If you are a contractor, you know how important it is to have adequate insurance coverage for your business. Contractors insurance protects you from various risks, such as property damage, bodily injury, professional liability, and workers compensation. However, you may also have noticed that your insurance premiums have been increasing steadily over the past few years. Why is that? What factors are driving up the cost of contractors insurance? And what can you do to lower your expenses?
The Main Reasons for Rising Premiums
Catastrophic losses. The construction industry has been hit hard by natural disasters, such as hurricanes, wildfires, floods, and earthquakes. These events cause massive property damage and disrupt business operations. According to a report by Swiss Re1, global insured losses from natural catastrophes reached $76 billion in 2022, the fifth-highest on record. These losses put pressure on insurance carriers to raise their rates to cover their claims and maintain their profitability.
Supply chain issues. The COVID-19 pandemic has disrupted the global supply chain, causing shortages and delays of materials and equipment. This has increased the cost of construction projects and extended the completion time. As a result, contractors face higher exposure to risks, such as theft, vandalism, fire, and contractual disputes. Moreover, the inflationary pressure due to the rising cost of materials and labor also affects the insurance premiums, as they are based on the value of the project.
Workers compensation claims. Workers compensation is one of the most expensive lines of coverage for contractors, as it covers medical expenses and lost wages for employees who get injured on the job. The construction industry has a high rate of workplace injuries and fatalities, due to the hazardous nature of the work. According to the Bureau of Labor Statistics2, there were 1,061 fatal work injuries in the construction sector in 2020, accounting for 20% of all occupational fatalities in the U.S. Additionally, the rising cost of medical care and the shortage of skilled labor also contribute to the increase in workers compensation claims and premiums.
Cyber risks. Contractors are increasingly relying on technology and digital tools to manage their projects, such as cloud-based software, drones, sensors, and smart devices. While these technologies offer many benefits, they also expose contractors to cyber risks, such as data breaches, ransomware attacks, phishing scams, and denial-of-service attacks. These cyber incidents can cause financial losses, reputational damage, legal liability, and operational disruption. According to a survey by Accenture3, 75% of construction executives reported experiencing a cyberattack in 2020.
How to Lower Your Insurance Costs
While some of these factors are beyond your control, there are still some steps you can take to lower your insurance costs and protect your bottom line. Here are some tips:
Shop around. As an independent insurance agency we represent many companies and can compare different options from multiple carriers to find a better deal. We can help you find the best coverage for your needs and budget.
Improve your safety record. One of the best ways to lower your insurance premiums is to reduce your claims frequency and severity. Implement a comprehensive safety program that includes regular training, inspections, audits, and incentives for your employees. Use technology to monitor and mitigate risks on your job sites. Report and resolve any incidents promptly and effectively!
Review your coverage. Make sure you have adequate coverage for your specific risks and exposures. Don’t over-insure or under-insure yourself. Review your policy limits, deductibles, exclusions, and endorsements periodically and adjust them as needed. You may also consider bundling different types of coverage into a package policy that offers discounts and convenience.
Manage your subcontractors. If you hire subcontractors for your projects, make sure they have their own insurance coverage that meets your standards and requirements. Verify their certificates of insurance and check their claims history and reputation. Transfer any liability that arises from their work to them through written contracts.
Conclusion
Contractors insurance premiums are at an all-time high due to various factors that affect the construction industry. However, by taking proactive measures to manage your risks and optimize your coverage, you can lower your expenses and protect your business.
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