Coverage Explained

Builder’s Risk Soft Costs - What’s Covered

Feb 13, 2024

Working in the construction and real estate industries comes with high risks. Full-coverage insurance products are critical to avoiding liability and legal issues, as well as costs associated with delays in progress. These delays are also known as soft costs in the building industry.

Builder’s risk soft costs insurance is designed to protect against losses accrued due to construction delays. When projects come to a halt, investors, building business owners, and property purchasers lose money. Working with a wholesale insurance broker ensures bespoke coverage to protect clients against these situations.

Differentiating Hard and Soft Costs

Builder’s risk soft costs differ from hard costs in that they aren’t tangible expenses you encounter. Let’s break both down to better understand what falls into each category.

Hard Costs

Hard costs are expenses caused by tangible components of a built site or project, such as:

  • Labor
  • Materials
  • Equipment
  • Vehicles
  • Landscaping

These are all impacted by risks covered under general builder’s insurance, such as:

  • Fire
  • Vandalism
  • Theft
  • Wind and Lightning

Soft Costs

Soft costs are expenses building companies encounter due to projects being slowed down or halted, but aren’t physical parts of the project, including:

  • Inspections
  • Advertising
  • Insurance
  • Land costs
  • Fees for architectural design
  • Loans

Each of these non-tangible project components is impacted when a project is delayed. Loans, architects, insurance, marketers, and inspectors don’t get paid on time, and in return, tasks aren’t completed on time, further slowing development.Construction workers building steel frame

Covered Losses Under Builder’s Risk

As soft and hard costs differ in the world of building, it’s no surprise that coverage for risks involved in these areas differs as well.

  • Hard Costs Covered: Hard costs covered by builder’s insurance include equipment, materials, the labor team, and the property itself. The risks involved are more general and, therefore, easy to cover. Liability, damage to property, and lost or damaged equipment are all commonly covered.
  • Soft Costs Covered: The unique nature of soft costs in the building industry makes it difficult to protect against every risk. Many insurance policies offer limited coverage for soft costs. Some of the common soft-cost risk areas are missed payments for inspections, permits, promotions, loans, property tax, and insurance.

Often, builder’s risk soft costs aren’t completely covered by standard builder’s insurance policies. The best way to protect against them is to work with a broker experienced in unique insurance policies.

How to Protect Against Coverage Gaps

There are gaps between hard and soft costs within the building industry. So, how do your clients protect themselves against these risks? Fortunately, there are ways to obtain policies with fewer gaps.

Comprehensive Risk Assessment with a Wholesale Insurer

The first step to avoiding large gaps in the bulder’s risk soft costs category is to meet with a wholesale insurer. Wholesale insurance companies deal in products general insurers don’t. They are connected through a diverse network of brokers, writers, and sellers, and can find you the best product for your client.

A comprehensive risk assessment shows your wholesale insurer where the weak points lie for a company. The insurer can then connect with members of their network, or consult a writer to create a new product.

Tailored Policy Review

Wholesale insurers are well-versed in the niche policies of the world. They understand the nuanced risks of the building industry and can help you pinpoint top-tier coverage for your clients. Wholesale insurers do this with meticulous review for better customization. With experienced eyes, a wholesale insurer can find the holes in any current policy to better draft more substantial coverage.

Communication with Clients

Before you hand a project off to a wholesale insurer, you must fully understand your client's needs. Open communication is the key to successfully finding/building the best insurance product for a builder’s risk soft costs and hard costs combined.

Regular Policy Updates

Finally, be sure to stress the importance of up-to-date policies. The building and architectural world is constantly evolving. Policies need to reflect new tools, methods, training, and work dynamics to account for every risk in the field. As projects change, insurance products need to change to reflect the current risks.

Contractors inspecting building under construction

Builder’s Risk Coverage in Action – An Example

Watching builder’s risk coverage work in real life better emphasizes the importance of full coverage. Imagine a construction site where a commercial building is going up. Everything is on schedule, but a very sudden and severe storm damages the incomplete structure.

Builder’s risk insurance protects the builders and the building client from losses accrued due to damage to property and equipment. However, it fails to consider the impact of the delay caused by the damage, such as:

  • Loan interest begins to accumulate
  • Engineering consultations need to be revisited
  • Inspected portions of the project need to be re-inspected
  • Contracts may need renegotiating, requiring legal aid

In this example, customized builder’s risk soft costs insurance covers the costs of financial losses accumulated by these delays.

How an Insurance Wholesaler Can Help

Working with an insurance wholesaler comes with a variety of benefits, including:

  • Expert Guidance: Insurance wholesalers have seen it all. They work with retailers with clients across a vast network of niche industry settings. Wholesalers are the suppliers of insurance products not covered by standard suppliers. They can offer insight into products you may have never heard of or connect you with insurance writers to create new products.
  • Tailored Solutions: No two clients are exactly alike in the building industry. From commercial high rises to industrial warehouses to residential homes, wholesalers can help tailor products to fit the project your client is facing at the moment.
  • Claims Assistance: One of the most confusing parts of any new insurance product is filing a claim. Wholesalers offer support during the claims process, ensuring your client receives a smooth resolution in a timely fashion. This makes you look better to your client in the end.

Choosing the right insurance broker is critical to companies dealing with expensive building projects.

Builder’s Risk with Novatae

Novatae has access to more than 490 insurers globally. A seasoned team with a diverse background in wholesale insurance products, you can trust Novatae to find the right product for your building client.

Interested in learning more about how a wholesale insurer can fix your builder’s risk soft costs problems? Novatae can help. Contact us here.

This article is not intended to be exhaustive, nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.