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Builder’s Risk Program

The State Office of Risk Management sponsors a builder’s risk line of insurance for client state entities. Builder’s risk insurance provides protection against natural or man-made property damage to facilities during construction or renovation. For example, if a fire destroys an office building while under construction, builder’s risk insurance pays to rebuild the structure.

Some property policies may contain coverage for builder’s risk exposures; however, a property policy may have higher deductibles, and a dedicated policy may be a better option. In accordance with industry standards, the State of Texas requires either a project owner or a contractor to procure insurance to cover property damaged during construction. In Texas, that requirement is often placed on the contractor as part of the contract.

In certain scenarios, it may be in the state’s best interest to secure builder’s risk insurance directly to avoid increased cost, exercise risk management decision making authority, or address the potential for a substantial financial loss from being inadequately protected.

The state sponsored builder’s risk insurance program through the State Office of Risk Management (SORM) allows the state entity to directly control the insurance, thus ensuring comprehensive, standardized insurance terms with decreased costs.

Advantages of a State Sponsored Builder’s Risk Program

Due to economies of scale, the state’s marketplace leverage, and the volume of capital construction projects throughout the state, SORM can secure a favorable rate. Further savings may be achieved through the elimination of duplicative charges in multiple project costs. Further, a master statewide insurance program helps minimize variable costs associated with each contractor’s experience, volume, and surcharge in profit and overhead.

The state sponsored builder’s risk program will provide an automated rating matrix, allowing for quick turnaround and delivery of certificates of insurance for the owner without delay, often a burden in meeting procurement and contracting finalization requirements.

A master program allows both SORM and the sponsoring state entity to instantly know when builder’s risk insurance is initiated and terminated on construction projects. Prompt notification of builder’s risk insurance termination at the completion of a build ensures the completed building does not lapse in coverage and could be insured immediately under the state’s permanent property insurance program.

The state can directly negotiate standard and appropriate policy terms and conditions and secure coverage which best protects the interests of the state. Contractor-provided coverage may be subject to contractor selection or ability to secure, which may be more restrictive, at higher cost, or require substantial resources or time for verification.

The statewide program provides coverage enhancements and sub limits to all state projects that are higher than many contractors normally secure. The state’s program will also ensure adequate coverage for exposures such as transit, offsite storage, expediting expenses, delay in start-up, soft costs, and hot testing, which may not be provided by the contractor or would significantly increase project costs.

In a statewide program, limits may be dedicated to each state project, versus contractor-provided coverage where the limits may be shared with the contractor’s other projects.

Because the program is a statewide basis, a state entity procured policy eliminates the potential for a contractor or sub-contractor being unable to secure coverage or having coverage cancelled.

With a master program, all projects have the same coverage and rates. A master program allows for coverage to continue with no disruption should a contractor default or be replaced prior to completion of a project. Insurance companies are reluctant to insure a project where some of the work has already been completed by another contractor.

Uniform coverage also allows for uniform claims handling. The master program will have agreed upon loss documentation and adjustment procedures and all claims will be handled by a dedicated loss adjuster. This will ensure all losses are measured and paid in an efficient and expedient manner, thus minimizing the administrative burden on the state and project management team.

Common Misconceptions

  • Contractor will have acceptable limits
  • Contractor will have best coverages
  • Contractor will be cheaper because they do this all the time

How to Obtain a Quote

To obtain a quote, send your inquiries to:

Provide project details, including:

  • Project Description & Contractor
  • Construction Hard Cost Budget
  • Construction Schedule & Timeline
  • Site Plan & Geotechnical / Soils Report(s)
  • Contract Documents
  • Value of Existing Property (renovation projects only)
  • Optional – Delay in Start Up – only if coverage requested (loss of revenue, loss of rents for 12 month delay in completion and any extra expense – e.g. alternate venue, etc.)
  • Optional – Other Soft Costs for delay in completion – only if coverage requested (e.g. additional interest, license/permits, debt service payments, insurance premiums, bond interest, A/E fees, etc.)

Additional Resources