Insurance
Sometimes You’re Lucky if You Can Get it… at Any Price
Rather than have you read this entire piece and then disappoint you, I’ll state right up front that this article is not the magic bullet that will solve your insurance problems. That being said, I’ll give my take on the rising insurance rates for Western roofing contractors.
I once had a business professor who said that there are only two ways insurance companies can consistently increase their bottom line: increase premiums and deny claims. Obviously, he was not a fan of insurance companies and perhaps he was over-simplifying the industry, but he wasn’t far off base. Recently we’ve heard reports of contractors paying anywhere from 100% to 200% premium increases for their general liability coverage. In many cases, the new policy is for less coverage and excludes anything from type of project, such as condo or residential work, to the type of material, such as torch-applied, to specific problems, like mold.
What the insurance companies have done is look at where their biggest losses were in the past, deleted those areas from coverage, and raised their premiums to cover past or anticipated losses. Many homeowners in specific areas of the West where natural disasters are prevalent are facing similar issues.
Years ago, one or two insurance companies have tried this approach, only to back off when their sales plummeted and their competition would swoop in and establish a foothold. The reason this situation is working for them now is that all the insurance companies are taking exactly the same approach. The contractor has no choice and but to simply take what is offered and smile in the process. In many cases, contractors are just happy to be covered and keep their doors open at any price.
What we’re also hearing is inconsistency in the way the restrictions are applied. Two contractors recently told me that they had the same insurance company but different agents. One agent had placed restrictions on multi-family dwellings while the other had placed stricter limitations on mold coverage. Both agents claimed it was the insurance companies’ new policy. The agents had a different interpretation of the same policy. The moral: talk to your competition. Yes, there is some information from which you both can share and benefit. That’s what roofing contractor associations are all about.
While the roller coaster stock market and the rise and fall of interest rates may have some bearing on how much your policy costs, the majority of the increase is due to more litigation, higher settlements, and yes, the annual fire season in the West. Are the insurance companies taking advantage of this situation to help pay for past losses? I wouldn’t doubt it.
On the worker’s comp side of the equation, California now has the highest rate for roof workers at over $80 per hundred while in the neighboring states of Nevada and Arizona rates are hovering right around $20 and $10 respectively. This is basically the same geographic area, same construction materials, and in many cases, the same workers. California is just more “litigation-friendly” and has a much more lenient workers compensation program. The California workers comp program strives to be as humanely sensitive as possible, and in the process creates an environment that promotes abuse and fraud. The contractors, and ultimately the consumers and the California economy, will end up picking up the tab.
So, what can you do to help lower workers comp costs? Unfortunately, I have nothing new. It’s the old standby formula that needs to be repeated.
- Safety Training: implementing rigorous safety protocols can reduce the number of claims. Keep a detailed log of all safety meetings and make sure all those in attendance sign in.
- Retention: retaining skilled workers lowers the frequency of claims, as experienced employees are less likely to be injured. Retained workers are good for business, require less instruction, are loyal, and look out for your interests as well as theirs.
- Review Class Codes: ensure employees are properly classified to avoid overpaying on the premiums of higher risk categories.
- Consider High-Deductible Plans: depending on how much risk you want to assume; some contractors may opt for higher deductibles to reduce upfront premiums.
Of course, what hasn’t been said is that this situation encourages the growth of the underground economy. As costs rise, some will consider cutting corners any way possible. From illegally reclassifying workers to a less risk category to paying employees cash under the table, some are resorting to desperate means to survive. There have been reports of otherwise upstanding contractors, who would never consider going without insurance in the past, who are now going bareback rather than paying the higher premiums or close their doors. Unfortunately, the situation is liable to get worse before it gets better.
Marc Dodson
Editor
