Owner vs. Contractor Placed Builder’s Risk Insurance

When procuring the necessary insurance coverage for construction and real estate projects, it’s important to understand the options to help make informed decisions. As an insurance brokerage firm, we have extensive experience working with both owner/developer and contractor clients. In our experience, for our owner/developer clients, we generally find that owner-placed property builder’s risk insurance is the optimal solution. While contractors may offer to place this coverage, owner-placed insurance often ensures superior control, transparency, and compliance.

There are occasions, however, when contractor-placed coverage can make sense. In some cases, there may be significant pricing incentives or unique project characteristics that warrant consideration. As part of our role, we review any contractor-proposed coverage to assess whether it presents a compelling alternative for our clients. However, in most instances, owner-placed coverage remains the best option and should be pursued to support a sound and informed business decision.

Total Control

Securing a project’s builder’s risk policy ensures owners maintain full control over critical aspects of coverage and claims:

• Policy control: Owners bear the financial risk of construction losses and delays. By placing their own policy, they control coverage terms, ensuring their interests are fully protected.
• Claims and proceeds: As the first named insured, the owner receives claim payments directly, eliminating delays or disputes with the contractor or lender.
• Broker selection: Owners can engage expert brokers to optimize coverage, manage costs, and ensure policies align with lender requirements.
• Coverage certainty: Contractor-placed policies often feature shared limits, hidden exclusions, or inadequate CAT (wind/flood) coverage. Contractor-placed policies also often exclude business interruption, soft costs, and delay-in-start owner exposures. Owner-placed coverage avoids these risks and ensures comprehensive protection.

Transparency

Owner-placed builder’s risk policies ensure greater financial clarity and control over costs and coverage:

• Eliminates hidden fees: Contractors may embed markup or profit margins into insurance charges, increasing owner costs. An owner-placed policy ensures clear and direct cost structures.
• Competitive pricing: Owners can negotiate policy limits, duration, and premiums directly, bypassing opaque contractor arrangements through the contracting team, their brokers, and insurance companies.
• Tailored coverage: Owners can customize coverage to ensure sufficient limits and avoid gaps or exclusions that contractors may impose to minimize their costs.

Compliance and Continuity

Owner-placed builder’s risk insurance ensures compliance with financing obligations and provides critical continuity in coverage:

• Lender and contract requirements: Owner-placed policies are designed to align with lender mandates and project financing requirements. Additionally, having the owner in direct contact with the lender enhances communication and accountability. On larger and more complex projects, lenders often prefer or require owner-placed coverage due to contract privity, ensuring greater control and transparency throughout the process.
• Policy continuity: If the contractor is replaced mid-project or the contract is terminated, the owner retains seamless coverage, avoiding costly gaps or the need for mid-project policy placements. This continuity is ensured because with an owner-placed policy, the owner maintains ownership and control of the policy for the entire duration of the project.
• Coverage confidence: Owner-placed policies eliminate uncertainty regarding broker quality, policy limits, exclusions, term duration, and soft-cost or delay-related exposures.

Conclusion

By placing builder’s risk insurance directly, owner/developers gain enhanced coverage management, improved transparency, and greater assurance of compliance throughout the project’s lifecycle. This proactive approach helps safeguard their financial investment and ensures the project’s risk management strategy remains aligned with their objectives. For owner/developers who prioritize control, transparency, risk mitigation, and budgeting efficiencies, an owner-placed builder’s risk policy is often the ideal choice. Our team is ready to assist with your next project to ensure optimal coverage and risk management.