The world of insurance can be confusing, especially for commercial construction business owners who need coverage for their commercial contracting companies.
The challenge is buying the right insurance so that your company is adequately protected and still within its operating budget. Insurance expert, Beckie Ervin of Ervin Insurance Concepts, recently spoke with Mobilization Funding to point out common, avoidable mistakes that can save you money and better protect your business.
Subcontractor Risk for Commercial Construction
Many contractors or subcontractors hire out different parts of their job. Bringing on dependable subcontractors can be a challenge in itself, but insurance should be a factor as well, Ervin said.
“When you’re picking the sub, you’re picking up the exposure that could lead to a claim,” she said.
Here are some steps to protect yourself from liability:
Thoroughly review the sub’s insurance coverage and verify that it is active. Do not accept any benefit less than what you carry as a contractor, paying special attention to both endorsements and exclusions. Any incident not covered by their policy can leave you liable in case of a claim.
Perform thorough background research including a personal and/or professional reference check to ensure the sub is fully licensed and capable of doing the work.
Know if the company is bonded and request supporting documentation.
Keep a record of those collected documents with a copy of your own insurance policy from that time. To protect yourself in the event of a claim, those documents should be kept on file for at least five years after the job has been completed.
Worker’s Compensation Coverage for Commercial Construction
Annual worker’s compensation premiums are largely based on an Experience Modification Rate (EMR) and analyses your company’s risk based on your projected annual revenue and the type of work you do. The lower your EMR, the lower your worker’s comp premium will be.
“A few common mistakes can be avoided that can make sure you’re not overpaying,” Ervin said.
First, make sure that your assigned NCCI code and EMR is accurately recorded on your policy. (If you believe your code is incorrect, it is very important to get it fixed. To do that you’ll need to contact the National Council on Compensation Insurance.) Ervin said that she has often come across insurance policies where the codes were typed in incorrectly, which can cause the business to pay a higher premium than it should.
Another good move to protect yourself from underpaying that premium is to make sure your expected annual revenue is in line with your business model and performance. One case that Ervin dealt with involved a business’s insurance premium that had been based on a $1.5 million projected annual revenue but in fact ended the year with a whopping $15 million. The company then had to pay tens of thousands of dollars to cover the cost of the premium at the end of the year, which put a huge strain on its cash flow.
Are You Paying Too Much for Insurance for your Commercial Construction Business?
If you’ve been using the same provider and broker for years, it may be a good time to shop around and make sure you’re adequately covered and are paying the most competitive rates.