Winds of Change Affect Builders Risk Insurance Market

High winds on Dec. 27 caused the Lindsey Cos. a four-story pain in the neck.

A 22-unit apartment building that was under construction at the Links at Fayetteville blew over, causing the company to scrap most of the work it had done on the site.

“The building was in the late framing stage and all of the framing was lost,” wrote Brett Rogerson, vice president of expense/risk management for Lindsey Management Co., in e-mailed responses to questions about the incident.

“The foundation and elevator shaft had no damage,” he wrote.

The building was to be about 22,000 SF and it will take the company about a month to return it to the stage prior to its loss, Rogerson wrote.

Wind and fire damage is covered under builders risk insurance, which are policies usually taken out by the general contractor to cover their investment in a project while it’s under construction. There are many different add-ons to the insurance, but in its most basic form it pays for materials and most labor costs to get a project back to where it was when damaged.

Builders risk is pretty much required for a project to get off the ground and as construction has slowed, it stands to reason that so have the number of premiums being written. No agency collects data specifically about builders risk premiums, but some agents had anecdotes about their business.

“I bet it’s shrunk at least 70 percent in the market in the last year,” said Mike Luttrell, vice president of Walker Brothers Insurance Inc. of Springdale. Walker Brothers was recently ranked as No. 12 on Arkansas Business’ Largest Insurance Agencies list, with $32.5 million in 2007 premiums.

“There’s just not as much and it has become extremely more competitive,” Luttrell said. “It’s a lot different.”

But Etonna Tincher, account executive with Brown-Hiller-Clark & Associates of Fort Smith, said she’s only noticed builders risk fall off for residential construction because the firm has many clients that build hotels, hospitals and schools.

Brown-Hiller-Clark landed as the fifth-largest agency in the state with $58.7 million in 2007 premiums.

Rogerson said the apartment building at the Links was insured for the wind damage and that Lindsey Management made a claim. But he would not say what the estimated value of the building was at the time or if the insurance company paid the claim.

According to permits purchased from the city of Fayetteville in February of 2008, buildings of that size being erected at the project have a valuation of more than $1.9 million.

Rogerson wrote that there will be 42 apartment buildings varying from two- to four-stories in Phase I of the Links project, with a total of 604 units.

Damage Done

Gary Brandon, owner of Gary Brandon Enterprises of Fayetteville, knows first hand how important builders risk insurance can be.

On Feb. 3, 2003 a partially completed Marriott Residence Inn Brandon co-owned and developed caught fire at Rogers’ Scottsdale Center.

The four-story, 65,513-SF building was one of the largest fires on record in that town.

On Feb. 11 of that year, Brandon and his partners filed a claim for $2.8 million with Walker Brothers Insurance.

Luttrell told the Business Journal then, that he had made rough estimates on the damage and came up with a figure as high as $3.5 million, so he was glad to see the claim came in lower.

“We got paid,” Brandon said in a recent conversation with the Business Journal. “We came within probably a few percent of collecting all our costs … we lost some administration costs, but the Rogers fire department was very thorough and they expedited their investigation.”

“We feel like we got our money’s worth.”

Despite the high claim, Brandon said his rates did not skyrocket.

“That was our one time,” he said.

Agents and contractors agree that rates are reasonable on builders risk. Dennis Moore, CEO of Commerce Construction Inc. of Springdale, said he’s paying $758 per month on a $6 million project that’s being built. Commerce builds many of the Harps grocery stores and is building one in Bryant now. His agent is Brown-Hiller.

Moore said he’s never had to make a claim, so his rates are pretty good.

Greg Williams, chief financial officer for Conway-based Nabholz Construction Co., said his firm keeps a sharp eye on insurance rates because they change frequently.

“We have a good safety record, so our rates are extremely competitive,” he said. Nabholz provides builders risk on all its projects unless it’s spelled out otherwise in the contract, he said.

The costs of typical insurance coverage — including general liability, workers’ compensation and builders risk — run about 1 percent of the cost of a job, Williams said.

Tincher, the agent with Brown-Hiller, said clients pay between 10 cents and 60 cents per $100 in value.

Moore said many contractors don’t bother with insuring the slab on a project, because even if there’s a fire, the slab will remain intact.

But Brandon might argue that point.

The fire at the Residence Inn was so hot, it melted the copper and PVC that was in the slab, so the company literally had to start with the ground again.

“We had close to a month of down time,” Brandon said.

The whole project took five months to get back to the point where it had been damaged.

“It wore us out, of course, to build it twice,” he said.