Knowledgeable underwriting team is key to minimizing construction risk, losses

With an overall increase of 48.2% in housing starts across Canada at the beginning of 2021 and a GDP of well over $154B, it’s no surprise that the construction sector continues to be a hot topic across the insurance industry. According to BuildForce Canada, which represents the country’s construction industry, there has been a 51.4% increase in housing starts for apartments and 57.4% increase in new construction for single-detached homes this year. Demand is up, prices are up, pressure on labour and materials are both increased, all while the pandemic supply chain interruptions wreak havoc on the industry’s ability to respond. This presents higher than normal exposure to both loss frequency and severity, which comes right in the middle of a hard insurance market.

 

Recently, Canadians also witnessed one of the most tragic construction losses to date when a crane collapsed while it was being removed from a site in Kelowna, B.C. highlighting the risk of liabilities from construction activity. Canadians have also seen significant construction liability losses for fire and water damage impacting non-project exposures. Of course, fire also presents the most frequent cause of high-severity loss to the project itself, and recently a very large loss in Langley, B.C. highlighted all the challenges and impacts noted above.

 

Brent Lexier, vice president of claims for Cansure – a leading Canadian MGA, comments “when these large losses occur, it’s important for insurers to retain high quality adjusters and other industry experts (engineers, contractors, quantity surveyors, accountants, etc.) who are organized and understand the intricacies of the construction process.” That’s why it’s important to build a relationship with an underwriting company you can trust and is an expert in this sector. Their expertise allows them to be in tune “with the current market trends that affect pricing both on the potential hard cost and soft cost claims, and how best to resolve them with client needs in mind.”

 

Needless to say, a deep understanding of contract nuances including the specific requirements around security, and contractors’ and sub-trades’ experiences, all play a factor when carriers are providing coverage for builders’ risk. And from a broker perspective, ensuring that your client continues to be adequately covered throughout these economic fluctuations is a priority.

 

So, what are some key considerations when placing large construction projects? Ed Quek, VP of Commercial and Construction insurance at Cansure weighs in and shares a few best practices:

 

• Spread the risk. Large construction projects are best served by insurers who are willing to subscribe to the project. Doing this minimizes the impact of a high severity loss and helps to ensure that insurers stay in the class and cover the next project that comes along as well.

 

• Insurers are less inclined to approve extensions on projects due to the current challenges with materials shortage. Where extensions are available, coverage often comes with a premium surcharge. Purchasing adequate limits of coverage and term of insurance up-front can alleviate these concerns down the road when a project is nearing completion and values and risk are high and owners and contractors are under pressure to meet delivery deadlines on budget.

 

• Insurers providing large capacity for frame construction risk now require insureds to demonstrate a higher level of loss prevention practice and to meet additional warranty provisions to prevent catastrophic fire loss. Practices like a 4-hour waiting period for hot work supervision, use of thermal cameras to ensure there are no hot-spots that might flare up, and a formalized “hot work permit” system is used at the construction site. To ensure warranty compliance, it is critical that all trades involved in hot-works on the site, read, understand, acknowledge, and abide-by the warranty provisions, as often this is where the breakdown in communication happens that could prevent a loss.

 

Overall, Lexier hits the nail on the head in emphasizing that the combination of knowledgeable underwriting and a strong supporting claims team will “create the trusted insurance supplier partner that will get the project back to where it was prior to the loss in as little time as possible.” This team effort is exactly where MGAs like Cansure really shine. With experienced in-house claims examiners combining their expertise and industry relationships with seasoned underwriters who constantly check the pulse of the construction sector, it’s no surprise that they’re recognized as a top supplier of choice for many construction-focused brokerages across Canada.