Why You Need a Construction-Specific Insurance Agent
Editor's Note: This is the second in a three-part series that examines the profile of a successful contracting firm's professional support team, including the surety agent, insurance agent and CPA.
Imagine that you are a professional athlete. You know that a disastrous injury could end your career at any time. For long-term success, you must use a variety of risk management techniques to avoid a catastrophic injury.
Your risk management strategy might include proper nutrition, intense training, superb medical care, insurance provisions and retirement planning. When choosing your risk management team, you would undoubtedly look for people with experience working with professional athletes.
Could you imagine the thought of hiring a nutritionist who works with all sorts of clients (including various age groups, obese patients, diseased patients, etc.) but does not specialize in counseling world-class athletes? Or imagine hiring a trainer at the local gym, rather than one who works exclusively with professional athletes. While these people are professionals, they have no expertise or experience working in your “space.” Are they really the people you want on your team when your professional career hangs in the balance?
This same concept applies to a construction business owner’s risk management team. A support team with construction-specific experience has several advantages, yet many construction contractors do not have a specialized team. As I work and consult with contractors across the Southeast, I am continually surprised by the number of successful contractors who appear to be one accident away from a disaster. Often, I find that part of a contractor’s risk management team—the attorney, the surety agent or the insurance agent—have little or no experience with the construction industry.
Using a property and casualty insurance agent with construction-specific experience can be invaluable. Most professional insurance agents serve a variety of industries. Some even deal with construction on a concentrated basis, which is a step in the right direction.
However, a contractor’s selection process for a property and casualty agent should begin with an insurance professional who focuses on the construction industry. When choosing an agent, consider the following factors: years of experience, industry reputation and existing clients by size, specialty, trade and geography. The agent should be happy to discuss his or her credentials and provide client references. The difference between an agent who handles large, multi-state mechanical contractors and small, local single-state general contractors will be distinct in the types of expertise and advice that a contractor receives from that agent. When a contractor’s needs are aligned to the agent’s skill set, the agent can be a treasure trove of information.
Most property and casualty agents have a working knowledge of builders’ risk policies, inland marine floaters, workers’ compensation classifications and experience modification ratings. In addition, a contractor’s agent should also be familiar with contract specifications and insurance requirements for issues such as the language used in a certificate of insurance. This attention to detail in the certificate of insurance can mean the difference in prompt payment or the owner’s ability to delay a payment request.
Also, when using an agent who knows the industry, other mistakes can be avoided, such as omitting additional insureds, multistate riders and co-insurance disclosures, which can make simple contract issues more complicated than necessary.
As the construction landscape continues to change in the post “Great Recession” environment, many insurance practices (driven by case law and legislation) are being altered as well. For instance, the definition of “occurrence” has now been defined in the state of South Carolina to exclude most construction defect claims. General contractors should seek an insurance agent who is well-versed in local industry issues. Other industry best practices, such as cell captives and subrogation, should be a part of your agent’s daily vernacular.
Construction business owners must evaluate their property and casualty insurance agent’s industry expertise and determine whether the agent fits their specific needs. Many great professional insurance agents are available, but significantly fewer of them have enough concentration in the construction industry to be considered construction insurance experts. And still, even fewer agents will fit a contractor’s specific needs. I encourage you to be the construction business owner who finds the best available expert for your advisory team.
Construction Business Owner, April 2011