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  #1  
Old 03-31-2014, 04:11 PM
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Default Why is Builders Risk insurance considered fully earned when written?

Inquiring minds want to know.

thx
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Old 03-31-2014, 04:15 PM
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Duration of a BR policy is usually less than 1 year.

Primary exposure is theft and weather related damage to raw material.

Can't have a four-month policy in force for 1 month, experience a significnat loss, and then have the policy cancelled for the remainder of the term when the project is suddenly nix'd.



Also, it forces the builder to actually engage in the work and not "delay" w/o consequences with as much raw material that is likely to be exposed to a loss.
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Old 03-31-2014, 04:35 PM
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so a moral hazard problem?
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Old 03-31-2014, 05:23 PM
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More or less, IMO.
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Old 03-31-2014, 05:27 PM
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Quote:
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so a moral hazard problem?
More likely a morale hazard problem.

This is actually a really good example of the difference between the two.
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Old 03-31-2014, 06:06 PM
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Quote:
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Also, it forces the builder to actually engage in the work and not "delay" w/o consequences with as much raw material that is likely to be exposed to a loss.
This actually sounds like an arguement against immediately earning premium.

Buy the policy, let the material sit around for a six months before beginning work. Although I can think of many reasons why doing this would be a bad idea, there would be no consequence to the builder from a premium standpoint since the builder would not anticipate a return of unearned premium for finishing the project sooner than expected.
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Old 03-31-2014, 07:56 PM
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Builders/contractors aren't buying policies and not doing work for 6 months. At least not on the E&S side.

This is news to me (the fully earned part) and is interesting, I've always thought this line presents moral hazard and can now see the industry attempts to minimize this impact.
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Old 04-01-2014, 01:17 AM
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Quote:
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This actually sounds like an arguement against immediately earning premium.

Buy the policy, let the material sit around for a six months before beginning work. Although I can think of many reasons why doing this would be a bad idea, there would be no consequence to the builder from a premium standpoint since the builder would not anticipate a return of unearned premium for finishing the project sooner than expected.
In most cases, the property owner will be the one "purchasing" the insurance on behalf of the contractor. That is, the policy will have the contractor as a named insured (and the owner is an additional insured) but the owner is the one paying the premiums.

By having the premium fully earned, this also prevents the owner from "changing" to a cheaper insurer part way through the policy term.

And the owner will likely be the one now forcing the contractor to complete the project on time so that they don't have to purchase another policy.

And completed projects ==> better experience on a BR policy.
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Old 04-01-2014, 09:33 AM
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Quote:
Originally Posted by Vorian Atreides View Post
In most cases, the property owner will be the one "purchasing" the insurance on behalf of the contractor. That is, the policy will have the contractor as a named insured (and the owner is an additional insured) but the owner is the one paying the premiums.

By having the premium fully earned, this also prevents the owner from "changing" to a cheaper insurer part way through the policy term.

And the owner will likely be the one now forcing the contractor to complete the project on time so that they don't have to purchase another policy.

And completed projects ==> better experience on a BR policy.
That makes sense.
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Old 04-01-2014, 10:20 AM
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Quote:
Originally Posted by Vorian Atreides View Post
In most cases, the property owner will be the one "purchasing" the insurance on behalf of the contractor. That is, the policy will have the contractor as a named insured (and the owner is an additional insured) but the owner is the one paying the premiums.

By having the premium fully earned, this also prevents the owner from "changing" to a cheaper insurer part way through the policy term.

And the owner will likely be the one now forcing the contractor to complete the project on time so that they don't have to purchase another policy.

And completed projects ==> better experience on a BR policy.
This could be true in cases of Wraps (project specific) or owner controlled insurance plans, where the owner (developer) of a complex handles purchase of all the insurance.

In many (most?) cases especially with residential and service/repair the contractors on site are required to carry their own insurance. The owner is NOT the actual insured in this case.
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