Most construction projects take place outside which makes them susceptible to losses if these events were to occur on site. Weather is unpredictable but you decrease the impact or potential loss to your construction firm with parametric insurance.
What is parametric insurance?
Parametric insurance insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event rather than the amount of the losses. It is also referred to as a “double trigger” as it requires the catastrophe to occur in a predefined area (first trigger) and to be of a certain magnitude (second trigger). It is ideally suited for hard-to-model, low-frequency but high-intensity losses.
Considerations for Contractors
Parametric insurance can be purchased per project. Projects with strict schedules or are “fast track” should take special consideration. Coastal zone projects are especially at risk and should consider parametric insurance due to the substantial increase in costs and retentions in these areas. If you’re a contractor expanding to a new geography, you should also consider this coverage if you are unfamiliar with the weather patterns or working conditions.
What can be included in the average daily loss?
General site conditions:
- Project management
- Site management
- Temporary site conditions/utilities
- Equipment rental costs
- Site security
- Field offices and construction supplies
- Testing and quality costs
Owner Soft Costs:
- Project administration expenses
- Architect and engineering fees
- Insurance premiums
- Real estate taxes
Other Expenses:
- Liquidated damages
- Loss of gross earnings/loss of rents
- Other expenses, defined by carrier
Quick Pay-out & Clear Claims Process
Parametric insurance is designed to complement traditional insurance. It also makes for a quick, clear claims process, with minimized chance of dispute as the parameters are pre-defined.
In addition to being able to insure something that was not covered under your current policy, parametric’s clear claims process can be a big benefit to construction firms with its quick pay-out potential. The trigger in the insurance contract provides certainty that when conditions are met a financial payment will be made. Parametric insurance provides a way to secure protection against the weather conditions that affect or threaten your businesses both insured and economic.
If you are interested in learning more about parametric insurance for your construction firm or next project, contact a Marsh McLennan Agency advisor.
