Construction Contractor Insurance Trends and Tips

Construction Contractor Insurance Trends and Tips

Last updated on June 12th, 2024

Recent years saw surges in the cost of different types of insurance due to inflation, interest rates, the skilled labor market (or lack thereof), supply chain issues, and an increase in lawsuits and related six, seven, and eight-figure awards. While a couple of sources indicate the construction contractor insurance market may be stabilizing, there are other rumblings about continuing and emerging challenges specific to New York.

In the U.S., rates for workers’ compensation coverage appear to be the most grounded, especially for contractors with a favorable loss history. While some in this situation may see premiums stay flat or increase slightly, average increases are expected to be around 5%. Rates for general liability coverage and umbrella policy rate increases are expected to increase between 5% and 15%, while commercial auto coverage may average a 10% to 15% increase. (Source: Insurance Marketplace Realities Spring Update 2024, May 8, 2024.)

It will be interesting to see how this translates to coverage in New York, where some sources indicate contractors should prepare for double-digit increases upon renewal and potentially face a harder time securing coverage, especially if they have a history of losses.

A new report by the New York Civil Justice Institute asserts, “Construction insurance costs are highest in New York representing 12.5% of a project’s cost versus 2.5% in nearby states like CT, NJ, and PA.” It names the litigious environment and state laws for minimum insurance as two of the main cost drivers. It also says, “New York State is the most expensive insurance market in the country. In nearly every category of insurance coverage — from medicine to construction – insurance premiums (and the losses that drive them) are higher in New York than any other state in the United States.”

With a growing number of insurers paying out more in claims, verdicts, and settlements than what they receive in premiums in New York, there’s concern that more insurers will exit the market and leave people and businesses struggling to find coverage and keep it. Some are even calling it a crisis.

When it comes to escalating premiums for contractors in New York, many blame the state’s Scaffold Law (which holds contractors 100% liable for gravity-related injuries) for enabling dubious lawsuits and nuclear awards. While there is currently a bill making its way through the NY Assembly that would make staged construction site falls a felony, the push for reform has been an uphill battle for several years.

As the situation continues to play out in board rooms, courtrooms, and on legislative floors, a two-pronged strategy – focused on coverage and culture – may help contractors manage insurance premiums (and increases) while protecting their businesses, employees, and brand.

When it comes to coverage, it’s tempting to offset insurance premium increases with higher deductibles, lower coverage and/or more exclusions. Be sure to balance these considerations with what increased risks and exposure can mean to your business. Other ways to try and manage these costs include starting to shop around early (i.e., 90 days before a renewal); leveraging programs available through professional affiliations; and seeing if discounts are available for paying in full upfront rather than monthly. While some insurers (especially those new in the market) may make enticing offers, be sure to research rankings, customer experiences, customer service, and financial ability to cover losses before moving ahead.

As for culture, make safety an innate part of how you do business. Ensure recruiting processes help you hire the right people with the right skills and experience (yes, it’s tough in today’s labor market but worth the extra effort). Do your background research on subcontractors and work with legal counsel to make sure contracts address safety, injuries, and indemnification. Consider hiring a safety/risk manager to develop and oversee comprehensive safety plans for people, facilities, and equipment. Explore how technologies like drones, robotics, and wearables may mitigate loss while improving your risk profile.

Finally, keep an eye on developments. With so many factors influencing the New York contractor insurance arena, staying informed can help you make sound decisions for your business and employees.