TOP STORIES

Maximize Your ROI: How Steel Framing And Insurance Can Lead To Construction Cost Savings
During the past five years, it has been tough to hold the line on construction costs, and unfortunately relief appears to be nowhere in sight for 2008. According to the Associated General Contractors of America, Arlington, Va., cost inflation for construction projects has increased by 28 percent since 2003. Despite a temporary lull last year, construction costs are projected to surge again, driven by higher overheads for fuel, materials and labor.

There are many factors that can determine a project’s final price tag, including insurance premiums, which have been on their way up for the past 10 years. This is prompting developers and owners to take a closer look at different options with many starting to consider insurance not just as simple “protection against loss” but as an actual tool for maximizing return on investment.

To meet the demands of this changing marketplace, Arthur J. Gallagher & Co., Itasca, Ill., introduced a new marketing campaign in the western United States last year called STEEL Advantage. Because of Gallagher’s expertise and reputation in the construction industry, STEEL Advantage is uniquely positioned to negotiate specialized insurance products when steel framing is used for all structural elements in a construction project. As an insurance and risk management service, it also helps builders and consumers sort through the maze of insurance products to more effectively purchase the right amount and types of coverage they need.

This guidance can be critical to the process of choosing the right insurance products because many factors can cause significant fluctuation with insurance pricing. Some of these factors include how long it takes to complete the entire construction project, materials used to build the structure, and skill level and safety of laborers installing the product, as well as the likelihood for future structural claims and lawsuits.

In the case of builders risk insurance, construction material may also play a significant role in determining premium costs. Wood construction, for example, has a greater likelihood to burn or be damaged by a catastrophic event such as high wind or an earthquake, which is likely to result in a total loss rather than a partial one.

With cold-formed steel as the centerpiece of the STEEL Advantage concept, risks associated with all these factors are greatly reduced compared to more traditional materials like wood or concrete. In the insurance carrier’s underwriting and thought process, these decreased “risks” associated with steel framing should equate to lower costs in claim/lawsuit dollars over the course of a 10-year period. This has allowed Gallagher to successfully work with insurance carriers to develop or gain access to insurance products with premium savings and possibly broader policy terms for their “steel” clients. It is a win-win situation for all sides when steel framing is used in the construction process.

STEEL Advantage seeks to package these programs and benefits to provide faster access to a suite of construction-related insurance products. For projects where steel framing is used for all the structural elements, builders and owners/developers could potentially realize double-digit savings along with broader coverages when certain exposures are packaged and strategically marketed to the insurance carriers.

For one “real world” example, a 190-unit condo project in California obtained coverage with $25 million policy limits. As a cold-formed steel project, the general liability Wrap premium was $2 million compared to $2.3 million if it had been built with concrete—a savings of $300,000 or nearly $2,000 per unit.

Through the STEEL Advantage campaign, Gallagher is also equipped to place coverage with Zurich’s Builders Risk Insurance. Available nationwide, Zurich’s Builders Risk Insurance is an innovative insurance program that, when used for all the structural elements in commercial construction projects, recognizes steel framing as noncombustible and, therefore, superior construction. The program can reduce premiums by as much as 25 to 75 percent for steel-framed products. The program is underwritten by Zurich North America Small Business and administered by Schaumburg, Ill.-based Zurich Insurance Services, the largest provider of builders risk insurance products in the United States.

The benefits of using steel framing can also impact the owner for future property renewals. Like builders risk insurance, property coverage can include business income triggered by a coverage event. Because insurance underwriters have an appetite for noncombustible structures because of better loss histories, they tend to compete harder for this type of business through more attractive premiums. This can represent a huge advantage for owners of a steel-framed structure because the savings recur every year when the policy is renewed at the noncombustible rate.

Ultimately, many variables are involved in pricing an insurance policy, including project location, size, occupancy type, and the selection of construction materials. STEEL Advantage not only capitalizes on the inherent advantages of steel framing, but also offers builders who choose steel with a clearer path to the full range of cost savings through the many insurance options available today.

For additional information about the STEEL Advantage concept, contact me at (559) 916-2649 or charles_specht@ajg.com. To learn more about steel framing’s benefits, visit www.steelframing.org.

Charles J. Specht III is an area vice president at Arthur J. Gallagher Risk Management Services, Itasca, Ill.

Source: Metal Building Developer, March/April 2008