Construction companies face risks that
other organizations never have to consider, which makes obtaining the right insurance coverage one of the most complicated parts of running their business.
Insurance market conditions can change
frequently, adding to the challenge of staying adequately protected.
Smart Business spoke to Marty Purcell,
CPCU, vice president with The Graham
Company, to clarify some of the more prevalent coverage issues that contractors face.
How is the insurance market for contractors
right now?
We’re in a ‘soft’ insurance market, which
is good news for buyers of insurance,
including contractors. Rates are down and
there’s a lot of competition among insurance companies. However, there are also
some pitfalls associated with the ’soft’ market. Sometimes new insurance carriers
that aren’t familiar with and don’t typically
write insurance for contractors start bidding for construction business. These same
insurance carriers may decide to cancel or
non-renew coverages they have written for
contractors as soon as the market changes
if they are not committed to maintaining a
construction portfolio.
Regardless of the market, contractors
need to make sure they are insured with
the right insurance carrier that is in it for
the long term. This means they understand
construction and can provide broad coverage, competitive pricing as well as effective
claims handling and loss control services.
What are some of the key coverage issues
the industry is currently facing?
The construction industry is dealing with
significant changes to additional insured
and contractual liability coverage as well
as exclusions for wrap-up programs and
residential work.
When the market is ‘soft,’ sometimes construction companies may be tempted to
look for immediate cost savings when purchasing insurance and might overlook
potential coverage issues. No matter how
much money you save in insurance premiums, it can cost a lot more money in the
long run if you’re faced with uninsured
losses or poor loss experience if the coverage is not structured correctly or claims
handling is sloppy.
How often should contractors evaluate their
insurance programs?
The program structure should be re-evaluated every year, but we usually recommend marketing the program extensively
roughly every third year. Depending on
market conditions, it might make sense to
consider changing the amount of risk being
assumed, such as increasing or decreasing
deductibles. We usually caution against full-scale marketing every year, however, since
insurance companies can become frustrated if they are continuously asked to provide
a quote but they don’t write the business. A
little bit of loyalty can go a long way.
Are some forms of coverage more challenging than others?
Wrap-ups or owner-controlled insurance
programs are commonplace, and many
contractors are getting involved with them
on larger projects. The key consideration
when working on wrap-ups is whether the
insurance coverage provided to the contractor is sound. Oftentimes it is difficult for
contractors to obtain accurate and complete information about the coverage being
provided for them so that they can ensure
that the combination of the wrap-up and
their own insurance program provides adequate protection. We spend a significant
amount of time reviewing these wrap-up
programs for our construction clients. It’s
almost like a jigsaw puzzle where all the
pieces need to fit together in order for the
contractor to be properly protected.
Another challenging issue for contractors
is builders’ risk coverage. On a specific
project, the builders’ risk may be provided
by the owner of the project or the general
contractor on behalf of all contractors
working on the project. If this is the case,
then it is important to make sure that the
contract language and the builders’ risk
coverage are written properly to insure
adequate protection for the contractor on
the project.
What else can contractors do to protect
themselves?
Maintaining a strong risk management
program with good safety and claims management policies and procedures in place,
regardless of the market conditions, is
always critical. With larger contractors, in
many cases the contractor will be assuming a portion of its own risk in the form of
a deductible on its insurance. If the contractor has large deductibles and poor losses, claims payments can quickly become
the biggest component of the overall insurance program cost. Consequently, contractors need a strong safety program — not
one just sitting on the shelf, but one that is
understood and implemented by all of
their employees. Safety programs can help
to eliminate many of the claims that might
otherwise occur. On the flip side, when
there are claims that do occur, having a
good claims management program in
place, including a broker that can assist
you in managing the entire risk management process, helps to reduce the cost of
claims and save money.
MARTY PURCELL, CPCU, is vice president with The Graham Company. Reach him at (215) 701-5202 or [email protected].
