Types of Insurance Coverage for Real Estate Developers
The Real Estate Insurance field contains several types of policies and coverage designed specifically for developers. Here is some information on the various types of insurance coverage for Real Estate Developers.
The types of insurance coverage for Real Estate Developers fall under the headings of risk reduction insurance. They include such things as coverage known as finance insurance and also performance liability insurance. In recent years, this coverage has grown somewhat problematical to Real Estate Developers as premiums have risen and exclusions have become more common.
The rise of premiums and the increase in exclusions are a result of the increase in claims for performance liability. In the past, these were not so common. Usually, homeowners were patient about construction defects and allowed the developers ample time to correct them. In today’s more unforgiving legal climate, construction defects have led to increased claims. As with all types of insurance, the number of claims that have had to be paid determines the ultimate premium cost for underwriting the insurance.
The construction industry and the insurance industry have fought back by offering discounts on insurance to manufacturers that comply with certain standards that would tend to make homes safer and less liable to produce claims. Fire prevention is one such area. A recent program offered as much as 20% reduction in premium cost to developers employing certain “prevention” materials in the construction process. The idea that fire prevention is ultimately cheaper than fires themselves was the motivation for this program.
While it is not a great risk to build a single dwelling, a development faces some serious risk factors. A very large amount of capital must be risked to undertake a major development project. Yet, a growing population requires housing. Housing starts are a major economic indicator of a healthy economy. The Real Estate Insurance industry has helped this sector of the overall real estate picture by offering coverage specifically designed to reduce the risk to the developers.
There is no insurance that eliminates risk completely. This is why liability and finance coverage is viewed as risk reduction. The principle that is common in developer insurance is what is called indemnification. To indemnify is to make up the actual loss. In other words, if a developer loses, out of his pocket, a certain sum of money, the insurance will replace all or part of the loss. In order to file a claim, however, the loss must have actually taken place.