As construction projects become larger and more complicated, contractors are taking on more of the risk by increasing their builder’s risk insurance deductibles, according to a recent report.
Michael Cusack, executive vice president of insurance broker Alliant Specialty, told Insurance Business magazine that contractors are willing to take on more of the risk as those that have strong internal risk management regimens will be rewarded with lower premiums, particularly if they can stave off expensive claims.
There are a number of factors at play that are driving this transfer of risk:
- Claims costs are skyrocketing as the cost of rebuilding and materials has continued rising.
- Increasing litigation.
- Larger and larger liability lawsuit settlements and jury awards, and an increase in “nuclear” verdicts of $10 million and more.
“Contractors are taking on more deductible risk and manage that risk effectively using in-house protocols, and the ones that can do that will be the most successful,” Cusack told the trade publication.
“Construction jobs are getting much bigger, and the risks are becoming more complicated. If contractors can develop the systems and the personnel to manage risk, they can do it more efficiently and therefore be rewarded for that,” he explained.
The reason that you carry contractor insurance coverage in the first place is to protect your business from an accident or incident that could be financially devastating, such as a fire that wipes out all of your progress and destroys the materials and supplies that you had stored on-site.
Considerations
Increasing a deductible obviously comes with risk, particularly if you end up having mulitiple claims.
Raising your deductible amounts can be a smart business move that saves you money on your monthly or yearly premium payments. The extra money can help you grow your business, invest in new equipment, and even increase your available cash flow. But the best use of the extra cash is to create a contingency fund that you can draw on in case you incur a claim.
If you are comfortable assuming some additional risk yourself, and have resources you can draw on if they’re needed, talk to us about the possibility of raising your deductible. If the savings are enough to cover the deductibles on one or two claims, it may be worth making the change.
To make taking on more risk financially viable, you’ll have to prioritize risk management at your worksites. Emphasize the importance of safety to your supervisors, crew members and subcontractors.
By conducting regular safety training, providing personal protective equipment and strictly enforcing safe work practices, you can reduce the risk of on-site accidents and minimize damage and injury claims.
One other major risk to contractors is theft and vandalism. To lower this risk, builders have been erecting fences and walls around worksites since the dawn of construction. Today, there are cost-effective solutions to increase site security and reduce risks, such as:
- Online cameras and smart sensors on the job site can enable continuous monitoring for unauthorized access, unlawful activities, CO2 levels and real-time water leak detection systems like WINT’s water intelligence platform.
- Adequate lighting is much cheaper to procure, and built-in motion sensors can help save energy (while deterring potential trespassers to the site).
- GPS tracking tags on vehicles, equipment and even valuable materials can make it easier to recover them if they are stolen.
- Mobile applications for your workforce management can be a helpful tool in creating ongoing and interactive safety training, and risk-reporting programs to reduce the risks of human error and negligence.
Talk to us first
Builder’s risk premium calculations can be complex, and taking the step to increase your deductible has to be done with forethought and care.
Call us to review your policies before renewal and we can do a deep dive into your policy and risk management practices to see if increasing your deductible is a good move for you.