Four years ago, soaring business-insurance costs caught remodeling professionals off guard.
A perfect storm of negative events triggered what can best be described as market flight by many insurance carriers. The growth and spread of construction-defect litigation; the frenzy over the potential debilitating health effects of mold contamination in homes; and the reduced financial position of many insurance firms in the wake of the 9/11 terrorist attacks all converged, in quick succession, to spur some insurers to simply exit the remodeling market.
Those carriers that continued coverage for remodelers tightened underwriting requirements and raised premiums. In hard hit states, especially California and New York, remodelers witnessed annual premium increases of over 60 percent. The high cost of insurance and difficulty finding coverage forced some out of business. And there are stories about those who have continued operations without insurance, living day-to-day with the prospect of financial catastrophe hanging over their heads.
But the problem of higher insurance costs goes beyond those states with many willing litigators. Remodelers in all states have experienced higher premiums and reduced coverage. It is now commonly required for subcontractors to carry their own general liability insurance. Some insurance carriers are asking their remodeling contractors to require subcontractors to also name them as "additional insureds." Meanwhile, many remodelers have managed to keep their insurance costs down only by allowing significant exclusions for coverage of mold and "pollutant"-related claims. This has effectively gutted the security that insurance is designed to bestow.
"Our insurance company did not want us to do any termite or rot repairs, commonly part of the remodeling operations, which is are our bread and butter," says Michael Mills CKBR, CGBP, of Michael Mills Construction Inc, in Aptos, Calif. "They did not want us to do foundations, or to drill any piers, or to raise a house. They did not want us to do any work in a condo or townhouse, even if it was only interior work for a unit owner. And, oh yes. Stay off the roof, and don't crawl under the house."
The solution for Mills was to opt out of the traditional insurance market and to join a risk retention group that has less oversight from the California insurance commission. It provides the company coverage for all of the exclusions listed above at a higher cost.
"The direct result is that we must raise the cost to our clients," says Mills, who founded his company in 1976. "We'll probably take a hit on our bottom line as well. Add to that the skyrocketing prices of just about everything we use and, well, I just wonder what the (remodeling) market will bear."
General liability insurance is tedious to acquire and renew and covers fewer losses than ever before in the history of the remodeling industry. As a result, most remodelers devote a greater share of their time to the annual insurance renewal process.
Five years ago, Michael Griggs, CR, president of Disaster Restoration Inc. in Westminster, Colo., paid about $70,000 annually in insurance premiums to cover his company and its $6 million book of business. Today he pays twice that amount, approximately $140,000, and he considers himself lucky.
For starters, the company is twice the size it was back then. So from that perspective, the company has actually kept a good lid on its insurance costs. Griggs says his company has fared better simply by taking time to investigate the insurance process and to gain a better understanding of the attributes that insurers like to see in a residential construction company. Toward this end, in 2004, Griggs took the unusual step of asking his agent which underwriter at his insurance carrier was working on his policy. With that information in hand, he flew from Denver to Chicago to visit the underwriter in person.
"It is my philosophy that people will give you what you want if they know you," says Griggs. "So it was my goal to create a more one-to-one relationship with that person. People think they are at the mercy of their insurance company, but I've found you can ease the insurance burden by taking a few simple steps."
Griggs, who declined to mention his insurance carrier, says he brought as much information as he could with him to his first meeting with his underwriter. He brought past records that showed, among other things, a clean claims history. He brought documented information regarding the battery of OSHA-approved safety training that each of his employees completes. He also played up his status as a Certified Remodeler, a professional status conferred by the National Association of the Remodeling Industry.
"Because of the nature of our business (insurance restoration) we could not simply avoid doing water-damage and mold-related work," says Griggs. "My approach with the underwriter was ‘what do you want to see? I want to show you all of our systems and processes. The more you know about our company, the easier it will be for you to give us a fair premium.' "
Start Renewals Early
Griggs recommends that other remodelers take charge of their policy renewal process four months in advance of the final due date. The idea is to frontload the process with all new and relevant and positive information about your company. This, in turn, will increase the likelihood that the agent and the underwriter will come up with a price while there is still time to tweak the coverage, exclusions and deductible amount before the policy and premium are locked in for another year.
Brad Cruickshank, CR, of Cruickshank Inc. in Atlanta, took the added step this year of putting his firm's entire business-insurance package out to bid.
"Bidding the package was a lot more work for us rather than just renewing with our current agent (which we ended up doing anyhow)," Cruickshank wrote in an e-mail to a query. "We had to find another qualified agency, prepare a list of coverages and limits, and meet with and review proposals from both agents. We bid our entire insurance package. We had to prepare payroll data for labor, sub-payments, and vehicle information (10 vehicles).This year with better rates we spent our savings by increasing our umbrella (policy) up to our preferred coverage."
Cruickshank, whose overall premium per year is approximately $77,000, says he was prompted to put his entire insurance package out to bid by a significant jump in general liability rates in 2003. At that time, the company, Cruickshank Inc., managed its costs by increasing its deductible and reducing the amount of its umbrella coverage.
Become a Model Insurance Client
"Our insurance company requires subcontractor agreements be signed, and in order to adhere to the rules of the insurance company, we have hired an outside source to monitor our subcontractors, to be sure we have the contracts on file and they meet or exceed the coverage limits. It is at a great cost to us and is very labor intensive," says Tughan. "We are very careful to jump through all the hoops, to do everything exactly right and to be a model client for the insurance company in the event any issues do come up. After all this, it is unsettling to think if we were to have a claim, there is a good chance we would be cancelled, making it very difficult to be picked up by another company." |