General liability insurance costs for general contractors, Part 2

In yesterday’s video, I briefly introduced the cost of general liability insurance for general contractors. I gave some ideas of pricing for small to medium size general contractors and provided some information about the factors that determine the price of a general liability premium. In today’s video, I want to expand a little more and talk about items that will factor into your general liability policy price if you’re a general contractor. The first is the general liability marketplace, supply, and demand. The second is some forms to look at on your policy or keep in mind, deductibles also. And the third is the minimum premium that could come into play on your policy.

THE GENERAL LIABILITY INSURANCE MARKETPLACE

Like all other markets, the insurance marketplace changes pricing based on supply and demand and based on the competition from carriers. So when more carriers are available and more carriers are offering a specific product, in this case, general contractors’ general liability, the pricing will become softer, and it will be more of a buyer’s market. However, if carriers suffer loss development or poor loss history and leave the marketplace, we tend to see prices go up and pricing become harder.

UNDERSTANDING INSURANCE POLICY FORMS, DEDUCTIBLES, AND LIMITS

The second is policy forms. I spoke about some conditions yesterday, but I was hoping you could look at your policy and understand these forms. The subcontractor warranty endorsement is significant for general contractors to ensure that your carrier covers you if a subcontractor causes a loss on your project. Some carriers have more favorable subcontractor warranties than others. Sometimes when pricing is less expensive, that means that there’s a more restrictive endorsement on your policy, and you need to pay attention to that. Also, the deductible in the policy, is it a per claim or per occurrence deductible? And what is the deductible amount? Some general contractors may decide to have a higher deductible because they can absorb more of the risk, and they could pay up to a certain amount if a claim were to happen. Others would rather have a lower deductible and not take on any out-of-pocket risk. Therefore, that will dictate or change the price of the policy and the limits of your coverage.

In most cases, it doesn’t cost much to increase the aggregate limit from, let’s say, one million to two million. Still, it could cost an additional premium to increase the occurrence limit or the products and completed operations limit. So these are items that you should keep in mind.

HOW DO MINIMUM PREMIUMS AFFECT YOUR INSURANCE PRICING?

The third thing I want to speak about that determines the cost of general liability insurance for general contractors is minimum premiums. Specific programs or certain levels of coverage have minimum premiums. So, for example, if you’re a home builder and you’re building multi-unit homes, or you’re building townhomes or condos, most times, insurance policies will not go below a certain amount of premium. Now there are different levels of minimum premiums. Some programs have a $2,500 minimum premium, some have a $5,000, $7,500, 10,000. It could go all the way up to $50,000 or $75,000 minimum premiums. The minimum premium will determine the price of your policy regardless of the rating factors such as gross sales, payroll, or subcontractor costs.

RATING BASIS AND HOW TO SECURE A LOWER RATE ON YOUR GENERAL LIABILITY

Finally, before I end this video, keep this in mind. Many people don’t understand that, in many cases, the higher your rating basis, the lower your rate.  For example, if your sales are 20 million versus 10 million, your net rate, meaning the rate that you charged for every thousand dollars of gross sales on your policy, goes down. We see this in other insurance products as well, specifically, work comp. The more payroll you have, the less you’re going to pay for every hundred dollars of payroll. The same goes for certain general liability products.

Suppose your insurance carrier priced your policy on gross sales, and you’re in that medium to larger general contractor size. In that case, you’re going to see your net rate for every thousand dollars of gross sales decrease as your gross receipts increase, making you more competitive, and you can job cost and lower that expense for your insurance policy.

IN CONCLUSION

I hope this helps expand a little more on what I spoke about yesterday. Again it isn’t straightforward to price general liability for general contractors without having information about the company. There are a lot of moving parts, and these factors become a big part of it.

To properly underwrite and help our clients, we need to understand the work they’re performing to make sure the forms match the coverage they need, for example, whether we want to rate on gross sales or gross payroll. If subcontractor costs become a factor, subcontractor warranties and all the exclusions I spoke about all determine the price of a general liability policy for a general contractor. Remember, if you have questions, you can fill out the form below. One of our agents will get in touch with you. You can also call me directly at my direct line, 858-384-1507, and my email is mike@foagency.com. Thank you again for your time, and we hope to see you soon. Take care.

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