Construction Insurance Q&A with Matt Cotter
Design 2147 CEO Sisto Martello recently had the opportunity to speak with Matt Cotter, the Vice President of Construction Practice at Acrisure, about the ins and outs of construction insurance. Here are some of the important takeaways for contractors.
Q: Everybody wants to make sure they’re getting the best rates and the best coverage on their construction insurance. Should firms shop out their construction insurance each year to see what’s available?
A: That’s going to be a hard and fast “no.” The position you put yourself in when you or your broker is shopping construction insurance out every single year is the “boy who cried wolf” syndrome. By the third year, the underwriters have seen the same submission year after year after year, and they’re not looking at it seriously. Your application goes to the bottom of the pile, defeating the entire purpose shopping it out.
In terms of shopping it out to other brokers, you really want one broker controlling the narrative in the marketplace: the narrative that supports the data, the loss runs, the premium breakdown, the historical sales, payroll, and sub costs. You really want one credible agency representing you.
Our suggestion, when I say “shop your insurance,” what I really mean is: interview some other brokers if you’re not happy with your current provider. Meet with one, two, three, four other people until you find someone that you feel is credible and can represent you in the marketplace. You pick that horse and you run with it, and then they’re able to control and work with the different underwriters.
Q: We hear from so many people that their insurance reneal always seems to come down to the last minute. Why is that?
A: The short answer is, it shouldn’t. If your broker has you positioned with a direct market carrier (also called a standard market carrier), those carriers and underwriters have the renewal information and the premiums well ahead of time and it should not come down to the last minute. It really comes down to communications between the underwriter, the broker, and the insured.
Now, if you’re in the excess and surplus market, it’s probably because of claim history or you’re in one of the riskier trades, meaning excavation, demolition, concrete superstructure, structural steel. These types of trades are going to be in the excess and surplus marketplace where there’s a wholesale underwriter. There is an additional step – there’s an additional party involved and that slows things down. It is more challenging than the excess and surplus market, and more often than not it takes longer, but some of the stories I hear about it coming down to the last day of the process, that should not happen.
Q: So we know now that we shouldn’t be shopping out insurance every year – but are there any new insurance markets out there?
A: I often get asked this by contractors: are there any new markets, are there any new carriers. It’s been a stagnant, hard marketplace for a very long time for New York contractors. You’ll be happy to know that yes, there is a new market.
This new market is something you can take advantage of if you are (a) a best-in-class interior contractor, meaning whether you’re an interior GC doing office fit-outs, a condo fit-out for the unit owners, or (b) a mechanical plumber, electrical, flooring – anything inside – and:
- you’re currently insured with a top-tier insurance carrier;
- you have a low loss ratio;
- you have excellent risk transfer with any subcontractors you work for; and
- you have a strong safety culture.
As an example, we’ve seen a program that generates a savings of 25% – it is definitely the real deal. Those are general liability policies of $1 million, $2 million or $2 million, $4 million. They also do a $5 million umbrella policy that also prices commercial auto insurance very competitively.
Q: There’s been a lot of focus in our industry on Labor Law Section 240/241, also known as the Scaffold Law. This law holds employers and property owners liable if they become injured due to a gravity-related fall. Do you think this law will ever change?
A: Good question. The Scaffold Law holds building owners and contractors absolutely liable. It has a strict liability standard for injured workers.
Picture this: an employee falls off a ladder and gets injured. Obviously, his workers’ compensation kicks in and pays for lost wages and medical payments. But what happens in New York, when a personal injury attorney gets involved is what’s called an “action-over” lawsuit. Usually, that injured employee won’t sue their employer because the employer is providing workers compensation, but in New York or in any state that allows it, they can file an action-over lawsuit. This allows the employee to sue the employer for contributing to their injuries – after they have maxed out their workers’ compensation benefits.
What’s unique about New York is the standard. It’s not comparative negligence, it’s absolute liability. So, it really doesn’t matter if that injured worker came back to the job site intoxicated, or wasn’t using the safety equipment that they were provided or that they were trained to use. The contractor and the building owner are held 100% liable.
Unfortunately, I don’t think that law is going away, not for a very long time. The attorney lobby up in Albany is so strong that anytime that law starts to get close to turning, it just doesn’t.
The goal wouldn’t be to abolish the law. It would be to change the standard to comparative negligence, meaning it would be taken into account whether that injured worker had something to do with how he fell or got injured. Maybe he wasn’t using the right safety equipment or again, he was impaired in some way. But I don’t see it changing anytime soon.
Q: Umbrella policies are something that most construction companies and contractors are interested in, but it’s hard to find information about what those kinds of policies cost. How much does an umbrella insurance policy cost?
A: It is a bit of a Wild West in the umbrella market right now. What we’re seeing is oftentimes, the umbrella will be 70%, 80%, 90% or even 100% of the general liability premium. This means that if you’re paying $100,000 for your general liability policy for your company and it has $1 million, $2 million limits, to get an umbrella policy you’re looking at another 70% of that. So that would be another $70,000 to get a $5 million umbrella.
Now there are situations where this isn’t always the case. We were talking before about new markets, and in that new market the umbrella policy can be available at a premium of 40% of the general liability policy. So, again, if you’re a contractor paying $100,000 for your general liability insurance, in the new market an umbrella policy would be able to be $40,000 – as opposed to $70,000. There are opportunities out there, but, again, it’s for best-in-class contractors who are doing the right things in terms of safety and risk transfer with their sub-contractors and who also have a good loss history.