Remodelers are facing one of the most unforgiving insurance markets in years. Slammed by soaring premiums and multiplying exclusions, impenetrable contracts and fleeing providers, they're struggling to afford and hold onto good commercial policies that won't leave them high and dry on the rare occasions they actually need them.
But the worst may be over. “Insurance companies are more willing to write residential contractors now than they were two years ago,” says Frank Curotto, a broker with the Kreismann-Bayer Insurance Agency, St. Louis. “This doesn't mean they're clamoring for them, especially those that are subbing out most of their work.” Nor does it mean that insurance will ever be inexpensive or straightforward again, as new risks emerge and lawsuits proliferate.
Do Get Coverage Insurance is regulated by the states, and though the laws and issues vary widely, most states require that employers at least carry workers' compensation insurance. Many require liability insurance and other types of coverage as well.
Plenty of small remodeling companies operate without coverage, but at great risk. “You don't have to light the match to be considered negligent if there's a fire,” says Ed Timmerman, an independent broker with John T. Burns Insurance Agency, Newtonville, Mass. Stories of freak accidents that bring down otherwise strong remodelers are alarmingly common. In his own town a few years ago, a minor subcontractor “took a break from stripping paint, lit a cigarette, and burned down a church,” says Scott Simmonds, president of Insurance Consultants of Maine. The sub — brought in for a reported $1,500 worth of work — did $6 million in damage. “The smallest job can result in huge losses.”
Even if your clients have homeowners' insurance, and even if you have plenty of coverage for your home and personal vehicles, you as the general contractor are likely to be held liable if anything goes wrong on a job. Good insurance will cover the damage and your defense in the event of a lawsuit.
Don't Take It Personally Insurance is cyclical, and its costs and coverage rise and fall based on a multitude of factors that are largely beyond your control. Recent losses related (but not limited) to mold and product-defect litigation, stock market volatility, and Mother Nature have compelled insurers to restrict or cease writing general liability and other types of coverage for many construction businesses, particularly in coastal regions.
Workers' compensation premiums have increased in most states as well, due to a general rise in claims. Real or fraudulent, injuries do happen in construction, and “contractors are one of the risks that nobody is comfortable with,” says Mark Kinsey, an independent broker with PKG Insurance, Doylestown, Pa. (Kinsey also administers a health insurance program through the National Association of the Remodeling Industry, NARI.)
The irrelevance factor — mold being largely a new construction issue, for instance — is a moot point. “In a crisis mode, the insurance industry walks away,” Simmonds says. “They're waiting for the dust to settle” from the recent losses.
ENLIST AN ALLY “The most important part of the insurance transaction is the buyer's relationship with their agent,” Simmonds says. But liking the agent (or broker) personally isn't as critical as his or her knowledge of construction liability in your state, and his ability to clearly explain your risks, requirements, options, costs, and exclusions. “Just because someone can sell you a homeowners' or an auto policy doesn't mean they understand commercial insurance,” he notes.
Make your agent or broker advocate for you. Curotto “shops us around and will even argue with insurers,” says Pam Hagerty, office manager of Riggs Construction & Design, Kirkwood, Mo. Your agent can help you keep impeccable records and can physically walk their auditor through your office and your books. “You don't want the auditor in your office any longer than necessary,” Simmonds says.