HOW TO LOWER YOUR GENERAL LIABILITY INSURANCE BY THOUSANDS OF DOLLARS!
AN INSIDER'S GUIDE TO GETTING THE BEST POLICY AT THE LOWEST PRICE AVAILABLE

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RATING FACTORS | PAYROLL | SALES | SUB COSTS | NO. OF EMPLOYEES | MINIMUM & DEPOSIT
TERRITORIES/ZONES | MINIMUM PREMIUM | A/I ENDORSEMENTS | PRIMARY ENDORSEMENTS
CLASS OF BUSINESS | INSPECTIONS | CANCELING MID-TERM | WEBSITES
RECORD KEEPING | DEDUCTIBLES | ART OF NEGOTIATION

1. BEFORE YOU START SHOPPING

2. DON'T DIAL THE PHONE WITHOUT THIS INFORMATION!  YOU ARE WASTING YOUR TIME, AND YOU WILL NOT GET THE BEST PRICE.

Smaller construction companies are usually based on payroll. Why, do you ask? The more payroll you have the more work you do, the more you do, the more you pay because the more work you do the larger the risk of you having a claim.

Payroll is a very important factor in rating. When a program is based on payroll, be very careful what you say. In contractors insurance, payroll means field payroll. Do not give the payroll for any office employees, including, receptionist, clerical or estimators. To make this simple, office employee payroll is NOT included in contractor’s general liability insurance.

Also!! State your payroll WITHOUT THE OWNER. Simply say my field payroll is $500,000 (for example) plus the owner.

Why? Well for sure the owner is the highest paid person in the company, and insurance companies allow for this by making owner payroll a static number. (It’s a static number, but each insurance company has its own static number, I did not say this was going to make sense)

All companies are different, they rate the field payroll and ADD $25,000 (for example) for owner payroll, some add $15,000 for the owner, I have seen $10,000, $33,600 (don’t ask where that came from, I don’t know) There is no standard in the industry.

So if you say my payroll is $600,000 (owner included) instead of $500,000 Plus the owner, you will overpay for your insurance!

Reminder #1 – the payroll number is based on the next 12 months of payroll. If you have a project that is going to last 18 months, you do not have to give the payroll for the entire project, just the next 12 months!

Reminder #2 – If part of your work is under WRAP (OCIP), do not include that portion of your payroll. In the scenario above, if $100,000 of payroll was going to a WRAP (OCIP) project, you would have said my payroll is $400,000 Plus the Owner.

Reminder #3 – Very Important, In California, when the auditor comes in, the only thing that happen is the insurance company will ask for MORE money. If you exceed your estimate, you will be billed for additional money!

If your estimate was LOW, you do not get money refunded!!!!!!

The situation is completely ONE WAY. Again I warn you. Be very careful what you estimate.

Sales is sales, right? Well not really, it hits your books when you Invoice. If you invoice 60, 90, 120 days in advance, but the money does not come in…. Then you have increased your sales by that amount! When the auditor comes in, he is going to see the sales, including invoices that were NOT paid to you during the policy period (12 months).

Remember–to make sure your books are correct for the auditor and if you do not want to pay on sales during the policy period until you COLLECT the money, be careful what and when you invoice.

Here is an example: Your insurance policy expires on 12-31-2004. You guessed that your sales for 2004 were going to be $750,000. It’s November 2004 and you are already at $750,000. You have change orders for an additional $50,000 and you know you are NOT going to collect the money in 2004. If you invoice those sales, you will go over the $750,000 and have to pay more when the auditor comes in.

This is an older way of rating, and it is not usually to your advantage. (I know of one large carrier in California who still rates this way.) Here is an example:

Your company performs the following three trades:

This is an interesting subject, a subject you need to understand.

Minimum Premium (MP) is exactly what it says; all policies have a MP, what does that mean to you?  It really affects you in two different ways.

A Company states their policy has a MP of $5,000. That means it will not sell a policy to anyone for less that $5,000. It also means if you buy the policy and decide to cancel the next day. You Still owe them the $5,000!

Here is an example:

We are going to say that this policy is based on Sales! So you tell the company that your sales are $100,000. (Your best estimate)

So the policy is written with $100,000 in sales for $5000. If you do $200,000 in sales you will owe another $5000 at audit time.

If you do only $75,000 in sales it does not matter, you will not be getting any money back, Remember… MP

But, there is a better way to buy this policy!

You should have asked what is the MP? When you were told the MP is $5,000, your next question should be how much sales would equal the $5000 MP?

The answer might surprise you.  It could be that the company would give you $200,000 in sales for the $5000 MP.

Yes I know your best estimate on sales was $100,000, but why not get as much Sales as you can get. Since you already are going to pay $5000, get as much sales for your money as you can!

As you can see from the example above, if the company gave you $200,000 in sales for $5000 instead of paying $5000 plus the $5000 audit, you could have had the policy for $5000! Saving you $5000.

You may be asking yourself, why didn’t the broker tell the client about this. There are a couple of reasons why. First, the agent or broker didn’t know. That s right he didn’t know. Contractors insurance is a specialty type of insurance, if your broker is not a full time construction broker he may not know all the rules of the game. 2. He is lazy, and does not want to go thru the extra step of finding out from the company, how much sales you could get for the $5,000 MP

Insurance companies treat A/I’s differently, some companies offer NO A/I’s, some charge PER A/I and some offer a Blanket or a limited Blanket.

Buying from a company that does not offer A/I’s, can be a problem, mainly because it can limit you to the jobs you can bid on. If you must have an A/I and the company does not offer them you will have to pass up on the job, or cancel the policy and buy one that does offer A/I’s. (See cancellations)

If the company charges per A/I, you need to know what the cost is up front. This way if you need to provide an A/I you can build it into your bid.

If you know you are going to need a lot of A/I’s, ask if the company will offer a Blanket. A blanket is insurance talk for unlimited A/I’s in a policy period. The company will charge for a blanket, but the price is usually less than buying them one at a time, most of the time, a lot less.

With some companies they will give you a discount on A/I’s if you buy them up front, but limited, for instance, 10 A/I’s for an additional $300.

On smaller policies, you cannot negotiate the cost of A/I’s, on larger policies, you can negotiate, make a counter offer on A/I’s, sometimes it works, you have nothing to lose.

Usually, when you purchase A/I’s the primary endorsement and waiver of subrogation is “included” in the A/I price, BUT sometimes it is separate. So do not assume, ASK! You do not want to be surprised! And don’t forget, you want to make sure you know the cost (Up Front) so you can include it in your bids.

Be very specific when explaining what you do. Keep in mind that even the most experienced broker needs to know what it is you do. It is very important that your policy has you classified correctly.

If you say you are carpenter, but you really are a roofer, It will not do you any good to lie, why? Because many policies have an exclusion if you do not do what you say you do. So do not get caught.

This is a very touchy subject.

Most insurance companies do an inspection AFTER the sale. Why? Well there are many reasons:

1. They want to see if the information the broker sent them is correct.
    

2. They want to see if you were lying.
    

3. They want to make sure they are insuring what they think they are insuring.
    

4. They want to see if you are working on projects they do not want to insure.
    

5. They want to make sure your payroll and sales and sub numbers were correct.

They are doing a check to see
if everyone in the process told the truth.

If the inspection comes in different than the paperwork sent in by the broker, you will be cancelled. . .

What to avoid in an inspection. . .

1. Do not guess! If you are asked your payroll and sales or sub costs and you do not have your paperwork in front of you, just say I don’t have my paperwork in front of me. Call me back tomorrow and I will have the answers for you.
   
   Inspectors don’t like that answer and they want to get the inspection over with quickly so they will ask you to just guess. Don’t do it. If your memory is not good, and your numbers are way off, you will re-rated upward or cancelled.
    

2. Avoid bragging. Contractors say the damnest things, they say things like, I can build anything, Condo’s no problem, tract homes, sure I can do that, Roofing no problem. And on and on. Well if the policy you just bought excludes condos, tract homes and roofing, you will be cancelled.

Note: Keep in mind, inspections are usually done over the phone by people who could not tell you the difference between a hammer and a screwdriver!

Inspectors are not paid well, they have to do about a million inspections to make any money, and want to get the process done with as quickly as possible. They are asking you questions by looking at your application and they know what you wrote down!

If you get a call on your cell phone on the jobsite and you are asked these questions, you are at a huge disadvantage! So make a phone appointment to talk to them when you have your paperwork in front of you.

If you decide to cancel a insurance policy mid term, there are some things to consider:

1. First off, remember Minimum Premium, if you cancel a policy that has an annual minimum premium, you will still have to pay whatever the minimum is.
    

2. If your policy has a 25% minimum premium, That means after 3 months you can cancel, but you will be subject to a “short rate”, in English, a short rate from an insurance company means you can cancel but will be penalized about 10% for canceling early.

Important Note: In California, if you policy is financed, you can cancel by NOT PAYING YOUR NEXT INSTALLMENT. If you cancel that way, the insurance company cannot penalize you the 10%!

If you cancel by sending the insurance a letter and asking them to cancel your account, you WILL be charged the 10%.  Remember “Rules of the Game”!

Do you have a website? If you do, be very careful what is displayed on your site.

Insurance companies search for sites. The go on the net and look to see if you have a site and they will look to see if you are doing things that are excluded in their policy.

If you said you are a remodeler and your website shows a worker on a roof, they will cancel your policy.

If you said I only do custom homes, but they see a picture of a sky scraper on your site, you will be cancelled. Just make sure your site reflects pictures of the type of work you do.

I understand contractors buy “stock” websites. But be very careful about the pictures on your site. Don’t say we are a $10,000,000 company to make your company look bigger than it is, if you do, insurance companies will match what you say to what you said in your application.

Sometimes we shoot ourselves in the foot. Detailed record keeping is critical when it comes to construction insurance.

How we classify our people can make a difference of thousands of dollars in 2 ways.

1. We do not give the correct numbers to get a quote.
    

2. We give the auditor bad numbers and we get an increase in cost.

If your policy is sold to you on spilt classes, for example, your company does carpentry and drywall, your insurance company will sometimes give you separate rates for each class. If you do not keep your payroll separate for these two classes, the auditor will throw all the payroll into carpentry, the higher class, and you pay more for your insurance than you should.

Virtually all payroll is done by computer, and there is no reason you cannot keep detailed records of your payroll.

Paying subs out of your payroll account will also distort your numbers and again you pay the price.  Posting invoices ahead of time (as discussed above) can also change your sales number in favor of the insurance company.

I was not going to talk about workers comp in this report, but If you ordered a waiver of subrogation, your payroll must be spilt by JOB. Or you will over pay.  Keeping detailed payroll, sub costs, and sales is extra work, but well worth it.

If you do not already know, The Higher the deductible the lower the rate.

Very simple, but I still see people with $500 and $1,000 deductible policies.

Raise your deductible to $2,500, $5000 or $10,000 and see what the difference in cost is. You may be surprised at the savings.

Note: An exception to this is when you are building Tract Homes, Town Homes, and Condos. You have to make sure your deductible is per occurrence, instead of per claim.

If you build a 500 unit condo and your deductible is $10,000 per claim, you could be in a lot of trouble. It is my experience that most contractors do not turn in small claims anyway. So use your good judgment when determining what your deductible should be.

Can you negotiate with an insurance company? The answer is yes and no. . . Were you expecting an easy answer?

If you are a small contractor, say policies under $25,000, the answer is usually no. The reason is these types of policies fit a specific mold, and insurance companies will not bend. As the price starts to go up, things change. . .

What items are negotiable?

• The price… Ask for a lower rate.
   

• Additional Insured Endorsements – The quote you get from the company will not always spell out how much the A/I’s cost, but the cost is in there. Ask them to give you the A/I’s at no cost.
   

• If they do give a separate line item for A/I’s ask them to be removed.
   

• Ask them to lower the deductible at no additional cost.
   

• If there is an exclusion in the policy you do not like, ask them to remove it, at no additional cost.

For larger contractors (usually $100,000 and up), ask for tiered rates.

An example of tiered rates:

Your gross receipts are $5,000,000 and the policy cost is $100,000. (A $20.00 rate)

You are pretty sure you will do the $5,000,000 but you have been biding on larger jobs. If you are awarded those jobs, you sales can go up to $7,000,000.

Make a counter offer… Offer to pay a $20.00 rate for the first $5,000,000 in sales, $18.00 rate from $5,000,000 to $6,000,000 and a $15.00 rate for $6,000,000 and up.

When you make this type of counter offer, you must say, If my terms are met, I will buy.

No maybes'.  If they accept your offer you will take the policy. . .

If you make the offer in that way, you have an excellent chance that they will accept.

Keep in mind, rates are not carved in stone. If your account is a good account with low losses, you can make a counter offer. They do not have to accept it, but what have you got to loose? Go for it!

The old story about always buy a car on the last day of the month, late at night, when its raining does not apply to insurance companies, but believe me, some companies are hungrier for business than others.