Insurance for the Construction Industry – An Insiders Guide to Getting the Best Rates

Next to the cost of labor or materials, insurance premiums often represent the single largest business expense for a construction contractor. It only stands to reason then that successful contractors should seek to take advantage of all available means to minimize insurance costs. The good news is that there are many ways to effectively do so. Some methods are fairly simple, for example price shopping when looking for a policy. Others techniques, such as applying for credits and reviewing modifier rates are a bit more involved. In either case, most construction related businesses will find that the effort is well worth the reward in the end. When efficiently managed, even small contractors can realize a significant reduction in premiums. Here’s a few tips on how you can save money from an insurance professional that specializes in writing polices for the construction industry.My first piece of advice is to always shop around for the best price and get several quotes from multiple agents. The difference in price between the lowest quote and the highest quote can be substantial. This is especially true of general liability, commercial auto and commercial property coverage. Shopping around also means shopping for the agent that is the best fit for you. Make sure you are using an agent that has experience writing insurance for the construction industry. As someone who specializes in working with construction clients, I can tell you that I might not be the best person to come to if you were looking at liability coverage for a doctors office or a property policy for a manufacturing plant. Construction insurance represents a specialized area of insurance. Just as lawyers or doctors specialize in a particular area of their trade, so do many insurance agents. Not all agents posses the specific industry knowledge that is required to get you the best rates or have access to carriers that offer the most favorable prices for construction businesses. The additional tips that I will give in the following paragraphs are important methods to controlling your insurance costs. With that in mind, don’t be afraid to test your potential agents knowledge of these concepts. Ask what advice he or she can give you on how to lower your rates. Ask for references from other construction clients that they work with and don’t be shy about calling those references. Lastly, make sure your agent knows that simply renewing the same policy every year is not sufficient. In many cases renewing the same policy is the best way to go, but not always. It is easy for an agent to get comfortable and stop working hard to earn your business. Don’t let that happen.Another important aspect of controlling insurance costs is to minimize claims. One of the most efficient ways to accomplish this is to implement a formal safety program. This actually has a dual effect in reducing costs. The first is to raise awareness of safety issues at your company and to involve employees in pro actively working to prevent injuries. Research conclusively shows businesses that maintain a safety program are statically much less likely to file an injury related claim. It is a fact that claims frequency and the dollar amount of claims you have filed are two of the largest factors used by insurance companies in calculating your rates. A good claims history can drastically decrease the price you pay, while a poor claims history can send your premiums through the roof. This is true of virtually all lines of insurance including workers’ compensation, liability, property and auto. A safety program also helps to reduce costs because many carriers offer an extra discount to businesses just for having one. Many workers’ compensation polices offer a safety dividend return that will return a percentage of your premium to you if you are able to complete the policy with little or no claims. This safety dividend can be quite substantial. One company that I work with offers upwards of 30% back on your policy if you go without claims. Discounts are available on auto polices for safety measures such as air bags, anti-lock brakes, having drivers with safe driving records and even for such items as establishing and maintaining a regular maintenance schedule for your vehicles. While not necessarily safety related, you can also receive auto insurance discounts for anti-theft devices such as alarms and gps tracking systems.The last tip deals specifically with workers’ compensation. Your workers’ comp. policy is based on a percentage of annual gross payroll. Each job classification pays a different rate based on the risk associated with that particular class code. For example a roofer would pay a much higher rate than a plumber. In most cases the percentage of payroll charged for a particular job class is assigned and approved by the state in which you do business. California may charge a different rate for trim carpenters than Maryland, which may charge a different rate than Montana. Insurance carriers doing business in a state must base their fee for workers’ compensation coverage on the percentage that has been assigned by that state. There are however several ways to manipulate that percentage. I’ve already discussed one way, which is to maintain a good claims history. Another method is to take advantage of contractors insurance credits offered by many states. The credit amount varies by state and is not offered by all states. However, if you do qualify this is one of the most effective tools you have at your disposal to reduce workers’ compensation costs. In general terms, the contractors credit program offers a premium refund for construction industry employers who pay their workers an average wage that is above a certain bench mark amount. As an example, the minimum amount to be eligible in Florida is $10 per hour or higher. Employers in that state can receive a maximum credit amount of up to 25% of the total policy premium. In Missouri the credit starts when an employer pays an average wage of $16 or more and the maximum credit amount is up to 34.4% of the total policy premium. That can add up to thousands of dollars for even small contractors. The contractors credit is easy to apply for. In fact, your insurance carrier is required to provide you with the form needed to file. The form is just 1-2 pages long and is fairly simple to complete if you keep accurate payroll records for your business. Check with your agent for the specific details of your states contractors credit program.There are several other techniques that you may have heard about with respect to reducing your insurance premiums. One is to raise your deductible to a higher amount. I am not going to recommend that here because there are more factors to consider when choosing a deductible than just price. For starters you need to make sure you have a deductible that you can afford to pay if it ever comes down to that. There are several other reasons that I am not recommending a higher deductible as a standard cost cutting tool, but the bottom line is that I don’t feel it is necessarily a good solution for everyone. Another cost saving measure you may have heard of is to become self insured. While this can certainly be extremely effective in reducing premiums, only very large employers can choose to self insure. I have not discussed this here simply because it does not apply to most construction businesses.In closing, remember that while you will never be able to entirely eliminate insurance premiums as a cost of doing business, you can certainly reduce the financial burden that they have on your company. Shopping for the best price and the right agent, minimizing claims, emphasizing a safe workplace, taking advantage of safety dividend programs and applying for contractors credits are a few of the most effective methods at your disposal.