De-Risking Water Damage Risk in Preconstruction
This is the second in Brickeye’s series of blog posts on the application and benefits of IoT water mitigation technology. In this post we take a deeper dive into how the technology can be leveraged to help de-risk projects upfront in preconstruction to maximize benefits for all stakeholders.
Water Damage in Construction: The New Fire?
Water damage has become the number one source of Builders Risk insurance claims on construction projects. Years ago, fire used to be the biggest concern for construction job sites. As the occurrence of extreme weather events increase in frequency and severity, and the industry is challenged with a significant shortage of skilled labor, water losses during construction have increased dramatically, driving up costs for all stakeholders. Job site water incidents can result in damage, rework, delays, claims, litigation, and higher construction loan financing costs. These incidents can delay project completion, cause reputational damage, impact project margins, and significantly drive up insurance costs. Up to 70% of Builders Risk claims come from water damage, which has resulted in a 10x increase in water loss deductibles over the last 5-10 years. Simply put, water is the new fire.
Scope Technology in Preconstruction to Maximize Benefits
​
Within the current construction and Builders Risk insurance landscape, forward-thinking owner/developers and general contractors are actively adopting innovative technology solutions to mitigate risk and bend the insurance cost curve, particularly around water damage incidents. So what are leading owner/developers and general contractors specifically doing as a best practice? Turning to construction IoT technology providers such as Brickeye can help mitigate water damage risk on the job site, including water escape from mechanical building systems as well as water intrusion from severe weather events. While the technology itself (e.g., presence of water sensors, flow meters, automatic shut-off valves, etc.) can help mitigate water damage risk in real-time during the construction phase, taking proactive steps to scope and budget these technology-enabled risk controls into projects during pre-construction can maximize benefits and avoid costs for insureds, brokers, and insurance markets before Builders Risk policies are even bound.
​
De-Risking Projects in Preconstruction
Brickeye’s process to help insureds de-risk projects in pre-construction to protect against water damage involves three main steps. First, Brickeye schedules a project discovery meeting, along with a detailed review of the Architectural / Mechanical Electrical Plumbing (MEP) drawing package and key construction schedule milestones. This information is used by Brickeye to develop a Project-Specific IoT Water Mitigation Plan, documenting the scope and timing of risk controls that will be implemented on the project, outlined on specific drawings and with deployment timelines according to evolving risk exposures throughout the construction schedule.
Second, Brickeye and the insured review and optimize the technology plan, firming up the scope of risk controls and budget for approval.
Third, once approved and signed off, Brickeye delivers the Project-Specific IoT Water Mitigation Plan and a Certificate of Protection to the insured. These materials are included by the broker as part of the submittal package sent to lead and follow-on markets to quote and bind the project’s Builders Risk policy. Brickeye helps support the insured and their broker in this process, often meeting with the broker, as well as the underwriters and risk engineers evaluating the project, to help address any questions related to the IoT Water Mitigation Plan, and assist in positioning the insured and their project as a better risk for markets to insure based on water protection services being committed to and implemented in the plan. ​
%20drawing%20brickeye.jpg)
Benefits to Insureds
​
Taking a proactive approach to technology adoption by de-risking projects upfront in preconstruction is increasingly becoming a best practice. The main benefits to insureds of taking this proactive approach are two fold. First, scoping the implementation of water mitigation technology in pre-construction enables proper budgeting upfront, as well as planning and coordination between parties around the implementation of these job site risk controls.
​
Taking these steps early can help avoid surprises down the line when insurance carriers may require the insured to put protections in place in order to place capacity, approve policy renewals, etc. Second, sharing a detailed risk mitigation technology plan with your broker and carriers prior to binding the policy can significantly improve the project’s risk profile, helping to drive down deductibles, as well as the cost of deductible buy-downs, by up to 50%. Increasingly, the implementation of water mitigation technology is becoming a prerequisite to qualify for lower deductibles, or in the case of some project types, or projects located in Nat Cat exposed areas, it may be required to secure capacity at competitive rates.
Benefits to Insurance Brokers
For brokers, securing favorable Builders Risk insurance terms for clients is becoming increasingly difficult, particularly in a relatively hard market where capacity can be tight and coverage costs are increasing. Water loss deductibles have escalated 10x over the last 5-10 years, reaching up to $1M in some markets like South Florida. By helping insureds de-risk projects upfront in pre-construction, Brickeye’s approach and construction risk mitigation technology is helping brokers position clients and their projects as better risks to insure, incorporating technology-enabled water mitigation strategies into projects from the start. This allows brokers to further differentiate clients and their projects in a market competing for favorable coverage terms, making it easier to secure additional capacity, reduce the number of follow-on markets required for quota share on high-value projects, obtain more favorable deductible structures, and decrease water loss deductibles and buy-down costs by up to 50%. In addition, partnering with Brickeye to help educate and encourage clients in adopting risk mitigation technology is helping brokers differentiate their own services and win new business, providing value add for clients in an advisory capacity. These efforts are supporting best practices in risk management across the construction industry and the adoption of best-in-class risk mitigation solutions.
Benefits to Insurance Markets
​From the standpoint of insurance markets, specifically carriers and MGAs underwriting Builders Risk policies, Brickeye’s approach to helping insureds de-risk projects in preconstruction is helping to address two significant challenges facing underwriters in accurately assessing and pricing construction project risk. The first challenge facing underwriters is very limited visibility into what, if any, water mitigation technology will be deployed on an insured’s project and the scope of those risk controls. By having access to a detailed Project-Specific IoT Water Mitigation Plan upfront at the time of quoting coverage, underwriters benefit from enhanced visibility of the insured’s use of technology-enabled risk controls and their scope of protection, enabling them to better assess and price their risk on the project. The second challenge facing underwriters is uncertainty around an insured’s follow through on the implementation of water mitigation technology. The Certificate of Protection (CoP) is an attestation from Brickeye to insurers that the insured has committed to implementing Brickeye’s technology on the project according to the appended plan, including a non-refundable payment to lock in scope and delivery timelines. By receiving a CoP upfront at the time of quoting coverage, underwriters can rest assured that the technology plan will be implemented, helping markets lower claim frequency and severity, protecting their loss ratio. This in turn allows underwriters to price their policies more competitively and soften the market with respect to allocating capacity, modifying deductible structures, and reducing water loss deductibles.
Brickeye’s water mitigation technology provides a comprehensive approach to mitigating one of the most significant risks in construction - water damage. By working proactively with insureds, brokers, and insurance markets in pre-construction, Brickeye helps project stakeholders de-risk water risk upfront. This approach leads to better risk mitigation practices, technology budget certainty and insurance cost savings for insureds. It supports brokers in placing more competitive coverage for clients and differentiating through value-added services. For underwriters, it enhances visibility in assessing risk and certainty around risk controls, resulting in lower risk exposure and more flexibility in offering favorable coverage terms. Brickeye is the technology partner that helps insureds, brokers, and insurance markets de-risk construction projects, delivering better outcomes for all stakeholders involved.
Stay tuned for our next post in this series, where we will take a deeper dive into leveraging IoT Water Mitigation Technology to reduce the frequency and severity of water damage incidents in real-time during construction.