In the U.S., the number of billion-dollar weather disasters has sharply increased, according to The NOAA National Centers for Environmental Information (NCEI). In the 1980s, there was an average of three events per year. However, from 2016 to 2022, the average was 18 per year. In 2023, an unprecedented 28 billion-dollar weather disasters struck the U.S.

For the construction industry, the increase in the number of these events is creating numerous challenges. “We can see convective storms anywhere and nobody is immune to it anymore," says Grant Chiles, executive vice president and national construction practice leader at Amwins Brokerage. “It's not just your Florida hurricane scenario any longer." 

Yet, despite the impact of a changing climate affecting the insurance industry as a whole, the first half of 2024 has seen a shift in the builders risk market with “overall rates flattening, and a notable aggressiveness from markets to take on risk," says Ed Helfers, principal, inland marine at Falvey Insurance Group. “Capacity in the market over the past few years has continued to grow with both new and existing capital markets."

“For preferred risks that are well protected and with minimal catastrophe exposures, capacity is returning, and those projects will find more favorable terms and pricing," says Ryan Mee, vice president of inland marine underwriting, Liberty Mutual. 

However, “CAT capacity has maintained limited line sizes, along with wildfire and high-crime score projects," Helfers says. 

As the builders risk market evolves through a changing economic and physical landscape, agents play a key role in protecting the interests of the insured, starting with the project's financials.

“Whether it's an owner, developer or a general contractor, most of the projects out there have some sort of financing or equity component to it with a lender that wants to protect their assets, so they have loan requirements or lender requirements for various types of insurance," Chiles says. “Always start with the lender requirements as a baseline, and then look at the individual project exposures to ensure clients have the necessary coverage."

To illustrate the exposure posed by extreme weather, “present a picture of the exposure to the insured, such as flash flood scores or a convective storm analysis, because nine times out of 10, insurance is the last thing that an insured is thinking about," Chiles explains.

While capacity has grown overall in the market, challenges remain in regions like New York for CAT coverage, and coastal areas continue to face sublimits on named windstorm (NWS) risks, according to Amwins' 2024 “State of the Market: A Focus on Builders Risks" report.

For example, “for new construction that continues to expand into rural areas that may be more exposed to wildfire or doesn't yet have the necessary public protection systems in place, capacity can remain a real challenge," Mee says. “Risks in these areas may be hard to place or the terms and requirements placed on the insured are much less favorable."

While scrutiny among underwriters for certain exposures remains high, agents can make use of the risk mitigation and risk assessment tools available to help manage a client's exposure.

“Risk assessment tools are now commonly available and should be used to help an insured evaluate risk to perils such as crime, wildfire, coastal wind, convective storm or flood," says Stephen Harrell, managing director, Insurance Specialty Group LLC, a division of Totalis Program Underwriters. “Agents can use the results to tailor coverage limits, perils covered and exclusions related to natural disasters. Considerations should also be paid regarding replacement cost valuation versus actual cash value, especially for existing structures on renovation risks."

“Risk mitigation efforts should be used where possible, and communicating these efforts clearly to underwriters will help secure favorable terms and conditions," Harrell says. “For example, creating defensible zones and maintaining vegetation can significantly reduce exposure to wildfire." 

Olivia Overman  is IA content editor.