How insurance agents can best protect contractor clients
Now is the time for insurance agents and brokers to ensure their contractor clients have the right policies in place.
There’s been no shortage of work for contractors over the last two years thanks to a booming construction market that’s translated into plenty of demand for insurance coverage.
But supply chain disruptions, skilled labor shortages, ever-changing contractual requirements and economic uncertainty are among the issues that can lead to potential new exposures in risk segments that contractors are typically uninsured against. Also, social inflation trends fueled by an active plaintiffs’ bar have increased the risk of costly claims that could arise from perceived negligence.
Now is the time for insurance agents and brokers to ensure their contractor clients have the right policies in place, such as contractors’ professional liability coverage, to adequately safeguard against emerging exposures.
It can be difficult for agents to convince their contractor clients to buy additional coverage when margins are already tight and the client isn’t required by a job contract to do so. However, insurance professionals must educate their clients on current professional liability risks to their business so they can avoid problems later.
Here are three things insurance agents and brokers need to know so they can help construction professionals navigate current challenges:
No. 1: Know the risk.
It is imperative that agents understand what is happening in the contractors’ market, the emerging risks and current claims trends. Agents also should be familiar with the different risk transfer and risk management solutions available in the admitted and the excess and surplus (E&S) lines markets that offer the best protection to their clients.
Most contractors understand they must have a general liability policy to protect against any instances of property damage or bodily injury. But contractors typically fail to consider their risk of professional liability claims. These can occur, for example, if a job is finished late or over budget or if there is a pollution incident that requires cleanup at the job site. Contractors may mistakenly believe that they cannot be held liable in these instances or just be unaware of their risk of exposure.
Unfortunately, there are plenty of claim scenarios in which contractors have been accused of professional liability negligence related to their work on construction projects. Even if the contractor wins a lawsuit against them or settles for far less than the demand, their defense costs can be expensive and their reputations can suffer incalculably.
Agents should have claims data they can share with clients to help educate them on any and all risks they face, what the coverage they have actually covers, and how other coverages like a contractors’ professional liability policy can protect them in these instances.
No. 2: Know the client.
Many contractors are expanding their design services or taking on new types of construction projects. While this is a great way to bring in new revenue, it can expose them to new risks.
Just because a client hasn’t purchased professional liability insurance in the past doesn’t mean they shouldn’t do so today as the risk to the overall segment has increased, particularly as more construction projects involve design-build or third-party (3P) delivery systems.
Agents should know the types of projects their clients have worked on in the past, what projects they are currently involved in, and their level of experience or qualifications for those projects. It is also important for agents to know about any contractual obligations the contractor has agreed to fulfill on each project.
For example, if a contractor is working on a residential building or housing development and the project isn’t completed on time because of the contractor’s negligence, will the contractor be required to pay the costs of housing residents until the project is complete? If so:
- Are they prepared to pay those costs out of pocket?
- Are they adequately communicating with their clients throughout the project or about any job delays?
- Are they factoring supply chain shortages into their job timelines?
Agents should also be familiar with the contractor client’s overall budget and any job-specific budgets. In some cases, a contractor may not need a professional liability policy to insure the total cost of a project, meaning they can purchase a smaller policy that provides them with some coverage at a more affordable rate.
No. 3: Know the carrier and market.
Agents should continuously review the different markets and contractor coverage offerings available from both admitted and E&S carriers to make sure that clients aren’t missing out on coverage opportunities.
Look for carriers that will partner with you and can share examples with your clients of professional liability claims and the impact those can have on a contractor’s business, whether they have the coverage or not.
E&S carriers and agents that specialize in the contractors professional liability market also have knowledge and resources that can help agents obtain adequate coverage for their clients that isn’t typically available in the admitted market. Because the E&S market isn’t constrained by rate and form filings, agents and underwriters can be creative and craft policies or endorsements for those clients who have unique, unusual or challenging insurance needs.
Having those relationships with E&S specialists in this segment also creates opportunities for agents by enabling them to prove their value to current or potential clients at a time when they need a trusted advisor the most.
Chris McQueen is senior vice president of Berkley Construction Professional, a Berkley Company. McQueen has more than 25 years of experience in the insurance industry, with the last 20 years spent specializing in the construction and design professional liability industry. He can be reached at cmcqueen@berkleycp.com.
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