Assessing construction defect costs when claims start to build

Claims related to construction defects are usually reported years after a home is completed. As new housing continues to grow, it’s probable that the number of construction defect claims will also grow in the near future. That scenario should impel home builders, contractors, and insurers to assess their potential construction defect losses in advance.

In his article “Analyzing construction defects: Practical considerations,” Milliman’s Jamie Shooks details the following items stakeholders should consider when estimating the total costs of construction defects:

• Geography
• Type of insured: Subcontractor versus general contractor or developer
• Additional insured versus named insured
• Wrap and non-wrap policies
• Attached versus detached housing
• Community/home type
• Alternative fee arrangements
• Frequency and severity by report lag
• Evolving litigation
• Report year versus accident year analysis
• Use of predictive analytics

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