(June 2019)
Builders risk coverage is unusual because the building under construction does not have any value when construction begins. It does not reach its total value until construction is complete and coverage ends. This means that the values at risk are significantly less than the limit of insurance for almost the entire policy period. This situation is why standard property rates are not appropriate.
All builders risk Group I exposures are rated based on ISO Rule 85–Basic Group I Class rates. The classification is 1150 and is used, regardless of size or expected occupancy, when construction is complete. The Group I loss costs are state specific and vary by type of construction.
According to ISO Rule 70, Causes of Loss–Basic Form:
The loss costs for Causes of Loss–Broad Form and Causes of Loss–Special Form are in the multi-state loss cost pages.
There is no provision for separate earthquake rates for builders risk coverage. Builders risk earthquake rates are developed the same way as earthquake rates for regular buildings. That rate is then modified by a factor. Buildings under construction with construction classes 3A, 4A, 5A, and 6 are not eligible for earthquake coverage.
The rating formula for builders risk is the same as for any other class rated risk.
Related Article: ISO Commercial Property Program Rating Considerations
The final builders risk rate is a full annual term rate. If coverage is written for less than a full annual term, the premium is pro-rated, not the rate. In addition, the return premium is always calculated on a pro-rata basis when construction is complete, and the policy is cancelled.
If the limit changes to reflect a different final construction cost during the policy period, the change endorsement is always effective on the policy’s inception date. The inception date is used because the rating formula assumes that the correct completed value applies during the entire policy term.