Contractors Need Experienced Insurance Advisers, Not Peddlers

By Jim Jordan

Jim Jordan is director of construction services for Weaver and Tidwell LLP. With offices in Dallas, Fort Worth and Houston (weaverandtidwell.com).

The best agents make insurance a financial tool, not merely a necessary evil.

Too often contractors view their insurance as little more than another commodity. This mindset leads them into relationships with insurance agents who are good peddlers but not good advisers. That’s exactly what contractors need to avoid, given that insurance today is generally inexpensive and increasingly complex, and lawsuits are the nation’s favorite pastime.

The fact is, best-in-class contractors give their insurance coverage a lot of thought. They track their needs, risks and expenses carefully, and seek the best agent they can to help develop a thorough and cost-efficient plan. More often than not, these contractors use independent agents who have access to more insurance products than agents who represent a single company.

Trusted, expert advice is critical today because the laundry list of insurance considerations is quite long. The short version includes workers’ compensation, property and casualty, professional liability, owners and contractor’s protective liability, builders risk, errors and omissions, owner-controlled insurance programs, contractor-controlled insurance programs, employee health and benefits, surety bonds, environmental liability and subcontractor certificate review.

That’s a mouthful. Here, we cherry-pick a couple of issues that, in particular, require assistance from experienced construction insurance experts--worker compensation and general liability insurance.

Worker Compensation Worker compensation insurance carries complicated and expensive costs, with each state mandating different rules, regulations and policies. Wherever the contractor might be, however, safety is the key to reducing costs. A contractor cannot employ too many safety programs or provide too much training. For contractors who are aggressive, rewards can be impressive – particularly if they have a proactive agent who can help them join a purchasing group. One such is CompGroup AGC, whose participants are members of Texas chapters of Associated General Contractors of America. Their insurance is placed through the group by independent agents and underwritten by Texas Mutual Insurance Co.

Last year, CompGroup AGC members received a $2.67 million dividend because of their exceptional safety programs and reduced claims. Texas Mutual Insurance Co. also paid a dividend totaling $2.9 million. DynaTen Corp., a mechanical contractor, has earned dividends over a three-year period equaling 89% of its premium costs for worker comp insurance. It, too, participated in CompGroup AGC.

Obviously, contractors who are not a member of such a purchasing group should insist that their agent find one for them. Savings on premiums, as well as dividends, can be very impressive.

Liability Coverage On the liability front, contractors need advice from experienced agents because a lot is at stake. For example, a new liability plan no doubt will include exclusions that may not be apparent. For example, a concrete contractor who builds house pads may not realize the policy they are considering includes an exclusion for foundation work. This is when input from an experienced agent can make a huge difference.

Contractors also need advice on subcontractor coverages and ratings. In planning liability coverage, contractors need to make certain their subcontractors carry adequate insurance, limits and endorsements. Contractors also need to pay attention to the rating A.M. Best Co. has assigned their carrier. An insurance company with a rating less than “A’’ can be a problem for a couple of reasons. First, there is a risk the carrier may go out of business. Second, if a contractor wants to work for local, state or federal governments, the insurer usually is required to have an “A’’ rating.

Without guidance, it is easy for a contractor to inadvertently purchase more liability insurance than needed. An experienced agent, however, can review the company’s work history and identify potential risks. Fairly often this type of review produces lower -- not higher -- policy limits that save the company money.

Remember also that construction is one of those rare industries where wages can be split into different categories for insurance rating purposes. A contractor can be classified as one code in the morning and another in the afternoon. If the distinction is properly documented, contractors can save money because the two jobs will be classified differently. A good insurance agent can make the documentation process rather simple.

Basic Protection In addition to worker compensation and general liability issues, a contractor always needs accurate advice regarding other coverages. For example, does he or she need to buy environmental liability or employee dishonesty policies? Another critical issue relates to owner-controlled insurance programs, where the agent can provide valuable advice to the contractor regarding coverages and gaps in coverages. Some contractors go so far as to insure for lost hammers, broken cell phones and dented fenders, while other contractors consider such coverage superfluous.

The point is that when it comes to developing an insurance plan, contractors need the assistance of a top agent, not just someone who is convenient or a golfing buddy. Contractors need to bring to their team an agent who is experienced in the vagaries of Texas construction, has a proactive stance on risk management and who has broad access to various plans. Most important, the agent must be a true adviser rather than simply an order taker. Working with this type of agent, contractors often begin to see their losses and premiums decline. What happens next? The bottom line begins to grow.