Construction Insurance: How to reduce premiums and liability
December 19, 2020
Premiums on umbrella liability policies can be outrageously high for construction projects. Between the financial investment and the physical dangers to property and people, it’s not surprising that insurance providers would want to offset their own risk with a hefty price tag. But how do insurance companies calculate your premium cost? How do they assess your risk? If you don’t know, you can’t have a comprehensive conversation with them about your coverage. And that may be a conversation worth having, for more reasons than just to reduce your premiums.
Broadly speaking, insurance companies are most concerned with the following three aspects, and they should be the same main concerns you have:
- Safety is everyone’s number one concern, and insurance providers are no exception. No one wants to see work-related damages, injuries, or deaths—but when these things do occur, there is a tremendous financial cost on top of the emotional one.
- Contract compliance, or lack thereof, can cost a fortune in rework and liquidated damages. With the enormous scope of work and level of detail necessary on projects, it’s easy for one small thing to slip through the cracks—especially with scope creep from change orders and spec updates.
- Cash flow problems can quickly build into a major, far-reaching issue, causing financial damage to numerous other projects contracted by your firm.
Knowing how your company addresses these three concerns and how those strategies are viewed by your insurance provider can drastically improve understanding and clarity between all parties involved.
Like all other relationships in AEC, working with your insurance provider should be a partnership built on communication. Don’t take what’s presented to you at first as the be-all, end-all. They know insurance, but you know your firm. Make sure you’re delivering the right data.
- Show them your safety protocols, cost overrun prevention techniques, and software stack.
- Convey your team’s unique strategies for handling rework or cash flow.
- Present statistics to back up your claims and prove your track record.
Conversations are, of course, two sided—ask about other ways you and your team can lower premiums.
- Are there additional practices or software they recommend?
- Do they know something other GC firms are doing to reduce risk that you haven’t explored?
Take these suggestions and conversations to heart. You’d be surprised how the additional insight doesn’t just lower your premiums, but your overall liability as well.
Yes, it puts more work on your team to plan such meetings with your insurance provider and to gather information and statistics to make it a productive conversation. However, this foundational work will give you a model to use on every project you work on afterwards. Even if you only see a small amount of savings on a project to start, the benefits can add up quickly to positively affect your profitability over the course of multiple projects.
Need a good place to start? Insurance leader Aon recommends Pype. Pype’s solutions tackle all three main concerns that insurance providers look for by ensuring accuracy and fostering clarity of scope throughout your entire project lifecycle. These platforms reduce missed requirements, highlight changes in scope, and point out contractual safety requirements and obligations—which reduces cash spent on liability and insurance, and keeps it in your pockets. Aon concludes that “professional liability, cost overrun/liquidated damages, and general liability/workers compensation/employer liability are all policies that will be positively impacted by Pype.”