solve this coverage gap with a separate architect’s or engineer’s professional liability policy. Add the complexity of an occurrence policy on the general liability with the likely mix of a claims-made form on the professional liability policy, and the contractor’s insurance plan becomes even more important to place correctly. The help of a highly experienced wholesale broker can ensure a retail agent covers all the bases on complex construction projects. If a contractor has a coverage gap, the retail agent’s errors and omissions policy could be at risk.
In our next post, we will discuss how working across state lines increases coverage complexity and why a “Colorado first” approach may help solve some of your coverage problems. We will also briefly explore how construction wrap-ups may be an important tool in your approach to insuring construction projects. For more information, contact Kyle Domire at firstname.lastname@example.org or (801) 979-5081.