- Shop around. Spend some time and effort to compare coverage and the costs you can expect from your insurers. To facilitate the process, ask your financial advisor for a referral to a construction insurance specialist — preferably one who represents a number of insurers. Together, they can help you weigh the total, true costs of the various policies and advise you without a vested interest in selling you a particular product.
- Review coverage periodically. Make sure existing policies reflect your current circumstances. If you’ve sold or retired some equipment, for example, remove it from your schedule of current assets. If you’ve reduced the number of workers on your payroll, adjust Workers’ Compensation estimates accordingly. On the other hand, if you’ve added vehicles or staff, see that they’re appropriately covered.
- Understand and manage Workers’ Compensation rates. Of all the forms of insurance you must buy, Workers’ Compensation insurance can be the most substantial. When an agent gives you a quote, the estimated premium is determined by your projected payments to employees and uninsured subcontractors (if you’re a general contractor) over the next 12 months. When making projections, be sure to distinguish among the types of work you expect to pay for. Different premium rates apply to different types of work.Another important element is your experience modification factor. This adjustment, based on claims history, is applied after one or two years of paying premiums, resulting in either a discount or a penalty surcharge. If the amounts paid out are less than average for the type of work in your state, you get a discount; if they’re greater than average, you’re penalized. Be prepared to question any rate adjustments when your Workers’ Compensation insurer audits your experience each year — especially if the actual payroll costs and types of work performed differ considerably from your projections.
- Increase deductibles. If you’re comfortable assuming some additional risk yourself, and have resources you can draw on if they’re needed, see what you can save on premiums by raising the deductibles on your policies. If the savings are enough to cover the deductibles on a claim or two, it’s probably worth making the change. Likewise, if you can afford and would prefer to keep a contingency fund in reserve rather than pay out higher premiums, this might be a good option for you.
- Prioritize safety. Safety on the job site is a worthy goal in itself, of course. However, emphasizing its importance to supervisors, crew members and subcontractors can also affect your company’s insurance costs, because the premiums you pay are based in part on your claims history. By offering regular safety training, providing personal protective equipment and strictly enforcing safe work practices, you can reduce the risk of on-site accidents and minimize damage and injury claims.
Dick is a Principal in the Pittsburgh, Pennsylvania office of HBK CPAs & Consultants and has been with the firm since 2000.
Dick has extensive experience in accounting, tax and business valuations. He provides accounting services to a wide range of industries including, construction contractors, wholesale, retail, automobile dealerships, computer related services, manufacturing, professional services and non-profit organizations. He is the chair of HBK’s Construction Industry Group.