For contractors needing to renew their insurance policies, the process is going to be difficult or manageable depending on where they work. For contractors operating in such subprime swamps as Florida, Nevada, California, North Carolina or Arizona, commercial and liability insurance will likely prove harder and more expensive than in past years.

In some states, however, contractors are finding it easier to renew—but not for heart-warming reasons.. So many small contractors have gone under that insurance providers suddenly have to compete for clients.

In Texas, financially stable firms with decent backlogs aren’t finding it particularly difficult to renew or expand insurance—unless they’ve filed a lot of claims in recent years.

Our contractors face a different problem. The greater issue is that too many have ignored policies while racing to keep up with the state’s frenzied construction activity of the past two decades. It’s been so long since they’ve insurance shopped, they are no longer sure if they are paying too much or even have sufficient coverage.

For several reasons, it’s high time these contractors begin to compare insurance plans. The first is that even the most established insurers are now considerably more tight-fisted. Because they no longer are able to absorb numerous financial blows, they are broadening restrictions and talking about adding others. For example, the industry is considering limiting coverage only for specific types of project. Insurers already have started to cover only specific types of work that are declared and endorsed onto the contractor’s policy at the inception of the plan. Changes that are self-performed by a general contractor and not declared at inception may not be insured. The industry is also talking about restricting—or eliminating entirely—coverage for construction defects claimed after a project is completed.

Clearly the fine print in insurance policies is evolving. Contractors need to make certain their policies reflect the new realities.

The second reason to review insurance is overpaying. In the construction industry, insurance rates have bounced around a lot the past few years and for some contractors this has proven advantageous. These contractors, at least the ones with few claims and strong work histories, often find ways to save money by seeking new bids on a regular basis.

If a contractor hasn’t sought new bids in three or four years, it should now while rates are floating. The process does not have to be difficult, but it requires some organization. The payback could easily justify the effort.

In general, contractors should seek bids from three to five insurers. The easiest way to do this is to have an agent shop the coverage around. It helps to have more than one agent look at the submitted bids, just as it’s often wise to get a second medical opinion.

This is a process that should take place at least six months before policies have to be renewed. This gives contractors time to gather records and agents time to ask plenty of questions. Contractors with the best records are the ones who normally get the best rates. Many companies create spreadsheets to track such areas as vehicles, drivers, sales, payroll, subcontractor costs, equipment, job history and policy and loss history.

A key record for all is the loss-run record. Without these, a contractor will not get a competitive quote, and may not get insurance at all. In general, the loss-run record should cover a five-year period.

In addition, contractors need to compile their annual workers’ compensation experience rating sheets.

The more records a contractor has, the easier it is to compile bid specifications, and the easier for brokers. Bid specifications should be updated annually and thoroughly describe operations, exposures, coverage and certificate requirements. Much of this is already documented in financial statements.

Armed with accurate and organized records, a broker is prepared to go into the marketplace. Once bid information is gathered, the broker and contractor can begin the process of considering scope of coverage, deductibles, additional insured endorsements, captive insurance and a smorgasbord of other issues. There is a lot to consider, but it isn’t nearly as complicated or time-consuming as it sounds: Contractors have their brokers and certified public accountants to turn to for guidance.

Leslie V. Guajardo

Implementing a regular review of insurance costs can bring untold financial muscle to a contractor’s bottom line. However, the effort won’t reap a lot of gains if a contractor isn’t trying to control losses. The best way to do this is by means of a formal self-monitoring program. Because insured losses typically represent 60% to 70% of premiums paid, insurance carriers look favorably on contractors who try to stem losses. Some of the ways a contractor can do this are outlined below.

Property Insurance Contractors should perform frequent preventive maintenance for all contractor-owned equipment. They also should employ theft-protection measures, including equipment-registry systems. At the job site, contractors should make housekeeping a leading priority.

General Liability Insurance To lower liability costs, contractors should mandate that all subcontractors comply with written liability safety programs. At the same time, contractors should review and investigate all job accidents while also implementing a comprehensive quality assurance program.

Workers Comp Insurance One of the most effective ways to hold down losses is to require all employees to go through a 10-hour OSHA training course. Many successful contractors also conduct pre-placement physical exams, including mandatory drug testing of all employees.

These are just a few steps contractors can take to lower losses. There are many others available to contractors, and their agents can provide a breakdown of the most time tested.

Even without formal safety programs, contractors often can lower premiums simply by seeking new bids. Rates are all over the map right now so it’s a good time to take advantage of the competitive environment. For those who haven’t explored the market in a few years, there may be cost savings waiting to be claimed.

Leslie V. Guajardo, CPA, CCIFP, is a partner at Padgett, Stratemann & Co. LLP in San Antonio. She can be reached at 210-253-1530 or