Builder’s risk
Insurer appetites for builder’s risk are expanding, as new capacity and renewed interest from the London and U.S. markets are making this line of coverage favorable to buyers.
In noncombustible classes, such as data centers, the market is stable. Hyperscale projects are being built quickly, and their high values require insurers to get creative in deploying capacity. Even though insurers in the U.S. and London have a big appetite to write data center risks, they are challenged by accumulation of values.
Items that construction firms should examine closely alongside their insurance policies include:
- Soft or ancillary costs. Underwriters continue to scrutinize expenses that are not directly related to construction activity, such as debt service on projects and permitting fees.
- Procurement of equipment. Some specialized equipment, such as transformers and turbines, may be difficult and costly to replace.
- Sourcing of labor. It can be expensive to find suitable labor in a tight hiring market.
- Working with a knowledgeable broker to align coverage to meet business challenges is prudent.
STARTUP DELAYS & RENTAL CREDITS
When project startups and occupancies are delayed, a common practice in lease agreements is to issue rental credits, such as 60 days’ free rent if the project is delayed by 60 days. Higher rental credits are offered to tenants for longer delays.
Some confusion exists around insurance coverage for these additional costs. Not all policies designed to cover loss of rental income are clear on coverage for rental credits. Affirmative coverage for credits and understanding the specific terms of leases are highly recommended.
