General liability insurance rates in our business rocketed over the last few years. Existing carriers are not renewing many contractors, or if they do, the premiums go through the roof. Trying to find a new insurance company is a royal pain. What can you do?

First, lets be clear about why insurance companies are increasing rates. They are claiming huge losses at the hands of the construction industry. While true they have taken a hit on claims for mold, asbestos, EIFS siding problems and the like, but the construction companies doing under ten million a year are not the major cause of the problems. The real reason for the rate increases is an effort to recoup losses from investments in the stock market.

So, what can you do to get the best possible rates for state required insurance? Here are some things to consider.

Look for an insurance broker, one with experience in the construction industry. Agents are okay, but they are captive to one company. A broker can rustle up a policy for your company from any of several different sources.

Once you contact a broker, and he agrees to give you a quote, set a deadline on when he will get back with you. Here is what happens when you dont.

When the broker sends an application to the underwriter, the underwriter will sit on the application until two or three days before your old policy lapses. He knows you cant afford to let your existing policy lapse, so he now has a captive audience. He can then quote any rate he wants and you are stuck. The underwriters claim they cant get back to your broker any sooner because they are too busy. The reality is, it doesnt take any longer to review it when its received than it does two days before it is due to expire.

If you find a broker that wont push the underwriter, dont waste your time. Find another broker that is interested in helping you get insurance instead of lining his own pockets. Remember the broker works on straight commission. The higher the premium, the more he makes, so it is to his benefit to have the highest possible premium.

When you contact a broker, a time limit of one week should be enough to get your quote together. If it is not ready in that time frame, give him two more days. If he doesnt perform, its time to find another broker. Give the broker fair warning that is exactly what you intend to do. If the broker knows you are going to bail on him, he will push the underwriter to get a quote done and back much quicker. He doesnt want to lose the commission.

When you contact a broker, dont play the games with him your customers try to play with you. When he asks you what your premium was last year, tell him. Dont tell him you are not going to give him that information because you think he will bump the premium up to match your old premium. Brokers are limited in what they can charge for their services above the quote from the underwriter, so they cant gouge their customers. You know how you feel when your customers wont give you a straight answer when you ask for their budget. Dont do that to your broker.

One last thing on the purchase. Whatever you do, dont let your insurance lapse. This can cause a number of problems. Get started on your renewal application at least 90 days before your present policy expires.

Now, assuming you can get a new policy; many insurance companies are adding strict limitations. Be sure you read the new policy word for word and if you have questions, sit down with your broker and have him explain exactly what the policy says, in terms you understand.

Many new policies have the following limitations:

They are limited in the percent of work that can be sent to sub or specialty contractors.
They are not allowed to work for homeowners associations.
They will not be accepted for coverage if their wives or husbands are realtors.
They will not be accepted for coverage if they work with pesticides of any kind.
They will not be accepted if they have had any claims against them in the past,
regardless of the cause or reason.
They may require you to purchase pollution insurance.

Here are some additional items for you to consider.

First, dont try to procure work from homeowners associations. They initiate a high rate of class action lawsuits against contractors of all kinds and your insurance carrier may refuse to quote you a premium if he knows or suspects that you work for these associations. This also includes work on townhouses and condominium projects. Ditto to tract housing. In short, stay away from any multi-housing projects.

On the other hand the carriers seldom consider commercial buildings a problem.

Sub-contract all trenching or other underground work that you can. All too often lines are cut, and the losses can add up in a hurry. Let someone else take the risk. Stay out of underground trenching. If you do irrigation, double check the paths for your new irrigation pipes and be careful where you run your trencher. If you do cut a line, fix it and go on. Dont file claims and give your carrier a reason to drop you.

Carriers will now tell you that you must limit the use of subcontractors in your work. The general rule is you can subcontract out 40% or less of the total work. Unfortunately, doing the work in-house runs up your workmans comp rate. This is where youre going to have to run your numbers out to determine the cheaper way to go.
I would like to comment on this. The carriers claim they are limiting the amount of subcontract work because claims are higher against contractors who use a lot of subs. In my humble opinion that is nothing more than a scam to raise your premiums and force you to purchase more workmans comp insurance. We know the higher the percentage of subcontractors work, the lower the losses are and the higher the profits are for the general contractor running the jobs. When specialists do the work, you have a better job, completed with fewer accidents and fewer claims. Their argument doesnt hold water, and until our government imposes laws governing this behavior by the insurance carriers, they are going to keep on with this scam. You get to pay those premiums.

If possible, when you are looking for a carrier, find one that doesnt require an in-house audit of your books before you purchase the insurance. A phone audit is better.

If you work on outdoor entertainment centers, gazebos, decks, hot tubs, trellises, or do other types of carpentry work, be sure your policy specifically covers carpentry work. Your classification should be CARPENTRY NOC. That stands for carpentry that is NOT OTHERWISE COVERED in your general policy.

Remember, it is your responsibility to be sure you have coverage for everything and anything you do. It is not up to your agent or broker to make that decision.

Pesticides are an issue within the industry. If you use pesticides or chemicals in your work, check if you are required to obtain pollution insurance. This is a relatively new requirement and a lawsuit for pollution could easily wipe you out.

Get an Inland Marine Policy to cover all your tools and equipment. Then take it one step further and get a storage trailer or facility for your equipment. Make it a company policy to return all tools to the storage facility or trailer each evening.

About vehicles. You want a commercial auto policy for your trucks and trailers. Dont try to cut corners by insuring your vehicle as a private vehicle. Put it on a commercial policy. You get better coverage for the vehicle and the people inside. This is especially true if you have employees driving the vehicle during the day.

Pay all small claims yourself. Claims have a bad habit of following your company for up to five (5) years and it can make the difference between coverage and the carrier rejecting your application the following year.

You can do two more things. First, purchase an asset protection plan that effectively bullet proofs you against any and all claims and lawsuits from any direction. Often these plans will cost upwards of $5,000 to put in place, but as many contractors have discovered recently, a claim of mold contamination can cost several hundred thousand dollars to defend. An attorney can put these plans together and I strongly urge you to consider this investment and protection.

Second, write your congressmen and senators complain get nasty fight back. Send them e-mails, call them, go see them, ask them why your insurance premiums continue to go up and you havent had a single claim in XX number of years. The squeaky wheel gets the grease and if our industry would squeak loud enough, your elected officials might do something about it.

Finally, whom can you call for insurance? We have been searching for several years to find a broker we can recommend to contractors. The problem is that many of them are fat. They have more business than they can effectively handle. We have been fortunate to find Andrea Craighead. This article is a result of several conversations with her and she does a great job. You can reach her at 760-789-4502 and in California toll free at 866-698-3688.

Do your homework and start the process early enough to secure a policy for your business. Some contractors premiums remain static and others obtain reductions through diligent pursuit of their new policies. Follow what we have shared here and you may put an end to the spiraling costs of general liability insurance.

EDITORS NOTE: Michael Stone is a business coach and consultant with more than three decades of experience in the construction industry. He can be reached at

JULY 2004