Parametric insurance fills gaps in builder coverage

A panel of experts at the International Risk Management and Insurance (IRMI) Construction Risk Conference discussed the benefits of customizable parametric insurance in covering losses and enhancing safety in ways that traditional builder’s risk policies cannot.

The experts noted that while builder’s risk covers only physical damage, parametric insurance can compensate builders for conditions that make work impossible or unsafe, such as extreme heat or cold, wind, rain, or snow.

According to Rose Hall, founder of construction risk advisory firm RH Business Ventures, contractors are often left to absorb non-covered weather losses, which can have a significant impact on their operations.

Hall pointed to the growing impact of weather events such as polar vortexes, atmospheric rivers, and heat domes, which can reduce the strength of poured concrete by 50% if the temperature is below 40 degrees Fahrenheit.

Parametric insurance is attractive because the payout can be used for any purpose, not just repairs to damage, said Gary Kaplan, a former president of construction for Axa XL.

Kaplan noted that by using a more precise weather estimate for the jobsite location, builders can produce a “zero-weather-day bid” which embeds the expected weather delays in the budget.

This approach can give builders an advantage over competitors with a weather allowance, as it allows them to better manage weather-related risks and delays.

Policies can be customized to a project’s operations and safety thresholds, Hall said, such as covering cold only on days when the crew plans to pour concrete, or high winds only on days cranes will be used.

Temperature trigger points can be customized to a site’s heat protocols, allowing builders to tailor their insurance coverage to their specific needs.

Chris Smith, a senior director at the Baldwin Group, encouraged larger builders to use parametric insurance across their portfolio, as it can provide a level of schedule guardianship and help mitigate weather-related risks.

Smith also noted that builders with captives could use a parametric payout to fund the captive’s deductible after a catastrophic event, providing an additional layer of financial protection.

They can use this type of insurance to manage risks more effectively, and it can be a valuable tool for contractors, Hall added.