Insuring Pre-construction

Alex Bell
 
Alfonso: I want to introduce Alex Bell. From an insurance standpoint, Alex is the managing partner and VP of the Realty Properties at MyCor insurance. He's a real estate investor himself. And yeah, he's going to talk a little bit about what do we have to worry about when we're doing a pre-construction or any of those types of things from an insurance standpoint? Alex?

Alex: Hey, thanks Alfonso, great to see everyone tonight. With respect to the content for tonight's discussion, each year's piece is more or less short and sweet. And my apologies, I would just add it on here at the last minute today. I made some notes here to actually go through this. The first example, as far as the insurance is concerned is the insurance is all about financial ownership. In a lot of the deals that we were talking about this evening, pre-construction where the builder, condo development, townhouses, things like that, you're not taking title or financial ownership until the end of that deal.

Essentially insurance is not required. I'm sure Shawn would be able to talk about this. There are some examples where the builder will want you to get liability insurance in place before the bank will actually fund the deal. That's not typical. You don't really see that in most pre-construction deals. There's no property exposure to you while this development is going on. Insurance is really a non entity or a non exposure. The second component to this, and this is where it can get very complex, right? In a lot of a few of the members on the panel, it looks like this is the strategy that they're focusing on.

But when you are doing a new build and you have financial ownership in the property, whether you're acting as the JC or whatever it is you need what's called the insurance solution that you need is called builder's risk insurance, or also known as course of construction insurance. Did reality in today's insurance marketplace, that there is capacity to get this kind of insurance typically you would, as far as the timeline is concerned, you would want to make sure that you're providing the insurance broker with at least 14 to 21 business days to go on in the marketplace and procure terms such of this nature.

Builder's risk insurance, standard insurance markets will not have the appetite for this kind of risk, this insurance can get very technical. All right. And the devil is in the details. If I could give one tip to everyone here tonight. When you are controlling the actual bill and you're the name on title, and you have financial ownership, you want to make sure that you're working with a broker who knows this class of business, the devil is in the details.

I said the wording is a perfect example of what Natalie was talking about the propane tank catching fire, and making sure that you had an extinguisher on site. This type of the builder's risk insurance is very convoluted and it contains what's called warranties or subjectivities. I can't stress to you enough. You need to make sure that when you get the actual proposal and you're reviewing that with your broker, that you could go through with a fine call. And a detailed explanation of what those subjectivities and warranties are because in the athlete's case there, if she didn't have a fire extinguisher on hand and that fire was not able to be put out there would be no coverage.

Any damages around from that particular loss, you would be on the hook for that type of exposure. You really want to delve in and do a deep dive into the policy of wearing and covering. There are other exposures with respect to that. Those types of policies are written on what's called, named perils.

The coverage is very limited compared to a standard wording policy. There's other coverages that are in that type of insurance solution. You would also want what's called wrap-up liability insurance, which essentially means that the insurance market is providing a commercial general liability insurance to all of the trades on site. It's very technical for that kind of insurance. And again, the reality in the marketplace today is make sure you get out to market well in advance.