So -- you're thinking about adding a risk financing facility to your corporate operations. Great! What does that mean? Glad you asked! Please join us on Friday, November 16th at noon for, "What Every Captive Owner Should Know."
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A recent blog post from the GLE Associates blog highlights two construction risks that a risk financing facility can underwrite for contractors:
It’s a nightmare no property owner wants to deal with. We had a call a few weeks ago from an owner whose construction project hit a major roadblock due to the discovery of mold growth. The construction company had failed to dry-in the project before hanging drywall, and the drywall had gotten wet. Where there’s organic matter, water, and heat, mold will grow. In this case, a lot of it.
The project will have to be delayed while the mold is abated, and it is likely to add hundreds of thousands, if not millions of dollars to the cost of the project. The contractor, meanwhile, has disappeared, so the cost will come out of the owner’s pocket.
There are two insurable events in the above fact pattern:
Mold: in the late 1990s and early 2000s several mold related cases created headaches for property insurers, which led to the mold exclusion -- now standard for property policies. With the exception of macroeconomic employment benefits, there is nothing good that comes from mold remediation. It's expensive, time consuming, and makes properties money pits for months or years. However, it is a very real risk faced by contractors and real estate companies.
Subcontractor default: everybody in the construction business has seen this happen. After a project is completed, a problem with work performed by a subcontractor develops. However, the responsible party has either folded-up shop or declared bankruptcy. Either way, the primary subcontractor now has to foot the bill for the repairs.
Risk financing facilities (RFFs) excel at hard to underwrite risks, filling gaps in coverage. Both of the above fact patterns are tailor-made for RFFs. The underwriting process involves the identification, analysis, and treatment of risks, which will include mold remediation and subcontractor default. Please call us at 832.330.4101 if you'd like to learn more.