The pandemic caused unprecedented business closures during April and May across the country, particularly in the hospitality and retail sectors; sent professionals home to work remotely; emptied out office buildings; and shut down construction projects. We offer some insights on what we are seeing to date in both our Vacant Building and Builder’s Risk & Remodeler’s Risk insurance programs, and what we expect to see moving forward.
Inside Vacant Buildings
“Amid the lockdown, we experienced a dip in agency submissions for vacant buildings,” noted Nicole Knight, Program Manager of Distinguished’s Vacant Buildings and Builder’s Risk & Remodeler’s Risk programs, “with an uptick in submissions in June, July and August. However, up until now the uptick hasn’t been a real game-changer with a significant increase for insuring vacant buildings as a result of the pandemic. This, of course, can change down the road, perhaps at the end of the year or in 2021 if business revenues continue to drop and bankruptcies possibly spike.
Nicole explains the lag in a rise in vacant buildings amid the pandemic may be attributed to a number of factors, including businesses still in the process of determining whether they will/can continue to remain open. In addition, many businesses have received financial assistance in an effort to help prevent closures. Businesses received federal loans through various programs such as the Paycheck Protection Program (PPP), Economic Injury Disaster Loans (EIDL), SBA Express Bridge Loans, SBA Debt Relief, and other programs. Banks also offered an array of programs and loan flexibility to help business customers affected by the pandemic.
As buildings remain vacant, Nicole stresses the need for owners to continually check on their properties, as they are more susceptible to damage from a variety of foreseeable events such as vandalism and malicious mischief, theft and attempted theft, water damage from sprinkler systems, freezing pipes in the winter months, continuous water leakage over time from various pipes and appliances, infestation of animals and glass breakage.
Inside Builder’s Risk & Remodeler’s Risk
In the Builder’s Risk & Remodeler’s Risk space, during the lockdown construction, for the most part, came to a standstill due to state mandates with funding and permits also unavailable to complete a project. “Depending on each state and its COVID requirements, we are now seeing an uptick in the need for coverage as construction resumes, particularly for projects that were significantly delayed due to the inability to work and obtain permits and loans during the lockdown,” says Nicole.
Due to construction delays, Nicole explains that many agents on behalf of their clients are asking for coverage to be extended beyond the typical two-year period. “Clients need more time for permit issuance and for new construction builds.” She underscores the need for agents to send in their extension requests now to ensure that coverage will continue beyond the 24-month period established in the Builder’s Risk policy.
Another issue impacting Builder’s Risk is the beginning of a slightly tighter insurance market with carrier appetite changes and the need for better rate adequacy. “Carriers are beginning to shy away from wanting to write frame buildings because of their exposure to fire and the expense of lumber to rebuild. Contractors should be looking to use different types of material as the coverage will be less expensive to insure the structure,” says Nicole. In looking into the future, Nicole expects to see growth in the Builder’s Risk market although it may be slightly down due to COVID. “We will see more demand in new residential construction as more individuals look for wide-open spaces. On the commercial side, we may see less growth in Builder’s Risk, particularly in the retail and office space as people move away from building larger projects.”