Author: Ted Way
Higher education institutions face numerous challenges, including a competitive marketplace, budget constraints and deferred maintenance backlogs. With declining revenue streams and increasing expenses, implementing a Master Builder's Risk insurance program offers a proven strategy to control expenses and risks in new construction projects.
Builder's Risk insurance requirements
Higher education institutions often mandate that builder's risk insurance be maintained on capital construction projects. It is standard practice for either the project owner (the institution) or the contractor to procure this insurance to cover property damage caused by perils unrelated to the contractor's negligence. While the contractor is ultimately responsible for the project until completion, it's in the institution's best interest to secure builder's risk insurance to avoid substantial financial loss from the risk of being uninsured.
Whether the risk is insured by the contractor or the institution, the cost is borne by the institution. If the contractor insures the risk, the premium cost-plus profit margin is passed back to the institution for the project cost.
Implementation of a Master Builder's Risk Insurance Program
With the increased cost of construction, as well as varying terms and conditions between carriers, now is the appropriate time to implement a Master Builder's Risk program for all institutional capital construction projects.
Why? A master program in which the institution secures the insurance would provide not only cost savings but also several other benefits.
Benefits to a Master Builder's Risk Insurance Program: Cost, Coverage, Control, Consistency and Claims
Cost (Premium Savings):
A favorable premium rate can be secured due to:
- economies of scale
- the institution's leverage with the insurance carriers they already do business with for other lines of coverage
- the volume of capital projects in the institution's capital construction plan
Further savings can be achieved through the reduction/elimination of the profit margin that contractors can add to the project cost. A master program will minimize the variable costs for builder's risk related to each contractor's experience, volume and surcharge in profit and overhead and would likely provide higher sub-limits than what the contractor normally secures.
Coverage (Dedicated Limits for your Project):
Coverage limits are dedicated to each institution project rather than shared across a contractor's portfolio. Because insurers view institution construction projects as a preferred risk, institutions can often negotiate broader coverage terms than those available through a contractor's master builder's risk program.
Control:
The institution's risk appetite, not the contractor's, should drive insurance decisions. Institution-controlled coverage avoids disruptions if a contractor is replaced, provides a better solution for owner-furnished equipment, ensures seamless coordination between builder's risk and permanent property coverage and reduces premiums through strategic policy phasing.
Consistency:
A Master Builder's Risk Program provides consistent coverage terms across all projects, making costs more predictable and reducing uncertainty in the event of a claim. Contractor-controlled placements can vary significantly from project to project, creating potential coverage gaps and hidden risks.
Claims:
With a Master Builder's Risk Program, the institution works directly with the insurer, not through the contractor. A pre-selected adjuster and standardized claims process help streamline claim resolution, reduce administrative burden and support faster payments.
For a full rundown of the reasons higher education institutions should consider a Master Builder's Risk program, download our new whitepaper, "Laying the Foundation for Certainty and Smarter Builder's Risk Strategies."
