The following is a guest post from Rakesh Gupta, chief operating officer at commercial insurance firm biBERK, a Berkshire Hathaway company.
For contractors and small construction companies, the importance of having the right amount of the right types of business insurance can’t be overstated. For many small businesses that don’t have adequate coverage, the cost of one liability lawsuit can be more than the company can bear. Sadly, it’s not unheard of for contractors and construction companies to go out of business as the result of being sued.
All of that said, you don’t want to pay more for your insurance than you have to. Fortunately, there are ways to lower your insurance costs while maintaining proper coverage. Investing a little time and effort in the actions below may help your company save a significant amount of money.
Shop around and educate yourself. Often, a business owner purchases insurance based on what a friend or colleague recommends. While that person’s input may be valuable, you should still visit the websites of different insurance companies to learn for yourself what types of insurance you need.
For example, based on how you run your business, you might need a commercial auto policy, but it’s also possible that you don’t. If you’re not clear about what’s right for your company after doing some reading online, you shouldn’t hesitate to call the company and speak with a representative about your business and their recommendation.
Classify your employees properly. If you have employees, you will most likely be required to have workers’ compensation insurance. How this coverage is priced is in part determined by classification codes that you apply to your employees and that help insurers understand how much risk a person is exposed to.
For instance, an office worker is less likely to suffer an injury than a drywaller who works on jobsites, and shouldn’t have the same code. If the office worker is inadvertently given a higher-risk classification, you’ll pay more for your insurance than you should.
Hire good drivers. Many construction businesses need commercial auto insurance. The rate for that insurance is based, in part, on the driving records of the people who will be covered by the policy. Hiring people with clean driving records is a good idea for many reasons, and that includes saving money on your commercial auto policy.
Make safety a top priority. Setting and enforcing high safety standards helps prevent injuries to your workers, which helps control your workers’ compensation insurance cost by giving you a better X-MOD (experience modification factor), which is used along with other information to calculate your rate.
Good safety practices can also minimize the risk of injury to non-employees like your clients or other service providers, and that will help you save on your general liability insurance. Damage to client property can also be costly. And, of course, getting a reputation for careless work can cost you future business, as well.
Increase your deductibles. Generally speaking, the higher your deductible (i.e., the amount you contribute toward the payment of a claim), the lower your monthly or annual insurance premium will be. However, there’s an important caution here: You must be sure that you have the financial reserves to pay your deductible if a claim is filed. Choosing a higher deductible when you don’t have the necessary resources to cover it and then “hoping for the best” can lead to serious financial consequences.
Ensure subcontractors have their own coverage. Workers’ compensation insurance providers will charge you for subcontractors' insurance if you don’t collect Certificates of Insurance that prove the subcontractor had insurance while on your job.
Don’t let your coverage lapse. For some contractors and construction companies, work is seasonal, so it can be tempting to discontinue coverage during your downtime. However, that strategy can lead to increased rates or even to insurers declining to offer coverage if they see the lapse.
Once you find good coverage at a good rate, it tends to be better for your business to maintain that coverage all year long and also to review your policies with your provider annually to ensure you’re not paying too much.
Bundle your coverage. You aren’t obligated to get all of your business insurance from one provider. However, some insurance companies will offer discounts if you “bundle” your coverage and buy multiple policies from them.
Even if a company doesn’t offer bundle pricing, there’s another advantage to getting all of your insurance from one company: It greatly simplifies the management of your policies. Fewer phone calls and emails means more time focusing on your business.
Review your policies periodically. It’s safe to say that nobody enjoys reading business insurance policies. But sitting down and doing that periodically — especially with input from a licensed insurance expert — can be to your advantage. Whether it’s buying new equipment or growing/shrinking headcount, your business is likely to change over time.
As a result, it’s important to look at your policies annually to see if you need to increase or cut back your coverage. You want to have adequate, but not excessive, protection.
Perform high-quality work. Lawsuits from unhappy clients can increase your insurance costs. Meeting or exceeding their expectations and resolving any disputes that may arise quickly and fairly can help minimize the chances that they will sue you. Plus, like with having high safety standards, doing high-quality work on a job today can help you impress the client and obtain more future work.
In contracting and construction — as in any industry — certain things are outside a business owner’s control. The COVID-19 pandemic certainly reminded us all of that.
But other aspects, like insurance expenses, are within your control to a large extent. Taking steps to find the right balance of coverage and cost and to minimize your risk and claims, can ensure that you’re protecting your business and your budget.