Today, the definition of “catastrophe claim" is broader than ever. Flood, wind, hail, freezing temperatures and tornadoes have all hit multiple states in the central and northeastern U.S. in the first part of 2022 while Colorado and California have faced wildfires. Overall, catastrophic events are occurring in once considered impossible places and at unusual times.

As weather catastrophes increase in intensity and frequency, insurance agents must be prepared to advise construction clients about builders risk coverages. To prepare, agents can assess the likelihood of hail, wildfires, floods, freezes and other weather incidents impacting their market through the use of online resources.

Information from these sites could help agents demonstrate the need for builders risk insurance in their local area:

• Stormersite. View a history of hailstorms, as well as wind and tornado activity, by city and state.
• Earthquaketrack and U.S. Geological Survey Earthquake Hazards Program. Track current and historical earthquake events.
• Homefacts. Review a history of earthquakes, tornados and hurricanes by city and state.

A Shift in Builders Risk Clients

In the past, contractors were the primary purchasers of builders risk policies. However, commercial and residential property owners are increasingly buying their own coverage. This allows them to have greater control over their financial investment, list their builder as an insured, know that coverage is in effect and manage the flow of claim funds.

Owners can even obtain certain coverages, such as business income or loss of rents, that can only be secured when the policy is in the name of the owner.

What's an Agent's Role?

In today's builders risk market, each carrier has its own proprietary form. Agents must individually evaluate policy forms to know exactly what coverages are included and excluded.

In an example of differing coverages, some carriers include an escalation or inflation guard endorsement to insure price increases in materials while others don't. Meanwhile, expenses for appliances and building materials are all on the rise due to labor shortages and crimps in the manufacturing chain after the coronavirus pandemic. Additionally, after a catastrophe, cost pressures are likely to be even higher, since the local area experiences a spike in demand to rebuild from storm damage.

Clients don't know what they don't know—unless the agent informs them. The agent's role should be to present all the available builders risk coverages and allow the client to decline or accept each coverage.

Documenting these decisions is vital for the agency's own risk management process. One risk to the agency is that an insured could say they weren't offered coverage that might have insured a loss. In that event, the agency's errors & omissions policy could be on the line.

Coinsurance and Percentage Deductibles

Agents must also pay attention to an insured's coinsurance level, making sure this requirement is met to avoid any penalties in the event of a claim.

Helping an insured consider the percentage deductible for perils such as hurricanes, wind, flood and earthquakes is also essential. For example, a $1-million renovation project can face a 4% deductible in the event of a hurricane. One distinction is that, in contrast to commercial and residential property policies, flood and earthquake can be covered perils on a builders risk form.

What About Claims?

An insured might not understand that a carrier has a limited number of claim adjusters who are often spread thin after a catastrophe. Some even have to hire outside firms with no decision-making authority to evaluate the property and report findings.

While claims during these periods naturally take longer to assess, not all insurance providers respond the same—making it essential to understand the financial rating, admitted status and claims payment reputation of the carrier.

Rachele Holden is senior vice president, head of product underwriting, for US Assure.