HUB Phoenix Construction News Issue # 1
January 2014
Volume: 1
Vice President of Construction Services: Dave Bentley
780-453-8419
Our Surety Team Director of Surety Relations/Marketing: Drew Adam
780-453-8405
Account Executives: Randy Singh Rick Steenbergen
780-453-8414 780-732-9917
Account Manager: Robert Leddy
780-453-7752
Construction Service Support: Leila Zdebliak
780-453-0839
2013 Construction Year in Review
Our Construction Insurance Team Account Executives: Donna French Brent Sierpinski Karla Nichols
780-453-8417 780-453-8426 780-453-7757
Account Managers: Jennifer Badgley Shannon Mackelson Raumy Mostafa
780-732-6883 780-732-6889 780-732-8921
Welcome to 2014 and our first newsletter prepared by our Team of Construction Risk Management Experts. In reflecting on what was a busy 2013, we saw a number of trends continue to emerge revolving around the following areas:
On the Web
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International Money financing Construction in Canada. International Construction Firms pursuing bigger, more complex projects in Canada. Merger and Acquisition activity on every level (Prime Contractor, Sub-Contractor, Supplier, etc.) Fast changing commercial terms that focus on compressed building schedules and different procurement models.
Issue # 1
January 2014
Volume: 1
HUB Phoenix Construction News
2013 Construction Year in Review (cont.)
The rapid use of technology such as Building Information Modeling (B.I.M.) and Integrated Project Delivery (I.P.D.) on all levels of construction to deliver a project. The attraction and retention of key people/labor. The very real difficulties in getting paid promptly.
We see these areas continuing to evolve in the Canadian construction market place as the Global Construction Industry continues to pick up steam. Global Construction Forecasts suggest that back logs are increasing, but margins are still tight when compared to 2007-2010 profit levels. We also follow closely the difference between publically funded construction and privately funded construction spending trends. Governments around the world are watching their money (in some cases they don’t have any) as private money begins to get back into developing opportunities for themselves and society. Looking inwards on our Team and its capabilities, 2013 was a year of growth on many levels. We are involved with a number of Public Private Partnerships (P3s), were involved in a couple of large/complex Joint Venture Arrangements involving the use of Co-Surety capacity and we placed specific insurance coverages on risks in Canada, the USA, and the Caribbean. One of the more interesting placements was bond coverage on a multi year/multi million dollar critical oil supply contract followed closely by bond coverage on $1.4 billion worth of work in the energy field/industrial heavy oil. Our Team thrives on these types of challenges and looks forward continued partnering with our Contractor Friends. In closing, we are pleased to inform our readers that our Clients understand the current state of the construction market place and choose to partner with our Team because of our focused approach in Construction Risk Management. By collaborating with our Clients, proactive steps are being taken to embrace change and implement procedures that allow our Clients to be a contributing member of what is becoming the New World Order in Construction. We wish everyone continued good health and good success in 2014!
Dave Bentley Vice President of Construction Services
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Issue # 1
January 2014
Volume: 1
HUB Phoenix Construction News
World Wide Catastrophic Events and the Effect on Insurance Coverage and Rates / Premiums In watching and listening to the news reports and the weather forecasts, I am certain that we have all been noticing a trend in the Weather and the Catastrophic Events that have taken place on a world wide basis over the past few years. The storms and events have been growing both in intensity and in frequency, in the wake of the path are devastation and destruction. Typically, we think of these catastrophic events as being in far off lands, events such as Volcanic Eruptions, Earthquakes, Typhoons, Tsunamis, etc., as having no effect on us here at home. However, the devastation caused by these types of events are felt far and wide on a global basis, and here at home as well. More recently and much closer to home, we are seeing storms and other weather related events cause damage and destruction that had not been seen in over 100 years. We witnessed the constant rain in the mountains causing Canmore, High River, Calgary, and much of Southern Alberta to experience flooding. Many businesses and homeowners were unable to return to their property for months. In Toronto, the recent Snow and Ice storms that hit left many people out of power and heat in their houses for days, and media reported that vehicle accidents were being reported every two minutes by the late afternoon during this storm. These events have a human element as well. The emotional turmoil that is felt by each business, family and individual, loss of property, the rebuilding that will be required to get their lives back together, it is also the financial loss felt by each business, family and individual. Whereas many of the losses are covered by insurance, some of the events are not insurable events. In some cases the Insurance Companies stepped in and provided coverage for the victims of the floods in spite of the fact that their policy did not provide the coverage, whereas in other cases Governments have provided some funding to the victims of the disaster. The Insurers and Governments have reported losses not only in the millions, but billions of dollars; recently we have seen reports that losses from Natural Disasters in 2013 have reached $45 Billion in Insured Losses only. More has been absorbed by the victims directly; Governments have also contributed considerable funding directly to the victims. In relation to the amount of the damages, the Governments may need to recapture the funds by increasing taxes. We are anticipating that Insurers will follow suit by raising property rates, but we are also seeing a trend for some Insurers to introduce amended policy wordings and reducing coverage. Underwriters are also seeking increased deductibles; this will help to keep the rates more affordable. The trend that we have noticed at our desk tops is that the overall Markets are having a tendency to harden at this time, and we are seeing that some rates are starting to creep up, and Underwriters becoming more reluctant to be flexible on rates. Here at HUB Phoenix we are pushing back for our Clients, we have been successful in negotiating rates and we are still very competitive and currently holding our own. Donna French Construction Services Account Executive - Insurance 3
Issue # 1
January 2014
Volume: 1
HUB Phoenix Construction News The Value of Surety Bonds The way project owners evaluate and manage risks on construction projects and make fiscally responsible decisions to ensure timely project completion are crucial to their success. Since private owners cannot afford to gamble on a contractor whose reliability is uncertain or who could end up bankrupt halfway through the job, a surety bond is a great safety net for the investment. What is Suretyship? Suretyship is a very specialized line of insurance that is created whenever one party guarantees performance of an obligation by another party. What is a Surety Bond? A surety bond is a written agreement where one party, the surety, obligates itself to a second party, the obligee, to answer for the default of a third party, the principal. Who Are the Three Parties That Make Up the Surety Agreement?
The principal is the party that undertakes the obligation. The surety company guarantees the obligation will be performed. The obligee is the party who receives the benefit of the bond.
How is Suretyship Similar to Other Forms of Insurance?
State or Provincial insurance commissioners regulate both. They both provide a safety net for financial loss.
How is Suretyship Different?
In traditional insurance, the risk is transferred to the insurance company. However, in a suretyship, the risk remains with the principal and the protection of the bond is designated for the obligee. In traditional insurance, the insurance company assumes that part of the premium for the policy will be paid out in losses. Yet, in true suretyship, the premiums paid are "service fees" charged for the use of the surety company’s financial backing and guarantee. In underwriting traditional insurance products, the goal is to "spread the risk,” while in a suretyship, surety professionals view their underwriting as a form of credit. Therefore, the emphasis is on the prequalification and selection process
The Value of Surety Bonds With a surety bond, the risks of project completion are shifted from the owner to the surety company. For that reason, many private owners require surety bonds from their contractors to protect their company and shareholders from the enormous cost of contractor failure. Subcontractors may be required to obtain bonds to help the prime contractor manage risk, particularly if the subcontractor is completing a significant part of the job or is a specialized contractor who is difficult to replace. This article is based on the 2012 article posted by the Robert E. Miller Group. Click here to read that article in its entirety. HUB Phoenix Construction News is published by HUB International Phoenix Insurance Brokers Construction Services Team. 10320 – 146 Street Edmonton, Alberta T5N 3A2