Why You’re Paying Too Much For Insurance
You’ve been in business over 10 years with over 20 years of experience in trade. You’ve never had a claim and if any of your clients ever have an issue with your work, you go out and fix it. Then why does it seem like you’re paying too much for insurance and, on top of that, the price keeps going up every year?
HOW INSURANCE CARRIERS DETERMINE PRICING
There are 5 main factors that influence the pricing of your General Liability insurance policy: Gross Sales, Payroll, Sub/Independent Contractor Costs, Operations, and Loss History. The last 2 affect pricing in a pretty straight forward way. A roofer is going to pay more for liability insurance than an electrician because if a roofer causes damages, the cost to repair them are, most likely, a lot more than if an electrician does. And when it comes to Loss History, to an insurance carrier if you’ve had a claim in the past, you’re more likely to have a claim in the future so they’re going to charge more for insurance.
How an insurance carrier factors in Gross Sales, Payroll, and Sub Costs has the greatest influence on the price you pay for insurance.
Each carrier has a different rate for these 3 factors and every carrier weighs them differently when they determine your insurance premium. Some carriers use only 1 of those numbers, most often either Gross Sales or Payroll. Some carriers use a combination of all or some of those numbers; this is called a composite rate. And what makes it even more complicated is that there are significant differences in what each carrier expects to be included in those numbers.
For example, when determining Sub Costs, does the carrier want labor & material included? Or just labor? Does the carrier have a cap on individual employee payroll or do they want the gross annual payroll for each employee? Are you with an insurance carrier that rates based on Gross Sales when you should be with a carrier that rates on Payroll? The answers to these questions have a tremendous impact on how much your insurance costs.
WHY YOU COULD BE PAYING TOO MUCH – A REAL WORLD EXAMPLE
We have a client in Lynnwood WA building about 12 new homes a year. Their Gross Sales are about $4 million, Field Payroll is $150,000, and their total Sub Costs (labor + material) is $1.4 million. When they reached out to us for a quote they were paying about $20,000 a year for their Liability Insurance policy and had been with an insurance company that based their premium on Gross Sales. Our agent knew right off the bat they were paying way too much for their policy and knew to take them through a carrier that based their premium on Payroll & Sub Costs, saving the client $9,500 a year on their policy. THE CLIENT HAD BEEN WITH THEIR OLD INSURANCE COMPANY FOR 7 YEARS! If their numbers were the same over those previous 7 years, they could have saved $66,500 in insurance premiums by being placed with the carrier our agent found for them.
We consistently meet and talk with businesses that are paying 20-50% more than they should for their insurance policies, sometimes TWICE as much, because their old agent placed them with a carrier that was not the ideal carrier for their business. And unfortunately, most of the time it is after these business have been paying these higher prices for years.
NOT ALL INSURANCE AGENCIES ARE THE SAME
In 2015, Costco sold 128 million hot dogs. 128 MILLION HOT DOGS. They sell, on average, 100 million hot dogs every year. That is more than 4 times what is sold at all major league baseball stadiums combined. Do you think Costco pays the same per hot dog as other vendors? No way. Their size and volume give them the best rates and hot dog suppliers dream of doing business with them.
Lots of insurance agencies write Commercial Insurance, but very few focus on Construction & Contractor’s Insurance. Your typical State Farm or Farmers insurance agent does not have a large book of contractor/construction clients because State Farm and Farmers don’t want to write insurance for those risks. They want the “Main Street” businesses like restaurants, retail stores, and coffee shops. Construction companies are higher risk and more complicated than these other businesses so not all insurance companies write policies for them, and not all insurance agents understand what they need or how to cover them. In addition, if an insurance agency does not have a large number of construction clients, insurance companies will not allow them to offer their policies. Remember the example of the home builder in Lynnwood WA? Their old agency may have had only 2 or 3 insurance companies they could place a contractor with so they were forced to write them a policy that cost twice as much.
INEXPERIENCE COSTS YOU MONEY
Does your insurance agent know what figure your current insurance carrier uses to figure out your policy’s cost? Is it your company’s Gross Sales? Payroll? Subcontracting Costs? Are they using the proper class codes for your business and does your policy include coverages and endorsements that you don’t need? If you are partnering with an agency that does not specialize in construction, then chances are your agent does not know these answers and you are paying more than you should be.
WE’RE HERE TO HELP
At Builder’s Shield & Hunter Insurance, all we do is construction and contractors insurance. We’ve been doing it for over 20 years. We know your industry and we would love to talk with you about your insurance. Seriously, we’re insurance nerds. We listen to insurance podcasts and read insurance journals. Give us a call and we can tell you quickly if we can save you some money.
