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10 ways to nail down your insurance costs today

June 12, 2007 |

Insurance rates of all kinds for construction contractors have blown through the roof.
As a contractor, it’s not your fault, but you’re still going to have to pay the new rates and you may find the scope and size of the work you can take on limited. You may also find your long-time insurance carrier swallowed up by a bigger fish and your policy canceled or the new company not nearly as construction friendly.

But you’re not completely helpless either. While rates for property and casualty insurance and surety bonds are expected to increase for at least another year or two, there are things you can do to help keep your insurance program from gnawing away at your profits. Here’s how.

1. Partner with a good agent and company
“You need somebody who is savvy in the construction business,” says Kevin Kilgore, senior associate at FMI, a construction consulting firm. A good agent will have a lot of clients in your line of work and will have the backing of an insurance company that can provide coverage for a variety of construction-specific risks. Ask for references from other contractors and talk to those contractors to make sure the agent is looking after their best interests.
You should also develop a close relationship with your insurance company, says Jody Wright, vice president at Lockton, an insurance broker that works with numerous construction clients. “Arrange to meet your underwriter and maybe their supervisor,” he says. “Your choice of insurance carriers is a big financial decision. Back when insurance wasn’t a big overhead item, nobody cared. Now that it is, you need to tell your story to these people and make sure they understand your company and speak your language.”

Also avoid the temptation to shop your business every year. It’s fine to reexamine your policies every two or three years, but you’re not likely to get good service if you’re constantly trolling for bargains.

2. Consider paying fees rather than commissions
While most insurance agents get a commission based on how much they sell, a trend that is starting to gain attention at some of the larger construction companies is to pay the agent a flat fee for his or her professional services.

“What that does is change the relationship,” Kilgore says. “The agent is no longer a commissioned sales person, but rather a professional services provider who is working on behalf of the individual contractor.” The difference can be compared to a stockbroker who is paid commissions on transactions only and one who is paid a flat fee to manage your investments for the long term.

3. Evaluate your mix of work
The boom in new home construction has also led to a boom in construction defect lawsuits and sitework contractors are being dragged into the fray. Even if they’re not at fault they have to hire lawyers to drag them back out.

“If you are doing strictly commercial, industrial or municipal work, the insurance companies perceive that as a lower risk business than residential,” Wright says. Residential liability problems used to be limited to California and a few battleground states, but they are spreading considerably. You need to evaluate your mix of work, measure the risk and confirm that your insurance company views it the same way you do.