With origins dating back to 1918, Western Pacific Insurance Network, Inc is the premier specialty wholesale insurance broker in the Rocky Mountain Region. As Vice President of Marketing for Western Pacific Insurance Network, Eric Richter is a foremost authority on the importance of, and the challenges that come with, helping clients achieve and maintain world class risk management programs. Click here to learn more about Western Pacific Insurance Network Inc., or contact Eric directly at Eric@westpacins.com.
We all know the challenges of insuring contractors. In many states, the construction industry is begging for legislative reform. However, what are contractors doing in practice to make their case for changes? How are agents helping their contractor clients be more attractive to an insurer? Too often, the costs of construction defect claims are overly inflated and a large reason is improper risk transfer between contractors and their subcontractors. The concepts to improve risk transfer processes are simple and assisting your clients with these processes can go a long way.
Collect and Store Certificates of Insurance
Agencies are certainly much better able to identify issues with their contractor’s collected certificates, and offering to review these is a simple value-added service that surprisingly not many agents provide. However, while a contractor/their agent may collect certificates as a general practice, many do not keep records of these on file through the State’s statute of limitations. When a claim occurs and certificates are not stored, attorneys spend exhaustive hours tracking down subcontractors, policies, and coverages. These efforts greatly inflate loss adjustment expenses and make it more expensive to insure contractors as a result.
Don’t Just Collect Certs, Verify Coverages
While contractors and their agents may collect certificates, all contractors regardless of their size should also require their subcontractors to verify important coverages that wouldn’t be disclosed on a certificate. Sure, the certificate may disclose carrier info, limits, Additional Insured language, etc, but too often we see claims where the upper tier contractor is responsible for damages of the subcontractor because the subcontractor’s policy contained exclusions for the work performed (for example, we see excavation contractors often purchase policies with Earth Movement Exclusions). Some carriers even have specific coverage requirements of their insured’s subcontractors, thus agents can help verify the carrier’s requirements are used in practice with subcontractors.
By no means should an agent create legal language for their clients, but contractors need to incorporate important coverages into their hold harmless/indemnification agreement which requires their agent’s guidance. We also see plenty of situations where the contractor allegedly had an indemnification agreement with their subcontractor, however at time of claim they can’t furnish a signed and executed copy of agreement. While this circumstance may not be the agent’s fault, the agency often gets blamed for denied coverages as a result (or large additional premium audits) so it’s worth addressing this issue.
Though implementing these risk transfer strategies seems simple, risk transfer is frequently overlooked by contractors and their agents. Agents that assist their contractor clients with their risk transfer processes create tremendous value for your clients but also create a more attractive environment for insurers. Your agency will also be a much more attractive partner for the carrier. There are plenty of other issues within the Construction Industry that make it difficult to insure contractors, but the Construction Industry needs our help. After all, can we really rely on legislature to fix everything?
myCOI is a cloud-based software solution that exists to assist in the handling these critical tasks of managing certificates of insurance, storing documents, and protecting your company against underinsured claims, costly litigation and failed audits. The software and certificate tracking services are combined into an easy-to-use program developed and supported by a team of insurance professionals and built on a foundation of insurance industry logic to automate the COI communication process and ensure you remain protected.
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