Home builders across Virginia and the nation are encountering an unwelcome reality: insurance premiums continue to climb at rates far exceeding inflation. Business owners who understand the contributing factors to these increases are better positioned to make strategic decisions that will protect their bottom line.
We’ve gathered what you need to know about the underlying causes of rising premiums and the most effective methods for addressing this situation.
The Perfect Storm Driving Premium Increases
Climate-Related Catastrophes Are Getting Worse
Rising home builders insurance costs are mainly due to more frequent and severe natural disasters. These catastrophic events impact the entire construction industry. When severe storms, wildfires, or other disasters strike, builders encounter increased liability risks, higher material costs, and greater demand for reconstruction services that can strain insurance resources.
Construction Costs Are Skyrocketing
Construction and repair expenses, which include labor and materials, generally increase in densely populated regions of the United States and when resources are limited. The inflation in construction costs directly translates to higher insurance premiums because insurers must account for the increased expense of rebuilding damaged properties.
How Rising Premiums Impact Home Builders
Direct Cost Increases
For home builders, these premium increases directly impact project budgets and profit margins. The rising costs affect multiple types of coverage that builders need, including:
- General liability insurance
- Professional liability coverage
- Property insurance for tools and equipment
- Workers’ compensation insurance
Competitive Pressures
As insurance costs rise across the board, builders must decide whether to absorb these increases or pass them along to clients. This creates competitive pressures that can affect bidding strategies and project profitability.
Cash Flow Challenges
Higher insurance premiums require larger upfront payments, which can strain cash flow, particularly for smaller construction companies or those managing multiple projects simultaneously.
Strategies for Managing Insurance Expenses
Regularly Compare Quotes
Before purchasing a policy, it’s wise to obtain quotes from multiple insurers. Make sure you understand the included and excluded coverages, and that you are comparing similar policies. The insurance market changes continuously, and rates vary across different providers.
An insurance broker with experience in home builders insurance can find the best options for your needs and risks.
Consider Higher Deductibles
While increasing your deductible can lower your premiums, confirm that you have sufficient funds to cover the out-of-pocket expense if you need to file a claim. While this strategy requires maintaining higher cash reserves, it can lead to significant savings over time.
Implement Risk Management Programs
Insurers often discount businesses that proactively manage risks. Consider implementing:
- Safety training programs for employees
- Regular equipment maintenance schedules
- Quality control procedures
- Environmental monitoring systems
Maintaining clear and thorough documentation of these measures will help you demonstrate to your provider that you are committed to risk management.
Bundle Your Coverages
Many insurers give discounts for bundling multiple policies. Bundling your general liability, professional liability, and property coverage often leads to savings while simplifying your insurance management.
The Importance of Adequate Coverage
While controlling costs is important, attaining sufficient coverage should remain your top priority to protect not only your business, but also one of your client’s most valuable possessions: their home.
As a home builder, your work directly impacts this important asset. Insufficient coverage could expose your business to catastrophic financial losses that far exceed any premium savings.
Understanding Your Coverage Needs
Regularly review coverage limits with your insurance professional for general liability, professional liability, property coverage for tools, equipment, and materials, business interruption coverage, and cyber liability protection for digital assets. These essential coverage areas establish the core of a thorough insurance program that safeguards your business against a range of potential risks.
Looking Ahead: Market Trends and Predictions
Industry experts suggest that while premium increases may moderate slightly, they’re likely to continue outpacing inflation for the foreseeable future. Construction insurance premiums rose 4.6% in the first quarter of 2024. Meanwhile, construction costs have inflated 50% between December 2017 and December 2023, compared to overall inflation of just 25%.
This significant gap between construction cost inflation and general inflation suggests builders will continue facing disproportionate insurance premium pressures, as insurers adjust rates to account for the higher replacement costs and increased claim payouts in the construction sector.
Take Control of Your Insurance Costs with Burton & Company
Don’t let rising premiums derail your construction projects or eat into your profits. The experienced team at Burton & Company understands the challenges of home builders in Virginia and can help you find the right balance between cost control and comprehensive protection.
For over 100 years, we’ve been helping local businesses secure quality insurance coverage that meets their specific needs and budget. Our deep understanding of the construction industry allows us to identify cost-saving opportunities while confirming you have the protection necessary to keep your business operating smoothly.
Let us put our expertise to work for your construction business in Virginia.
Contact Burton & Company online or call (888) 652-1325 to discuss your home builders insurance needs and learn how we can help you manage costs while maintaining the coverage that protects your business, your employees, and your clients.
