“It can be tempting to change contract insurance carriers if you receive a lower premium quote than your current policy, but you’ll likely think twice after learning the risks.”
At Dunn Solutions, we’re dedicated to providing trusted information and advice to support trade contractors and craftspeople throughout the greater Seattle area. While we often share insight on quality materials and building techniques, we also understand that there are countless other facets of your business required to keep things running smoothly—like insurance.
From the basics of what contractor liability insurance is and how to read your policy to understanding policy exclusions and Washington laws that impact contractor liability insurance, there are a lot of factors to consider for your business. That’s why, for our Contractor Liability Insurance Series, we’re speaking to Shelli Lucus-Kennedy, owner and senior risk manager of Insurance Risk Services. With more than 40 years in insurance and risk management and a focus on the construction industry, Shelli is a wealth of knowledge, due both to her extensive experience and customer-driven approach.
In this episode, we break down the risks associated with shopping around for insurance coverage and changing contractor insurance carriers. While it may seem financially prudent to switch to a lower premium plan, Shelli gives us a peek behind the curtain as to why it’s often a risky—and more expensive—endeavor.
Watch our discussion in the video above or keep reading to get the highlights.
Risks of changing contractor insurance carriers
It can be tempting to change general liability insurance carriers if you receive a lower premium quote than your current policy, but Shelli strongly advises asking why that premium is lower and requesting a comparison of what is different— specifically checking to see if the new carrier will cover your prior work.
The answer? Not likely.
Here’s why: Occurrence policies only cover occurrences that happen during the policy term, not beyond its expiration. Yet contractors in Washington state are under a 6-year statute of repose, which is the timeline for which they can be sued separate from warrantying the work. (We touch briefly on this statute of repose in our “What is contractor liability insurance?” episode.)
If you change insurance carriers, your new carrier doesn’t receive any premium for your work prior to their policy and, by the definition of occurrence and added exclusions or limitations, will not cover your prior work or damage as well as often limit or exclude any work in process. This means you’ve created a gap in coverage in which you’re potentially at risk for getting sued for past work that no longer falls under your current policy. The new policy will be initially cheaper, but it either won’t fully protect you, or you’ll have to pay even more to get that prior work covered.
Shelli notes that if you do find a new insurance carrier that agrees to cover your prior work, they’ll charge you 30-50% of the premium they would have been charged for the work going back the numbers of years chosen or by a specific project you want added had you been their client when that work was completed. Simply put, this means you’ll be paying again on a premium you already paid to your past carrier.
With this in mind, Shelli says that as long as your current insurance carrier is consistent (meaning the current carrier isn’t suddenly adding exclusions or being difficult to work with), it is always best to stay with the same carrier to keep continuity of coverage and to build a trusted, ongoing relationship.
While there are a few instances where a contractor may still decide to change carriers, like to access better coverage, it’s not an easy deal like you may first think.
The meaning of “completed operations”
You may have heard the term “completed operations” also be called “construction defect coverage.” This isn’t correct. Completed operations refers specifically to the damage from a construction defect after the project has been completed or put to its intended use. For example, if an electrical panel was installed incorrectly and blew up, the policy covers the damage created by that defect, not the electrical panel itself.
Why regularly shopping around for the best insurance carriers for contractors can backfire
Though it may seem like a smart idea to shop around for new insurance by calling multiple agents or brokers every few years to see if you can find a different deal, Shelli advises against it. She explains that insurance companies are looking for loyalty. If you have a good agent or broker, they should have access to all the carriers and know the market. Make them work to retain your business.
Every time you apply for an insurance quote, the insurance carrier tracks the inquiry. If the carrier sees the same inquiry coming in year after year, especially if it’s from a different agent or broker, they’ll be less likely to take you on as a client because they’ll expect you to shop around and leave. Shelli goes deeper into this topic starting at 05:11 in the video.
A good agent should pick up the phone, have a discussion with the underwriters, and ask whether your business is something they want to quote (maybe the rules have changed) before wasting time with a full submission that creates a lot of work for the carrier, only to decline it year after year. The agents and brokers that “shot-gun” the marketplace, only do that to prevent any other agent from obtaining a quote on your behalf.
Differences between insurance carriers for contractors and what to look out for
Before speaking with Shelli, we assumed that most carriers were fairly equal or interchangeable. However, this isn’t the case. Shelli shares that there are some “notorious” ones that come in and out of market, while others are available to Washington state business owners but aren’t regulated by the state’s insurance commissioner.
This is another reason why working with a trusted agent and broker is crucial to protect your business. Your agent should be well versed in which carriers are highly trusted, which are the best fit for your needs, and what your state’s regulations and best practices are. Also, Shelli notes that different agents work with different carriers and, ideally, should have a longstanding relationship with them. This familiarity and relationship can help benefit you. That said, a bad agent could be making the placements for their own benefit for profit sharing reasons. Shelli discusses how important that agent or broker relationship is and why she calls it “Pick Your Pony.” It doesn’t cost extra to use an agent or broker; they are paid by the insurance carriers. A good one will know your business, work at making sure coverage fits your need, and be your advocate in the event you have a claim.
Insurance can be confusing, and it’s difficult to find the best insurance carriers for contractors or your specific line of work and business situation. Educating yourself on best practices, what to look out for, and what questions to ask your broker or agent are all great ways to set you up for success. Check out other helpful videos in this series to learn more, like this episode going over how to read your contractor liability insurance policy or this episode covering why it’s smart to consult a risk management specialist.