The bane and the bonus of being a NY General Contracting firm is the ability to assess and then allocate your risk downstream to your sub contractors; that’s the bonus. The downside is that each and every job site incident is a potential general liability claim which can cost you AND your insurance company hundreds if not millions of dollars which is why it has become very costly for insurance carriers to underwrite the risk of a general contractor.
“For the last five years or so carriers have been beating themselves up by reducing their insurance premiums to put the accounts on the books” reveals Rina Visconti of CRC Services, Inc of Long Island, a leading NY construction insurance liability wholesaler. According to Ms Visconti, “The problem is that between the cost to litigate all of the claims that come streaming in, as well as the multi million dollar jury awards given out by New York City juries, insurance carriers have lost a small fortune because the premiums they charge are not nearly enough to offset the claims or losses carriers are paying.”
Case In Point:
Look no further than the NY Construction Excess Liability insurance market as a perfect example of how disrupted the NY construction general liability insurance market is. Up until December 2011 the pricing for $10 million dollars of NY excess liability insurance ran approximately 45% of the general liability premium for the base $1 million of construction liability insurance charged. Today the first $1 million over your base general liability policy is easily 100% of the general liability insurance premium. Worse as of January 1st, 2012. When the majority of re-insurance contracts renewed most insurance carriers writing excess liability insurance refused to attach themselves over the initial $1 million dollars offered by the first carrier which then leaves a gap. This created a whole new sub category for Construction Umbrellas called the “buffer layer” which is a layer of excess liability or umbrella coverage that enables the insured to achieve a minimum level where the rest of the excess market will attach to (see diagram below, click for larger view).
The bottom line for NY General Contractors is that the premium and terms for NY Commercial Excess or NY Commercial Umbrella has doubled or tripled for some NY General Contractors. The increased pricing on top of the “new” NYC Department of Buildings general liability insurance ruling which obligates higher limits of liability on a per project basis serves as a crippling one two punch on an industry already on it’s knees. Unfortunately the market moved so fast and changed so dramatically that most NY Trade Contractors & NY General Contractors did not have the ability to price the increase into their current job cost structures leaving many businesses running at a potential loss.
Quick Takeways To Help Mitigate The Impact:
- Renew your focus on preventing job site accidents and claims in the first place. NY General Contractors & NY Trade Contractors are getting severely penalized for poor claims history.
- Qualify your sub contractors and vendors, especially their liability insurance. This enables you to transfer the claim to the sub contractors and vendors. Too busy? Don’t have proper staff? Then hire a service like the (Risk Rocket) so those losses don’t impact your P&L in the form of higher renewal insurance premiums!
- Don’t commit to another long term construction project without doing a feasibility study of your insurance cost structure. We recently did a feasibility study using pro formas to help a client understand the new insurance cost structure. This resulted in an accurate contract pricing and maintained their profit margins. They might lose the job to competition that doesn’t know their true costs, however they saved themselves from taking on work that will ultimately prove unprofitable.
- Order your loss runs early and do a Loss Pic to ascertain whether your insurance account is profitable or not at current pricing levels. This will be a great indicator of what your NY Construction Liability Cost will be in your next renewal term. If you contact a Risk Advisor we will do the Loss Pic for you gratis as we believe this to be such a critical indicator.
- Similar to item 3 do a feasibility study on your workers compensation costs too as rates have gone up there as well.
- Know what your experience modification factor will be upon renewal for your workers compensation. This is typically calculated by your State Workers Compensation Board months before your renewal. If you don’t know what your new factor is contact a Risk Advisor and we will secure your Experience Modification Factor for you gratis.
In summary your insurance cost structure has changed dramatically, seemingly overnight. Understand this and price for it in your future work. Sorry to be the one to pour a cold beer on your camp fire however to be forewarned is to be fore armed as they say.