Builders Reluctant to Embrace Big Picture Risk Management in Construction Process
As long as banks will lend, builders will build. With construction start dates in Des Moines and around the country at or near all-time highs, the push to strike while the iron is hot will continue. Even with the environment as favorable as it is, it isn't without its challenges: finding qualified sub-contractors, competition for tax credits and financing is consistently elusive, and getting the attention of decision makers for the green light is often a get-in-line reality check.
In most cases, risk management is seen after the project details are discussed, expectations set, and contracts signed. The decision is set for who is responsible for what, including who writes the check if your project suffers an accident.
What happens if something goes wrong over the course of construction? “Relax,” you say. “My broker sold me an insurance policy.”
Look at that policy. Do you notice how many pages long it is? There's a reason insurance policies are two inches thick, and it’s generally not because insurance carriers are overly generous as to provide page after page of coverage. The reason your policy is so thick is because carriers know exactly what they provide coverage for, and what they don’t.
A recent Des Moines project suffered a large loss, garnering nationwide attention in the insurance industry. While the details of the expense and liability are still being sorted through, what are often overlooked are the subsequent expenses that resulted from the accident. For example, the environmental concerns, demolition and debris removal expense alone exceeded seven figures. Expenses to the city for street closures and patrols exceeded six figures. All while ongoing expenses were continuing to be incurred.
Does your program provide you with the financial resources to continue to pay your carrying costs after a loss? How about continuing to pay your insurance premiums and real estate taxes? Does it provide you enough expense for environmental concerns, demolition and debris removal? Does it provide enough support when you re-incur engineering, architectural, legal, and accounting expenses? Most importantly, does it help you bridge the gap between when you were supposed to be collecting revenue, to when you'll start to collect revenue?
Plan in advance. Find a risk management partner that provides sound advice and a consistent process in establishing the correct values. Involve them in the process of negotiating alongside your attorney & contractors. I hope you never experience the evidence of a poorly designed & executed risk management program. But most often, when you do it’s when you need it the most.
Information provided by
Lincoln Savings Bank
13523 University Avenue
Clive, IA 50325
Contact me at (515) 327-9923
LSB Insurance, a Lincoln Savings Bank company. Not FDIC insured, no bank guarantee, may lose value, not a deposit, not insured by any Federal Government Agency.