Construction can be a great business, but this industry also carries more than its fair share of risk. It is important for every contractor to carry sufficient insurance to protect the company in the event of a lawsuit. Construction insurance provides this protection, including coverage for legal liability that could result from poor work by employees or subcontractors. By knowing the factors that affect construction insurance premiums, savvy business owners can take the steps necessary to reduce their legal exposure and costs.
Know the Criteria
Each company that writes construction insurance policies will use its own proprietary models and underwriting criteria, but contractors can save themselves some money by knowing which factors likely will be used. Keep in mind that underwriters will use both objective and subjective measurements when assessing risk, and those criteria will play a large role in the premiums for the construction insurance policy.
One of the factors insurance companies use to determine risk is the type of construction. Construction deemed high risk will carry higher premiums, while contractors involved in lower-risk projects will generally enjoy lower premiums.
Put Common Sense Safety Procedures in Place
A key factor in writing construction insurance policies is the type of safety precautions at the job site. Implementing strict safety rules -- in writing -- is always smart business, but those rules can also lower the cost of construction insurance. So before you go shopping for insurance, ask yourself: Do your workers always wear hard hats and eye protection on the job? Are hazardous areas clearly marked with signs and physical barriers? Are non-employees barred from active job sites? If written safety procedures are not already in force, implement -- and enforce -- them at once.
Be Careful with Subcontractors
Insurance companies also factor in the amount of subcontracting. This is an important consideration, since the contractor -- and ultimately the insurance company -- can be held liable for shoddy or dangerous work by subcontractors. Contractors may want to consider this and limit the amount of subcontracted work. While some work, like electrical and plumbing services, still may need to be subcontracted, limiting the amount of subcontracting -- and its associated legal liability -- could lower the premiums substantially.
