From start to finish theft protection; a must for artisan contractors

As the construction industry in the United States continues to rise at a rapid pace, artisan contractors increasingly represent a vital part of this industry’s growth. However, due to the fact that most artisans are self-employed, finding adequate insurance at an affordable price can be difficult, especially in the current market. Whether insurance is purchased by the building owner, general contractor or directly by the artisan, understanding the exposures is essential in determining what lines need to be purchased.

Builders risk and installation
When considering what risks need to be covered and who is responsible for covering those risks, artisans must consider several issues that are generally outlined contractually. Insurance coverage is one of the most common ways to transfer risk, and the artisan must establish who is contractually obligated to covering what exposures. In some cases, the building owner may agree to cover certain risks. In other cases, the general contractor may provide coverage. Regardless, the artisan must understand what is an insurable versus an “un” insurable exposure.

The only safe way to manage the insurable risk is to obtain a full copy of the project specifications and any insurance policies written to protect the project. By doing so, an artisan will be able to determine what is covered, what is excluded, deductibles and any other financial obligation the artisan will be responsible for under each policy.

Construction projects are very complex with varying exposures. An area that all subcontractors, such as artisans, should seriously consider is obtaining an installation floater or a builders risk policy. That type of coverage is generally written on a “blanket” basis to protect the named insured for the cost to replace materials damaged or stolen from job sites and temporary storage locations. The coverage acts as a “back-stop” for use when there is no master builders risk coverage in force on a project and coverage is normally written either on a flat charge basis or a reporting form, subject to a rate per $100 of gross receipts. Both builders risk and installation floater policies are not standardized, so it is important to closely review the policy’s insuring agreement, exclusions, terms and conditions. Flood and earthquake perils also should be included in the policy.

Theft and the impact on cost of risk
The most tangible risk involved in artisan construction is materials used to complete a project. Often times, materials used in the course of building and installation need to be shipped to a construction site. If materials are shipped to a “Freight on Board” shipping point, they are covered by a builders risk policy from the time they are shipped until their installation work is accepted and paid for by the owner or general contractor. However, some builders risk policies exclude materials on job sites unless they are installed, so it is important to make sure materials stored on site are covered.

With rapidly rising costs for building materials, new strategies have emerged to lock in materials cost. Materials such as copper wire are being purchased well in advance of the need at the job site, and stored on or away from the project site. This can create a significant exposure to loss that needs to be insured. Artisans need to work closely with their insurance agent or broker if this is an issue.

Copper theft increasing
Copper is one of the main materials used in many artisan contractor projects. An unfortunate result of a recent rise in the cost of copper is that wiring is being stolen both while it is awaiting installation and after it has been installed in a building. To prevent theft, artisans can take several steps to make sure their inventory is measured and tracked.

Using a reliable marking system, a complete inventory of all equipment and belongings should be done for each project. In addition, all jobs should include adequate lighting and signage indicating “No Trespassing” or video surveillance to deter would-be thieves. While chain-link fences can be breeched, perimeters are established and, in most states, allow law enforcement to challenge or arrest trespassers on a job site. Hiring private security to monitor a job site after hours and using the best hardware, such as locks and containers, are other ways of protecting assets.

In addition to tangible security measures, artisans and contractors should meet with the local law enforcement agency prior to construction to provide them with details about each project, including the type of construction, work schedules and estimated time of completion. Providing those officials, as well as members of the business community and neighbors, with names of key contact personnel for the project can serve as a critical source of information should materials disappear from a job site. A system should also be in place to discuss theft prevention policies with all on-site workers on a regular basis.

Ultimately, theft of materials makes construction projects more expensive. These costs are passed on to the end user in the form of increased pricing. If artisans can control those costs through loss prevention, they will not only be able to control expenses, but they may also have an effective competitive advantage.

It is important to remember that there are experts who can help. Insurance advisors should be included from the beginning of the process. Once a contractor’s plans, budgets and insurance policies have been reviewed, artisans can have a better understanding of the hazards, security and responsibilities to determine the correct coverage needed on a particular project.

Brad Gibson, senior vice president, Construction, at Denver, Colo.-based Lockton Companies Inc., is responsible for risk management consulting, insurance brokering, and service for construction, architecture and engineering, and real estate development.