Posts|November 12, 2020
Project Loss Insurance – Peace of Mind for Contractors
By Jase Hamilton
Surety Department Manager CPCU, AFSB
Construction projects inherently bring a large amount of risk, not only to the business but to the individual business owner(s). Many of these inherit risks are deemed non insurable (ex. blown estimate, production chain delays, subcontractor failure), leaving the business susceptible to substantial project loss, business restructuring and even shutdown.
Project Loss Insurance (PLI) is being developed to share in the risk and protect contractors balance sheets from a catastrophic project loss.
Catastrophic project losses and contractor failure can come from various causes; Travelers Insurance, one of the largest surety/construction insurance companies in the U.S, has recently released data outlining causes of contractors’ failure over the past decade.
Causes of Contractor Failure:
*Percentage based on an internal review of Travelers largest construction surety claims over the last 11 years. In many cases, multiple factors were identified as contributing to the failure of the construction company.
PLI covers losses due to operational mistakes/misjudgments, failure or delay in performance by up or down stream parties and specific site or weather conditions that cause the Insured to sustain a project loss on a covered construction contract. Commercially available insurance coverages are excluded from a PLI Policy with the exception of surety bonds or Subcontractor Default Insurance (SDI) where PLI would respond in excess.
Similar to surety underwriting, programs are strictly and continuously underwritten based on business plans, past project loss experience, financial condition, internal controls and overall proven track record. Projects parameters are set based on locations, size, type, work category, duration and procurement method and are endorsed/enrolled at inception with single and aggregate limits subject to both deductibles and co-insurance.
Pricing is unique to each case and varies dependent on the underwriting criteria above and desired parameters for project enrollment. General rates are from $1 to $4 per $1,000 of total projects enrolled and average deductibles are $1M.
Travelers plans to roll out Project Loss Insurance in late 2020 or early 2021.
Details may change over the coming months and if you have additional questions or are interested in discussing the product in greater detail please contact our office.
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