What Is a Subcontractor Default Insurance Program
Willis Towers Watson Default Insurance Group is recognized across the industry for its knowledge, training and commitment to client success. Our team develops strategies that align clients` individual methods to achieve cost-effective results through the use of SDI, an increasingly popular risk transfer product. We educate our clients on technological changes, pre-qualification solutions for subcontractors, policy development and general best practices for the development of risk management solutions. Alternatively, SDI is just a bipartisan agreement – it`s between the contractor and the insurer. SDI does not guarantee performance or payment. On the contrary, in the event of a delay by a subcontractor or registered supplier, the SDI insurer will provide a high-deductible insurance policy to reimburse the contractor`s costs resulting from the failure of the subcontractors or supplier. The general contractor must pay part of the costs associated with repairing the failure – up to the high deductible amount. The deductible is negotiable, but ranges from several hundred thousand dollars to several million dollars per loss. As a subcontractor, you have a risk associated with the potential non-performance of your subcontractors or subcontractors who do not pay their subcontractors and suppliers. Regardless of the size of your business, it`s essential to proactively manage these risks. The pre-qualification of these enterprises (both their capabilities and their financial strength) should be independent of other tools used to mitigate these risks. Whether you are a prime contractor with subcontractors or subcontractors, respect the terms of the contract, in particular the definition of defect.
Know your risk mitigation options and involve your risk advisors and warranty experts in the conversation. Not all SDI coverages are created equal. Simply put, SDI`s niche qualities require an expert understanding of the causes and best solutions to subcontractor failure. Through rigorous research, including consultations with top general contractors, Liberty Mutual is able to offer a different – better – approach to s`idS. The information contained herein is provided for informational purposes only. This is not an offer to sell or a solicitation to buy a particular insurance product. Insurance coverage in a particular case depends on the type of policy in force, the terms, conditions and exclusions of such a policy and the facts of each unique situation. No guarantee is given that the specific insurance coverage would apply in the circumstances described herein. For specific details on coverage, please refer to the individual policy formulations.
AXA XL is a division of the AXA Group that offers products and services in three business areas: AXA XL Insurance, AXA XL Reinsurance and AXA XL Risk Consulting. Not all insurers operate in all jurisdictions and coverage is not available in all jurisdictions. SDI can offer certain benefits in the form of reduced costs, control over the selection of subcontractors and direct management of breakdown situations. For the general contractor, however, there are financial risks that can also run up against resistance from subcontractors in the pre-qualification process. In addition, SDI is limited to the subcontractor`s default settings and not those of the general contractor. SDI`s dual insurance ratio is not a clear substitute for tripartite coverage, and the lack of legal decisions regarding IDW leads to greater uncertainty as to how policies might be interpreted. Project participants should carefully consider the benefits and risks of all options to ensure the best possible performance of the project. In this situation, a guarantee is a tripartite agreement between the general contractor, the subcontractor and the guarantor. The guarantee guarantees the performance of the subcontractor and guarantees the payment of subcontractors and suppliers of the lower level. A bond provides the general contractor with first-dollar coverage in the event of default. Under an SDI policy, a general contractor registers all pre-qualified subcontractors for a specific project or policy period.
The general contractor will then be compensated by the insurance company for all covered direct or indirect costs incurred if one of the subcontractors is in default. It`s not uncommon for contractors to have annual subcontracts of $75 million or more, so if a subcontractor defaults, it can seriously affect a general contractor`s profitability. For this reason, we have developed our Product Subcontractor Default Insurance (SDI). Liberty Mutual`s SDI is specifically tailored to the needs of general contractors to make any project a success. SDI ensures that general contractors retain control of their projects while protecting them from losses resulting from the failure of a subcontractor. When performance bonds are used, the guarantee company initiates the process by carefully examining the subcontractor. The guarantor checks a number of factors, such as the subcontractor`s financial well-being, credit history, and ability to perform the work. If a subcontractor passes the inspection, he is obliged and the guarantor assumes the risk that the subcontractor is in default. The SDI guideline is a tool that general contractors, prime contractors and construction managers (contractors) use to insure the risk of loss associated with the failure of their world-class subcontractors.
Contractors take a huge risk of loss by hiring subcontractors to perform the work on their projects. If a subcontractor does not comply with the terms of their contract, contractors can negatively impact redesign, resequencing, project delays, increased costs, and damaged reputation. SDI`s blended approach maximizes the benefits of risk transfer (bonding) and risk acceptance (SDI) and creates a well-managed risk management process that can positively impact a contractor`s bottom line. .
