By Becky Watson, CPA, Audit Manager
ASL Construction Group
I had the opportunity to interview Ralyssa Robinson, CRIS, MLIS, a Commercial Insurance Broker with Bozzuto & Associates Insurance Services, and pick her brain about top insurance concerns for contractors, and how they can minimize risk and prepare for today’s working environment.
Becky Watson: What insurance risks are common with contractors?
Ralyssa Robinson: Contractors inherently accept risk when running their business. Some of the most common risks arise from three areas – one’s own actions and operations, that of their employees, and those of their subcontractors.
- A contractor’s own actions can result in liability risks and construction defect issues. These risks are most commonly a result of not having or not properly following quality control and/or jobsite safety procedures.
- Contractors also face risk associated with their employees. Two of the biggest risk factors are that of workers’ compensation injuries and auto liability for employees driving company vehicles or driving their own vehicle for work purposes.
- Finally, contractors may unintentionally pick up the exposure for work performed by subcontractors on their behalf. This exposure can be especially problematic as your own insurance policies may not protect you in the event of a claim or loss.
Becky Watson: How can these risks be mitigated?
Ralyssa Robinson: While contractors inherently accept risk, much of it can be mitigated with proper insurance and risk mitigation measures.
- First and foremost, invest in your broker. Price can often be a driving factor when purchasing your insurance and this can result in costly gaps in coverage. Ensure that your broker takes the time to understand every aspect of your business so that important coverages are not excluded. This can be in the form of missing policies (i.e. pollution, professional design errors and omissions, cyber) or major exclusions (i.e. tract homes, apartment, residential, and subsidence exclusions).
- Ensure you have quality control and/or jobsite safety procedures in place, and that employees receive ongoing training including, but not limited to, formal safety meetings.
- Set guidelines for employees authorized to drive company vehicles and/or drive their own vehicles for work purposes. Motor vehicle records should be checked for any drivers pre-hire and on an annual basis. Also, consider investing in a telematics system, which will allow you to immediately address potentially risky driving habits before they result in a claim. Brokers and carriers may be able to assist with this!
- Ensure that a dedicated process is implemented for collecting and reviewing your subcontractors’ insurance and that there is always a contract in place. Take care to review how your own policy will respond in the event of a subcontractor loss, and what is required of you to maintain coverage.
Becky Watson: What should contractors know about in today’s work environment?
Ralyssa Robinson: Today’s work environment is increasingly litigious. Take care to review any contracts you sign to ensure you have the proper coverage and that your business is not accepting more liability than what should be expected. Similarly, ensuring that the contracts you execute with your subcontractors have the proper language is your greatest form of protection.
Becky Watson: As a contractor’s business grows, when should they contact their broker?
Ralyssa Robinson: A contractor should contact their broker any time there is a change in operations, they are considering work outside of their traditional scope, or their revenues are far exceeding their annual estimates. Your broker should guide you though any potential coverage issues, and help you navigate through a cost-benefit analysis of any major changes.
Always contact your broker if you are made aware of a claim. Actions taken preemptively to address a loss could potentially impact your coverage.
For additional insurance-related questions, please contact Ralyssa Robinson at ralyssar@dbinsurance.com, or visit Bozzuto & Associates Insurance Services. And as always, please reach out to ASL’s Construction Group with any accounting or tax-related questions.