Why Your Next Job Could Cost You Your Business
by Target Insurance Services
The so-called Great Recession of 2008-10 and counting has impacted all areas of the economy, and none less so than the building industry. According to the Bureau of Labor Statistics, unemployment in the construction sector peaked at 27% in February 2010, but was still well above the national average at 16% in January 2013.
Not only have the number of jobs dried up, but so have the size of the jobs available.
“We’re doing smaller projects these days, because a lot of the people who do large projects just aren’t doing them,” says Brian Squire, president of Victorian Builders, contractors based in New York’s Hudson Valley.
And with harder times comes a need to cut costs. One cost that many small businesses look to cut is contractors insurance. Unlike wages for sub contractors or costs for materials, contractors insurance doesn’t seem to add to the bottom line for many businesses.
Liability insurance in the building sector tends to cost more than average due to the inherent risks involved in things like plumbing or electrical work. According to Marsh, an international insurance brokerage, costs of liability insurance for construction companies have been falling for a decade, although they are now back on the rise, with underwriters seeking up to 15% increases.
“U.S. construction firms are experiencing a much more challenging liability market as underwriters seek to raise rates and restrict coverage to make up for years of soft market conditions. This comes against the backdrop of medical cost inflation and changes to some state statutes that have extended coverage beyond the insurers’ originally intended scope,” says Michael Anderson, Leader of Marsh’s U.S. Construction Practice.
The rise in premiums, combined with soft market conditions, have forced many contractors out of business or back into the workforce, while others have chosen to drop their coverage.
But reputable contractors see this as a risky move. Most governments have long required proof of liability insurance as a condition of bidding on government jobs. But many cities and counties are now going further. Like Cullman City, Alabama, which now requires contractors insurance in order for a contractor to do business anywhere inside the city limits.
Not everyone is impressed by the requirements, but cities are increasingly afraid of lawsuits against businesses that don’t have sufficient insurance. According to many insurance providers, a contractors insurance quote may add as little as $30 to a job, depending on the gross receipts of the business.
Courts around the country have shown scant regard for businesses claiming that liability cases were ‘one off’ instances, and jury penalty awards can be high, even into the millions. A liability claim for a million dollars can leave a contractor penniless if he only has $500,000 in coverage.
Most major insurers offer umbrella policies, to cover any such shortfall, which can be purchased in addition to any contractors insurance quote, and with more businesses, governments and home owners requiring proof of liability insurance as part of the job quote process, what once seemed as if it had very little to do with the bottom line can start to look a very important part of it.
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