|LOOKOUT High deductibles, premiums are forcing contractors to review coverage priorities. (Photo courtesy of J.E. Dunn Construction)|
Over the past few years, Bill Dunn Jr. has been pushing Kansas City, Mo.-based J.E. Dunn Construction to tighten up asset-management controls for its $50-million fleet of construction equipment. As with most other firms, the primary objective is improving jobsite safety and equipment availability. But Dunn says carefully planned buying, leasing, renting, preventive maintenance and sale of equipment also help the general contractor reduce insurance costs, which have doubled for owners since the economy began cooling off in 2000.
"Deductibles are rising. We need to look at our business the way we look at our own personal insurance," says Dunn, senior vice president of purchasing and warehouse operations. He says J.E. Dunn is overhauling its equipment-management techniques in order to offset costly insurance premiums.
The firm now is concentrating on insuring only high-cost, high-risk assetslike lifting equipmentthe typical rates for which are roughly $1 per $100 of market value. Even for businesses with low losses, thats nearly twice as high as five years ago, a time when Dunn says his firm would insure "everything."
Other equipment managers also say that life-cycle costing and other regular accounting practices give them an edge when buying insurance. "If you want to try to control insurance costs place a market value on [equipment] and dont include items that are under the deductible because you are not going to collect anyhow, and you are actually going to lower your insurance premiums," says Pat Monnot, operations vice president of AMECO, Greenville, S.C.
One continuing problem is crane equipment, which still is more expensive to insure than most other types, including large earthmovers. "You dont just slightly damage a crane, you usually total it," says Bob Andrade, vice president of equipment management at The Walsh Group, Chicago. On the other hand, Monnot believes crane losses play a small part in the equation. "It all went up proportionately," he says, noting that Fluor-owned AMECO a few years ago held a $25,000 deductible on cranes and $10,000 on everything else. Today, deductibles have climbed to $100,000 and $50,000, respectively.
Overall, agents say premium costs are stabilizing but show no signs of abating soon. Says one Chicago-based underwriter, "There are fewer [insurers] competing for business which is going to raise the rates to a certain extent."
Summary: Cheap Money Heating Up Costs
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Labor: Unemployment Fails to Dent Wage Hikes
Insurane: Pressure Grows on Workers' Comp