KCRI Field Notes No. 002: When Less Insurance Is the Better Recommendation

KCRI Field Notes No. 002 — Client details and project information have been modified to preserve confidentiality while retaining the underlying insurance and risk management lessons.

Executive Summary

One of the biggest misconceptions in construction insurance is that the best broker recommends the largest insurance program. In reality, the opposite is often true.

Recently, we worked with an owner-builder developing two residential homes in California. The owner expected to purchase a broad commercial insurance package similar to what a general contractor might carry.

After evaluating the project, we recommended a much narrower insurance strategy. Why? Because the goal wasn’t to sell more insurance. The goal was to insure the actual risks.

Project Snapshot

Project Type	Owner-builder residential development
Location	California
Construction Budget	Approximately $750,000
Project Scope	Construction of two single-family residences

The Initial Request

The owner initially believed the project required multiple commercial insurance policies covering nearly every conceivable exposure.

This is understandable. Construction projects involve lenders, permits, contractors, inspections, and significant financial investment. Owners often assume that complexity automatically requires a complex insurance program. Not always.

The Real Question

Instead of asking, “What insurance can we sell?” we asked, “What financial risks actually exist on this project?”

That single question changed the entire conversation.

Risk Assessment

Several observations became clear. The project was relatively contained. The owner was not operating a large construction company. There was no large payroll. The exposure profile differed substantially from that of a commercial general contractor managing dozens of concurrent projects.

Because of those differences, many of the policies initially being considered would have provided little practical benefit relative to their cost.

Our Recommendation

Rather than layering unnecessary coverage, we focused on the areas that represented meaningful financial exposure. Those included evaluating:

• Course-of-construction property protection
• Premises liability
• Contractual requirements
• Lender requirements
• The owner’s personal asset exposure

By narrowing the discussion to genuine risks, the insurance strategy became simpler, easier to understand, and more cost-effective.

Why This Matters

One of the easiest ways to lose credibility as an insurance advisor is to recommend coverage that cannot be clearly explained. Owners deserve to understand:

• Why a policy exists
• What problem it solves
• What it does not cover
• Whether another approach could accomplish the same objective

Insurance should be intentional — not automatic.

Field Observation

Owner-builders frequently compare themselves to licensed general contractors. From an insurance perspective, that comparison can be misleading.

Construction experience, project size, contractual obligations, financing arrangements, and ownership structure all influence the appropriate insurance strategy. Treating every owner-builder like a commercial contractor often leads to unnecessary complexity.

Questions Every Owner-Builder Should Ask

Before purchasing insurance, consider the following:

• What insurance does my lender actually require?
• Which risks could create a catastrophic financial loss?
• Which risks can I reasonably retain?
• Am I acting as a homeowner, a developer, or a general contractor?
• How many contractors will be working simultaneously?
• What contractual insurance obligations have I accepted?
• If a claim occurred tomorrow, which policy would actually respond?

Answering those questions usually leads to a much more effective insurance program than simply purchasing every available policy.

Final Thoughts

Insurance should follow risk — not fear. The best insurance programs are not necessarily the largest. They are the ones that match the realities of the project. For owner-builders, understanding that distinction can reduce unnecessary cost while maintaining meaningful financial protection.

Related read: Sometimes the right call is more coverage, not less. See Why We Recommended an OCIP for a Mid-Sized California Condominium Project for a case where a larger insurance program was the correct recommendation.