In the realm of construction and real estate development, risks are a crucial and essential element of the blueprint. However, for builders and developers operating in high-risk zones, such as areas that are susceptible to flood, wildfire zones, coastal developments, or urban areas with strict regulations, the risk isn’t merely a part of the job. It defines the job. Unfortunately, traditional insurance companies don’t always have the capacity to create policies that cover these difficult projects.
This is where Excess & Surplus (E&S) lines insurance becomes crucial.
At Keen Coverage, we specialize in helping contractors and developers secure the protection they need in the event that standard insurance providers leave. This article will go over the factors that make zones “high-risk,“ why standard policies aren’t enough and how E&S insurance can bridge the gap and keep your project on track.
What are High-Risk zones?
High-risk zones are those in which the risk of loss is substantially greater because of regulatory, environmental or construction-related exposures. These areas typically include:
- Flood zones (FEMA-designated Zones AE, VE, etc.)
- Coastal areas are prone to windstorms and hurricane damages
- Wildfire-prone areas
- Urban areas that have high crime rates or an old infrastructure
- Earthquake fault lines
- locations with prior insurance claims or a history of litigation
Working in these areas is often unavoidable, especially as land becomes scarce or demand increases for custom homes, resorts, or commercial spaces in scenic but vulnerable areas. What’s the catch? The majority of the admitted carriers will refuse coverage or charge high fees with tight exclusions.
Why standard insurance markets say “No”
Traditional insurance companies are heavily reliant on risk models that are statistical and standard underwriting guidelines. In high-risk areas, the information doesn’t appear to be very good. Loss ratios are higher and claims are more frequent and repair costs are unpredictable.
Common reasons standard carriers decline coverage include:
- Too many unknown variables (e.g. environmental risks, weather uncertainty)
- Uninsurable materials or designs for building (such for combustible roofs materials or elevated decks)
- The past claims of the same place or in the neighborhood
- Timelines for construction and site-specific risks that are beyond the underwriting tolerance
This is where developers are left scrambling, especially if lenders require proof of coverage before financing is released.
E&S Insurance: A flexible solution for Hard-to-Place risks
Excess & Surplus lines insurance provides a solution in the event that the traditional market shuts its doors. In contrast to admitted insurance companies, E&S insurers are not restricted by the state-regulated rate and form filing. This allows them to assess the risks on their own and create custom policies.
Key Advantages for Developers and Builders:
Tailored Coverage
E&S insurers can create policies based on the actual site risks, not just the zip code. This means that they’ll take into consideration mitigation measures such as elevated foundations, fire-resistant materials and engineered drainage systems.
Flexibility in Policy Terms
While the standard policies have strict restrictions, E&S lines allow for negotiated terms, endorsements, and add-ons specific to the scope of your project.
Faster Turnaround
Construction timelines are extremely tight. E&S underwriters are known for their speed and responsiveness which is critical for project approvals and permitting.
Higher Limits
Need $5Million in builder’s risk or umbrella coverage? E&S markets have greater liability limits in order to satisfy contract and lender needs.
Common coverages offered through E&S lines for High-Risk Zones
- Builder’s Risk Insurance (including coverage for natural catastrophes)
- General Liability
- Excess Liability / Umbrella Policies
- Pollution Liability
- Wrap-Up Insurance (OCIP/CCIP)
- Contractors Professional Liability
- Inland Marine / Equipment Floater
The policies may be packaged or written independently, based on the risk profile of your project.
What developers should know before choosing E&S coverage
Although E&S insurance is effective however, there are a few key distinctions to be aware of:
- Non-admitted status: E&S companies aren’t insured by state-guarantee funds. However reliable E&S firms are highly assessed by A.M. Best and have large reserves of financial assets.
- Surplus Lines Taxes: If you are a taxpayer, then you could be liable for additional fees or taxes imposed by the state.
- Policy Customization: As policies are manuscripted, it’s essential to collaborate with a seasoned agent (like Keen Coverage) who understands the terminology as well as the coverage’s scope and possible exclusions.
How Keen Coverage simplifies E&S insurance for developers
At Keen Coverage, we don’t just provide policies, we analyze your project, examine all risks and help you connect with the appropriate E&S markets quickly. The process we follow includes:
- Risk assessment for the project and exposure analysis
- Negotiation with various E&S underwriters
- End-to-end review of policies, clarification and documentation
- Claims guidance and support throughout construction
Our mission is to make sure your construction is protected to ensure your build stays on track and on budget.
Final Thoughts
The difficulties that come with building within high risk areas are real, but the absence of insurance should not be one of the reasons. With E&S insurance builders and developers get the flexibility, protection and trust required to tackle challenging, high-value construction projects in challenging locations.
If your project is too risky for the market standard, don’t give up on your plans. Partner with Keen Coverage to create a smart, custom E&S policy.
Be sure to cover yourself before breaking the ground.
Contact Keen Coverage today, to schedule a meeting or speak with one of our expert construction E&S insurance specialists.