As the commercial insurance market continues to tighten, the construction industry continues to be among the hardest hit, especially here in New York.
Nationwide, commercial insurance prices rose 7% during the fourth quarter of 2012, the eighth straight quarter of rate increases, according to a Towers Watson & Co. survey. It was also the fourth consecutive quarter that saw price increases across every line, with increases in workers compensation and employment practice liability approaching double digits.
Although industry experts say market conditions for construction contractors haven’t reached the level of a broad hardening, your insurance cost structure has changed dramatically. And the pinch of the tightening market is starting to be felt by more and more construction contractors. While the rate increases in 2012 were largely targeted toward companies with poor loss histories, underwriters’ need for increased premium is going to affect many more contractors in 2013 and beyond.
New York contractors hit especially hard.
Premiums for certain lines of New York business insurance such as Commercial Excess or Commercial Umbrella have doubled or tripled for some general contractors. Even businesses outside of New York that have loss exposures in New York could be seeing double-digit increases soon.
What can you do to soften the blow?
Opportunities present themselves in both soft and hard insurance markets. In this tightening market, your best strategy is to double down on the fundamentals – risk management, loss control, and claims management.
As every construction contractor knows, every worksite incident is a potential general liability claim that can cost the company and its insurer thousands, if not millions of dollars. Here are eight fundamentals you should be focusing on to reduce your risk, and your insurance premiums:
1. Ramp up your safety efforts to prevent worksite accidents and claims from happening in the first place.
2. Don’t take on long-term construction projects without conducting a feasibility study of your insurance cost structure.
3. Order loss runs several times a year, not just at renewal.
4. Ask questions about the reserving practices of the insurance adjusters on large losses. High reserves are a red flag for higher insurance rates at renewal.
5. Conduct a feasibility study on your workers compensation costs. Know what your experience modification factor will be upon renewal; this calculation can contain costly errors that can drive up your premiums.
6. Perform a contract audit for each job to know how the risk is allocated, who gets left holding the bag in case of a claim, and whether all vendors and subcontractors have signed and executed contractors with proper insurance documentation.
7. Be aggressive when a worksite incident occurs. Collect photographs, witness statements, and all the facts, and provide your insurance carrier a detailed report so they can mount a defense on your behalf. This can significantly impact the amount the claim is reserved at and the amount it ultimately settles for.
8. Ask your insurance partner questions as you contemplate large new projects and contracts. There may be other ways to structure the insurance that are less expensive.
Those companies that have the strongest claims and loss histories will have a major competitive advantage in the New York construction insurance marketplace during this tightening insurance market. Sharpening your focus on the fundamentals of controlling that risk and properly managing claims can have a huge impact on your premiums, and on your current and future profits.
At BNC Insurance and Risk Advisors, we have more than 150 years of combined experience in the New York construction industry. Let us provide you a customized comprehensive insurance package to help you manage your unique risks. And to learn more, download our case study collection, “How Six Contractors Discovered Risk Management Success with Milbrandt Insurance.”