Description

Description:

• Topic: Navigating Insurance Challenges in Construction Projects Amid Supply Chain Issues and Inflation
• Overview:
  Builders and contractors are facing increased insurance costs due to supply chain disruptions and inflation. Even with contracts that include cost-plus margins, contractors are experiencing higher expenses, which impact their insurance coverage.
• Key Points:
  • Insurance Costs Soaring:
    Supply chain challenges and inflationary pressures are driving up insurance costs for contractors and developers, especially as projects face delays.
  • Policy Challenges:
    Construction projects are often insured with policies based on the contract amount. If a project exceeds the policy’s dollar limit due to rising costs or delays, contractors must secure extensions or new policies, which can result in higher premiums and stricter underwriting.
  • Policy Expiration and Extensions:
    Delays in projects may cause policies to expire before the project is completed, leading to potential issues in securing policy extensions. Some insurance companies are unwilling to extend coverage beyond certain limits.
  • Reinsurance Issues:
    Insurers struggle to obtain reinsurance, which impacts the overall pricing and availability of coverage for construction projects.
  • Risk of Being Underinsured:
    If projects increase in cost (e.g., from $2 million to $2.7 million) due to material and labor price hikes, contractors may find themselves underinsured if the original policy limit is exceeded.
  • Consequences of Exceeding Policy Limits:
    If the cost increases beyond the policy’s coverage, contractors may not be covered for defects, theft, or damage to materials. The insurance policy might become void if the project exceeds the initial insured value.
  • How to Manage:
    Contractors should check with their insurer if extending the project timeline or increasing the contract amount, and ensure any project changes (e.g., architectural modifications) are covered.
  • Additional Consideration - Workman’s Compensation:
    Workman's compensation policies may also be affected by project delays, changes, or price increases. Contractors should ensure their policy still applies with any significant project adjustments.
• Call to Action:
  Always consult with your insurer when making project adjustments or encountering delays to ensure continued coverage and avoid potential gaps in insurance.