A surge in natural catastrophes and their severity, coupled with rising property values and inflation, has fueled an influx of common and costly course of construction claims. This environment of volatility underscores how important it is for builders risk insureds to have the correct coverage in place so they don't face added financial burdens should a loss occur.

The information insurance agents glean from clients during the application process, as well as clients' actions post-policy acquisition, can harm claim payouts. What may seem like insignificant details can have profound ramifications if a claim occurs, which means an agent's ability to validate information and effectively communicate policy nuances to their clients is critical.

To effectively support clients, agents must first grasp the intricacies of the construction project to obtain coverage that aligns with the risk. Educating clients on their role in the claims process is also essential so they don't jeopardize the outcome and their financial stability.

Here are three real-life claims that led to challenges during the claims review process:

1) Misaligned scope for residential remodel. An agent secured a remodeling policy for a project to add a second story to a home. The coverage applied to the existing structure and the renovation work. The site was vandalized and a claim was filed.

The investigation discovered that an additional story was being added underneath the original structure instead of on top of it. The home was sitting 15 feet in the air on wooden pallets. The repair cost was less than the deductible, so there was no claim payout. However, the policy was nonrenewed.

2) Incomplete disclosure for a home remodel presented as new construction. A new construction policy was issued for a single-family home. Shortly after the policy was issued, the structure in progress was damaged by a hurricane, and a claim was filed to replace the roof.

The investigation found that the construction had started the prior year and the project was 75% complete when the loss occurred. The insured was only reimbursed for the work that had been completed since the policy effective date, which totaled about 30% of the damage.

3) Occupancy change for new commercial warehouse build. A large commercial new construction policy was secured for an unoccupied warehouse. While the warehouse was still under construction, the owner signed a pre-lease agreement with a retailer for unrefrigerated products to be stored at the facility. A fire occurred before the project's completion, resulting in a total loss to the property.

However, the claim was denied because the policy was for an unoccupied building, and the building was occupied with a tenant's product at the time of loss.

These three unfortunate scenarios could have been avoided. They underscore the importance of agents understanding the work their clients are doing, then sharing the project information with the carrier and procuring appropriate coverage.

Here are six tips to help avoid a major setback with a client's builders risk policy:

1) Thorough inquiry. Delve into project specifics by asking pertinent questions.

2) Onsite inspection. Visit the job site or request pictures to validate the project status.

3) Precise coverage. Properly secure coverage for the existing structure during renovation.

4) Coverage familiarity. Be well-versed in coverage exclusions to avoid misunderstandings.

5) Clear communication. Ensure clients understand the scope of the coverage secured and potential triggers for an end in coverage.

6) Comprehensive documentation. Maintain meticulous records of client interactions, coverage recommendations, construction cost breakdowns, signed applications and site assessments.

Ultimately, the primary objective should be preemptive risk mitigation. Agents can empower clients with risk management resources to prevent losses, including ways they can keep job sites safe from unforeseen events and criminal activity, as well as steps they can take to improve worker safety.

Rachele Holden is senior vice president, head of product underwriting, for US Assure, where she is responsible for product development, loss analysis, and rating and guidelines. US Assure exclusively distributes, underwrites and services Zurich's builders risk insurance program across the U.S.