How to avoid surprises on your insurance renewals
This week, bonding and insurance agent Stephen Brown shares the questions you need to ask now to avoid surprises on your next insurance renewal.
Topics we cover in this episode include:
- Why a good insurance agent should always make sure you’re prepared for audits and renewals
- Which insurance lines are currently experiencing price increases
- How telematics can save you a considerable amount of money on your auto insurance
- The three reasons you may be surprised when you get your insurance renewal
- Why it’s important to have a construction-oriented agent who can help you understand your insurance and classify employees correctly
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Rob Williams, Profit Strategist | https://IronGateESS.com
Wade Carpenter, CPA, CGMA | https://CarpenterCPAs.com
Stephen Brown, Bonding Expert | https://McWins.com
TRANSCRIPT
[00:00:00] Rob Williams: Welcome to the Contractor Success Forum. Today, we are talking about dealing with surprises on your insurance renewals. And we have with us today on the Contractor Success Forum, which by the way, discusse s financial strategies for running a more profitable, successful construction business.
We have Stephen Brown in one corner, a construction bonding agent with McDaniel-Whitley bonding and insurance agency. He has over 30 years of experience underwriting and placing bonds for you as contractors.
And we have Wade Carpenter in the other corner. Carpenter and Company, CPAs. He’s helping contractors nationwide to become permanently profitable. And he has also been doing it for over three decades. Amazing.
And then I am Rob Williams, your profit strategist with IronGate Entrepreneurial Support Systems and I’m driving profits in your businesses. And I have decades, over three decades of experience and vertical integration as a contractor and a manufacturer and an aviator and a financial strategist in the construction industry.
Wade, what do we want to talk to Stephen about dealing with the surprises on your insurance renewals? Have we ever had that?
[00:01:31] Wade Carpenter: Yeah. I see a lot of times people come up with their worker’s comp and They’ve had a banner year and they get that audit, but nasty surprises. So what do you think about that?
[00:01:43] Stephen Brown: We’re all about risk management, you know, Contractor Success Forum. Managing your risk. Insurance is just a tool to do that. As long as you’ve got a good agent that knows how to use that tool. So that’s kind of what we were going to talk about today. What happens when you get your insurance renewal, maybe it’s at the last minute, right before the renewal date and you’re hit with a bunch of surprises. Well, first of all, as an agent, that’s the worst thing to do to a customer because you haven’t prepared them properly. And then as a customer, you’ve got to say, how did I not know this?
Insurance is one of the number one things that you cannot budget for. You don’t know, it goes up, it goes down. There’s hard markets, there’s soft markets, but I was going to tell you and our listeners a little bit about what’s going on right now, because you know, we talked about the fun of sitting around a campfire and reading your insurance policy, remember? And uh, it’s just, except for feeding the fire, it’s not anything that anybody’s going to be into. So you need to learn the basics of how your insurance costs and what the coverage costs are. And every little bit adds up. There’s so many different coverages and extras that are thrown in and every little bit adds up. And that hits your bottom line.
So right now, guys, the main thing that’s going up are umbrella prices. And an umbrella is your liability policy that picks up over your general liability, your workers’ comp and your auto liability limits. So the federal government just requires a million dollar umbrella on all their jobs. They have very small insurance requirements. But then you’re going to get a job with a certain owner, or it’s a sub to a general contractor where there are very stringent insurance requirements because they want to pass that risk onto you.
So you need to be prepared that your umbrella premium is going to probably go up 20 to 30%. And you might not think that’s much, but the umbrella premium is based on how many vehicles you have and the liability insurance rate that you pay. And that’s one of the main components.
And auto insurance is going up. So I’ll tell people to get your auto insurance down, you have to use telematics and you have to prove to the company you’re doing it. Better yet, engage your current carrier in getting telematics implemented for your fleet. Do you know what telematics is?
[00:04:07] Rob Williams: I guess that’s that thing we put in our car? I had plugged that thing in my car for six months and mine actually got better. I thought they were going to penalize me, but I drove really cautiously for those months while I had that thing. Is that it?
[00:04:20] Stephen Brown: Well, it’s dash cams and also the software to not let your employees use their phones while they’re driving.
You know, that sort of thing as telematics the dash cam has saved a lot of serious insurance headaches because people drive around and they see your sign on the car. And if they get in a wreck with you, they just see dollar signs. You know that.
[00:04:44] Rob Williams: That’s happened to me.
[00:04:45] Stephen Brown: Yeah, well that’s because insurance is usually higher on a commercial vehicle, you know, because it’s required that you have a million dollar limits on your auto, where everybody else in town might be driving them with the minimum limits of $25,000.
So your telematics and your, dash cams are gonna drive your prices down. The next thing is understanding your worker’s comp and general liability. You’re a contractor, the premium’s based on your payroll. And how you classify that payroll determines how much you pay.
A good construction oriented agent knows what the good rates are out there for the different trades and what to expect. So their job is to make sure that the company that they currently have you with are giving you the best rates available for general liability and workers’ comp. And it used to be workers’ comp was the big part of the premium of your overall insurance. It was the tail that wagged the dog. Now it’s getting more toward auto.
The next order of business is your equipment coverage. Your equipment coverage is not relatively expensive in that it does not change. You can always count on your equipment coverage to be about the same. And there’s a general rule or rate per a hundred dollars of equipment coverage out there at any one time, that’s the rate that it needs to be. And that’s how it’s priced.
Another thing is we have a lot of our contractors use a monthly reporting form for their general liability payroll and workers’ comp payroll and their builder’s risk. That’s fantastic. first time we implemented, I had a general contractor that had 38 different builder’s risk policies going on at the same time. We put together a monthly reporting form that covered all of their jobs, and then we charged a rate for that job for the term you were constructing the job and at the end of the job, you know, we closed it out and moved on. So that’s been very successful.
So when you get your insurance renewal, it’s a surprise, There’s two things that have happened. You didn’t know you had a claim and that’s your fault. Or you didn’t understand how insurance works. You didn’t understand how the rates work. You didn’t understand how the classification worked. And then the third thing is your agent should be shopping it out there to see what the market’s going to do for you. That’s my job. Generally, I recommend about every three years you go and, put out an insurance proposal and ask for quotes.
[00:07:23] Rob Williams: You know, one question, this came up when we were taking that class, Stephen, can you explain what builder’s risk covers? A lot of people get confused about that.
[00:07:33] Stephen Brown: Well, builder’s risk is insurance, property insurance, on a new construction project is coming from the ground up. And an installation floater is renovation to an existing structure.
So if you’ve got an owner and you’re renovating their structure, how are you going to insure that? Well, you can insure the renovation costs plus existing building. the owner might have the existing building and you ensure the work that you’re doing.
[00:08:02] Wade Carpenter: I know you, you brought up several questions in my mind, but I want to go back to this telematics thing. Is this something that is tied into the insurance company?
[00:08:11] Stephen Brown: It is not. They do not plug their own devices into your vehicle. You do it. Then you pay a fee. It’s usually maybe 10 to $15 a month per vehicle. And what it does And what it does is when you have that dash cam, and you can prove that your employee wasn’t texting and driving and that the other person contributed to the accident, then you have a real good chance of minimizing the risk. And all the adjusters out there will tell you, that’s the number one defense they have.
Guys, I’ve had auto limits of a million dollars become maxed out along with a million dollar umbrella from one auto accident. Boom. And if you don’t have the right amount of coverage and the amount of coverage that you need, then they’re going to go after your corporate assets and they’re going to sue everybody possibly involved to get more money out of you. That’s just the way they operate.
So how much umbrella to get? That’s something that your agent can advise you. But I can tell you that you should have an umbrella and it should be at least a million. So picture that umbrella, just being one big policy that picks up over your other liability limits.
[00:09:22] Rob Williams: You know, that’s interesting. You’re saying the cameras prove that they’re not texting. So now I guess it’s flip-flopped because in our days I liked camera’s because I kinda wanted to, I guess I wanted to control, know what people were doing, different things. And the lawyers, they were saying, well, we don’t want the cameras, because then that proves that you’re liable. So now I guess it’s almost flip-flopped to where the assumption is that you were texting or that you were doing something wrong and prove that you weren’t. So that’s kind of an interesting flip flop.
[00:09:55] Stephen Brown: Yeah, the drivers are employees. They understand it’s a part of their job. They’re getting paid to drive to a job or to pick up supplies. That’s part of their job. And part of their job is doing it your way, right? So same goes with driving. When you have those things in place, these telematics, then you’re definitely saying to the employee, it’s coming down for me and this is the way it’s going to be done.
if you have telematics in place, you should save about 20% on your vehicle fleet coverage. That’s how important it is. And then everybody says, now how much I’m going to save if I do this? well, you know, the thing to say is going forward, if you don’t have it, you’re not going to get insurance. You’re going to get some crazy prices. Nobody will want to insure you. So it’s inevitable to embrace it and you can go through your current carrier. Feel free to contact me and I can help guide you on how to get these systems in place. It’s really not as bad as it sounds. And it’s been a huge help.
[00:10:54] Wade Carpenter: I’ve got a question kind of related to that, but I’ve had a lot of contractors putting GPS on their vehicles or their big heavy ELR and they’re really expensive equipment. They’re doing it for tracking purposes and costing out mileage and stuff like that. But does that have any bearing on insurance?
[00:11:11] Stephen Brown: It does. being able to, they used to call it LoJack, but being able to track your vehicle and your equipment when it’s stolen. I was told by a claims adjuster certain pieces of equipment are stolen and there’ll be a theft ring. There was a theft ring in Memphis about five years ago of skid-steers. They’ll have a certain type of construction equipment that they’ll be going after and, the ability to totally disabled that equipment and track it and keep the thief from disabling it allows you to retrieve it.
And also I have a customer that has so many folks on the road, along with equipment that he’s literally got an 80 inch screen on the wall in the background, and there’s just a map. And there are just dots moving constantly. And then we’ll be talking and he’ll say, hold on a second, you know, get on the phone and yell at somebody.
You know, you’re saying, well that’s extra stress, well, you know, you don’t have to do that, but it really works. It gives him a lot of comfort, knowing at least in the morning to know everybody’s heading out the way they’re supposed to.
[00:12:16] Rob Williams: I had a client just a couple of weeks ago tell me that a guy was putting in– the concrete sub, something, putting a little pad in the back. And he had a piece of equipment in there and he just walked off the job, they had an argument about something. The guy walked off the job and then the equipment stayed out there. And it stayed out there for a week and another week he said, what the heck? This guy is not going to come get his equipment.
And then he realized, oh God, it says Lowe’s on there or Home Depot, or I forgot something like that. Oh my God. He said, well, I guess this guy’s basically just stolen this equipment here. And it’s sitting here and he was like, oh my gosh, honey. You know, he talked to his wife.
He said, I think, they don’t know where this thing is. I think we should take it to the farm. And she said, no, you can’t do that. They know somehow. So he, and he got his partner out there and they looked all over the whole thing. They couldn’t find a GPS on it anywhere. And then finally, they were like, oh man, we should just take it to the farm.
And, and, and his wife said, hell no, you’re not gonna do that. You’re not gonna have this stolen equipment. So they call up . Home Depot. I can’t remember which one it was. And in the end they said, oh, we know exactly where it is. He said, well, well, how do you know? We looked all over thing. They said, we hide it inside the tire. It’s it’s in there. You can’t, you don’t know where it is. We know where to hide these things. So they’ve got them and they know where those are.
[00:13:38] Stephen Brown: Right. We’re not trying to tip off thieves here. Good for that wife. My gosh.
[00:13:42] Rob Williams: Yeah.
[00:13:43] Stephen Brown: Anyway, if equipment wasn’t stolen, of course, nobody would want to insure it. But you know, equipment insurance also covers vandalism. You get disgruntled employees pouring hydraulic fluid in a gas tank and sugar, and they’ll vandalize equipment.
Also I tell people how much do I insure my equipment for? It’s what you can sell it for today in its current condition. I had a bulldozer that was real old, we had it insured for a hundred thousand dollars. They had completely rebuilt it and repainted it, new engine, everything. And the adjustor offered $26,000 and we went out and showed them, you can’t buy this, for this, this is this. This is how much we put into it, you know, and we ended up just getting a few hundred dollars less than a hundred thousand dollars for the settlement on it. So, those kinds of claims take a little bit of work.
But construction risk, guys, a it’s a risky business. People get hurt. We could talk all the time about safety stories, horror stories, people getting killed on the job site. But it’s all about being organized and understanding the elements of your cost.
[00:14:48] Rob Williams: Yeah. Stephen these days, I guess I’m a little bit out of it. I don’t have, I’m not running different crews or anything anymore. So I, it used to be that some of the carriers had different qualifications.
I remember when I had the manufacturing plant at the same company owner and we had all these construction crews going out and framing as well, we, our categories were really difficult of where to put the people. And that was a real big thing.
And I was really shocked that from one company to another company, they didn’t have the exact same categories. They had different ones. And so particularly in the factory, you know, our guys may land as framers or something. And then I think, yeah, we had one company, they, the framers like in the field, but these guys were in a building, so they qualified for some kind of like manufacturer or something, which was a whole lot lower. So from the carrier to carrier, it was not apples to apples. And I mean, it like, was a third. It was just crazy differences of where they were going to locate our, how they to rate our individual jobs.
Is that still the case?
[00:15:54] Stephen Brown: If they’re not, if you don’t understand how your employees are classified and what the rate is for that employee, then your, your agent hasn’t taught you properly.
[00:16:03] Rob Williams: Well, and the companies didn’t have the same rates. I had thought that it was like a state rate or something that they had the standardization.
[00:16:11] Stephen Brown: They file their rates with the state, but they have what’s called a loss cost multiplier that affects the final rate that they charge. And then like right now, workers’ comp is down everywhere. People that weren’t writing workers’ comp were like, we want to get in on this because it’s profitable for them because of the laws that are in place to protect them. When you’re high or when you’re on drugs, it’s just no, we’re not paying for it.
[00:16:36] Wade Carpenter: Tracking the different codes and stuff like that. There’s a lot of contractors that are in the thick of things, but when an insurance auditor comes in, their assumption is it’s going to be at the highest classification usually.
[00:16:50] Stephen Brown: When I have a new customer, especially, I always try to get in there when the auditor shows up to be there with him. And then we prepare everything ahead of time before the auditor shows up. That’s the key there. We get there ahead of time. We make sure everybody’s classified correctly or comfortable with it going through, we’ve got your 941 quarterly tax reports. We have your list of subcontractor insurance certificates. We have the 1099 s and everything else that they need.
A lot of times, I like to look, Wade, at the general ledger. Look, they look down and some subs will really kind of be discussed as a material supplier and, you know, folks like that, but there is a small charge for subcontractors on your general liability policy if you’re a general contractor. It’s very small and it’s based on your total volume of business with them, not payroll. But that’s because if your subcontractors’ coverage lapse, your current company’s on it. A hundred percent.
[00:17:52] Wade Carpenter: You kinda went to the direction I was about to go, the same thing with the subcontractors. A lot of contractors, they’ll hire a sub and they want them to go ahead and get to work, but they don’t get the 1099, the W-9, and the certificates of insurance, and then they scramble at audit time. And a lot of times they come up short, they can’t get that and they get dinged on that policy for it.
[00:18:14] Stephen Brown: Yeah.
[00:18:15] Rob Williams: Yeah. We were almost like an insurance company. We, a lot of our subs did not have their insurance. And we were in a self-insured pool at the time and we had a really good rate and we made money on it because I think we were like, I’m just making up the numbers, say we’re at 13%. And we would charge 30% because we figured, well, if they don’t have it, that’s probably what they’re paying, is 30 something percent. Or there might’ve been a reason that they couldn’t get insurance or something. They may have had a claim or some reason, but we just did it, but it automatically came out of their check.
This was on our residential business though. It automatically came out and we just had a pool in there. We had a little balance sheet item for money that was accumulating. We had a lot of profit in that, and we were fortunate not to have any big claims,
[00:19:04] Stephen Brown: Sure. And if you could get your insurance cheaper and didn’t want to pay 30% more power to you.
[00:19:11] Rob Williams: Oh, yeah. Yeah, we got to the point. We didn’t mind cause we were making 20%.
[00:19:15] Stephen Brown: You’re not the only folks doing that.
[00:19:17] Rob Williams: Interesting. Okay. I didn’t know if that was still a thing. It did make me lose sleep at night though. But we were in neighborhoods and we could really kind of control and our superintendents were really supervising these crews, almost. And we had a lot of our own rules. So anyway, we ended up winning for the most part.
So, and we had a, you know, we had claims every now and then, but we were big enough to absorb it.
[00:19:41] Wade Carpenter: What are the big takeaways from, you know, what you’re trying to tell us today?
[00:19:46] Stephen Brown: Well, the big takeaways are that if you’re surprised by your insurance renewal then you’re not doing your job as a contractor.
You need to ask questions. You may not think it’s the most exciting thing in the world. But a good agent handles so many headaches for you and makes it easy. And they should explain every element and component of cost. That adds up to what you’re paying. It’s the little things that add up, and there’s a lot of things you need as a general contractor. There’s a lot of endorsements, there’s certain coverage. So you need a construction oriented agent that understands your industry. So If you ever want to talk of course, feel free, contact me. McDaniel-Whitley, I’m an insurance agent.
[00:20:29] Rob Williams: How can they contact you, man?
[00:20:31] Stephen Brown: [email protected] is my email address and feel free to give me a ring at 901-340-8085.
[00:20:42] Rob Williams: All right. There we go. And this has been our Contractor Success Forum today. So if you like our show, give us a rating of five stars. If you don’t, we don’t know where that rating is then. So, so, so yeah, five stars, five star ratings for us. That actually will help us out. It will raise our ranking so more people see and hear our show, the higher we go. So do us a favor. We got all this great free material. Please give us a rating out there so more people can hear and share this. So we have in our one corner, Wade Carpenter, Carpenter, and Company, CPAs, and we have Stephen Brown, McDaniel-Whitley bonding an insurance agency. And I am Rob Williams with IronGate Entrepreneurial Support Systems.
And thanks for listening to our show.