What is Happening with EIFS Insurance?
Over the past several months, I have spent time evaluating the EIFS insurance market. I’ve talked to contractors, distributors, underwriters, risk managers, brokers and insurance executives. The consensus is that EIFS insurance is available but can be accompanied by varying degrees of confusion.
Most applicators and distributors can get insurance with little trouble if they have the right broker. Owners and general contractors might find it a little more difficult unless they are talking to the appropriate people. Over the past fifteen years, EIFS insurance has gone from being very difficult to obtain to relatively easy to acquire. At the same time, the cost has also moved from very expensive to very reasonable. Why the change? Well, the main reason is there are virtually no claims against EIFS. In 2016, the EIMA manufacturing members reported that only three litigation claims were filed compared to hundreds of EIFS claims in 2000.
The reason for this dynamic drop in claims was a result of the EIFS industry taking action to overcome objections concerning EIFS. Some of these include reengineering the systems to incorporate drainage, adding secondary barriers to provide backup protection, improving industry education and training programs, and promoting sound building practices. However, even with these improvements and virtually no claims for over ten years, why are there still concerns from the insurance industry?
In part, it is the result of the insurance industry, like most other industries, being resistant to change. The EIFS insurance exclusion language that is used by some underwriters today was originally developed in the early 2000s. It was introduced because of the large number of EIFS claims during the late 1990s and early 2000s. Ultimately, the last thing that insurance companies want to do is to pay claims. As a result, EIFS exclusions are the norm in construction insurance while EIFS insurance without exclusions is the exception.
Is this confusing situation around the EIFS insurance issue holding the industry back? It certainly seems possible. Consider this, the use of EIFS continues to grow but you would expect higher levels of growth when you look at all of the advantages that EIFS offers. Just to name a few, EIFS is listed in the model building codes, offers a straightforward pathway to meet the energy codes, features outstanding insulation properties as the original continuous insulation, allows unlimited design options, and contributes to affordability. With all of these assets, one would expect EIFS to be growing at warp speed.
Let’s look further into the EIFS insurance market to get a better understanding of the reluctance of the market to change. I recently attended the International Risk Management Institute conference. The meeting focused on risk as it relates to construction. Most of the major players in the construction insurance market were represented. I spoke with several of them, including representatives from Travelers, Hartford, CNA, and Zurich. When I asked them about insuring EIFS, they replied that they all have an EIFS exclusion in their standard policies but they will write EIFS insurance under certain circumstances. A consistent reply was EIFS coverage is available but it depends on the client and the type of structure. In other words, it’s not a black and white answer - the answer is “it depends.” In reality, it is clear that there is a lack of understanding within the insurance industry about the current situation concerning EIFS as it relates to claims and its evolution since 2000. Again, the good news is that even with this confusion, most EIFS customers can get insurance for their projects. The key is to deal with a broker who is knowledgeable about the EIFS insurance market.
First of all, let’s understand a little bit about insurance brokers. Everyone in business uses an insurance broker. The local broker will take care of their client’s every day insurance needs such as general liability, auto, health, etc. These brokers generally have access to a number of insurance companies who will write insurance for them. Some are the major carriers such as the ones mentioned above, or the broker may use specialty insurance companies who specialize in underwriting niche areas of coverage. Unfortunately, most of these general insurance brokers are not very knowledge about EIFS because it is not an everyday request. The local broker may struggle to find coverage for their clients and sometimes their lack of understanding may lead to the wrong type of insurance. However, the good news is that there are brokers out there that are EIFS insurance experts. These are the experienced brokers to call. They know the market. They know the business. They have the relationships within the insurance world. And they know which company will underwrite EIFS insurance. These seasoned brokers can help our industry resolve the EIFS insurance problem. A list of these “EIFS brokers” is now listed on the EIMA website.
As you can see, EIFS insurance can be a complex situation. EIFS insurance is available if you have the right contacts, but there is still a lot of confusion over the issue within the construction industry. This confusion creates doubt in some people’s minds. This doubt may lead to lost opportunities as an architect or owner may opt to use another cladding rather than deal with this confusion. To rectify this situation, we must continue to promote the value of EIFS to all and to educate the insurance industry about the current status of EIFS. It is something that the EIFS industry has continuously worked at addressing on multiple levels. EIMA has been working to remove the insurance concern once and for all, but like anything else in life, it will take time. The good news is that we have a positive story to tell about EIFS. And we as an industry need to tell our success story to the insurance market.