construction insurance

Construction Insurance

Contractors, property owners, and construction projects may all be covered by the construction insurance category of insurance policies. Businesses and their owners are safeguarded against particular risks or losses using various types of policies.

Construction is a dangerous industry. The success of a project is financially vested in by everyone involved, whether they are employees or owners of the property. There are numerous types of insurance available to protect construction companies, property owners, and other stakeholders from losses sustained during a building project or in the regular course of business in order to reduce the risk of loss.

There are many policies designed to reduce risks that are unique to the construction industry, even though some insurance types are common in other sectors of the economy. We will discuss the most popular types of insurance for construction along with what each policy covers below. 

The nine most typical types of construction insurance

These are the nine insurance policies that are most frequently used in the construction industry, though there are many other insurance policies that fall into this category.  

1. Builders risk insurance

Builder’s risk insurance, also known as course of construction insurance, is a type of property insurance that provides protection for buildings while they are being built or renovated. It lessens the chance that specific damages will occur while construction is taking place. All parties involved in the project are covered, and the general contractor or project owner may purchase it.

2. General liability insurance

Contractor general liability insurance offers defense against “general” lawsuits brought by third parties. These claims frequently center on physical harm and property damage caused by the contractor’s operations, services, or products, but they may also include defamation-related advertising claims. They are put in place to ensure that businesses operate in a safe manner, so some claims result from negligence, careless business practices, or unavoidable accidents. They safeguard company assets and pay out damages up to the policy limits for covered claims to safeguard contractors.

To obtain a contractor’s license, contractors are frequently required to maintain a specific level of general liability insurance.  

3. Inland marine insurance

Materials, tools, and equipment that are being transported to and from a jobsite over land are covered by inland marine insurance, a type of commercial insurance. This coverage is intended to assist in defending portable or transportable business property. 

Inland marine insurance is used to expand the coverage of a builders risk policy to include business property while it is in motion. A builders risk policy only covers tools and materials at the jobsite.

4. Commercial auto insurance

A commercial auto insurance policy protects company-owned vehicles and equipment from losses resulting from traffic collisions, theft, and vandalism. Every state requires this kind of insurance when a business buys a car for an owner or employee to use.

5. Errors & omissions/professional liability insurance

Insurance against errors and omissions (E&O) One must follow certain guidelines and industry best practices when practicing their chosen profession. If a client feels that a mistake was made, they may assert that the defendant failed to uphold or satisfy the standards established by the sector. 

When a claim is made regarding an error or mistake made while conducting business, or an omission where it is alleged that a person failed to do something, the person is protected by E&O (also known as professional liability insurance).

6. Liability insurance for pollution

Pollution liability insurance policies provide coverage for claims for bodily harm and property damage that may arise from the release of hazardous waste or materials while a company is carrying out business operations. The need for this kind of insurance is common among contractors who regularly handle or dispose of hazardous waste. 

This type of insurance offers coverage for both the duration and the conclusion of a project. In other words, if there is a problem with hazardous waste materials after the project is finished, this policy protects the contractor from liability claims.

7. Subcontractor default insurance

Subcontractor default insurance (SDI), which protects contractors when subcontractors breach their contractual obligations, provides coverage. Contractors can use it to supplement performance bonds or to completely replace them.

On large commercial or public projects, general contractors are responsible for overseeing dozens, even hundreds, of subcontractors and sub-subcontractors. With the size of the project, the likelihood that one or more subcontractors will not meet the deadlines or requirements rises.  

8. Workers’ compensation insurance

Workers’ compensation insurance protects contractors from financial losses caused by accidents or illnesses sustained at work. Additionally, it gives the worker benefits to make up for any lost pay and hours at work. 

Businesses with more than a certain number of employees (the precise number varies by state) must carry workers’ compensation insurance, according to the majority of states. As long as they adhere to state regulations and receive approval, contractors are generally permitted to operate “self-insured” plans. 

Through a state insurance fund that is managed by some states, contractors can buy workers’ compensation insurance. Although state-operated funds may be more expensive than private insurers, they may be a good choice for contractors who are unable to find coverage elsewhere.  

9. Wrap insurance (OCIP/CCIP)

Wrap insurance (also referred to as a “wrap-up”) offers liability protection for an entire building project or a number of jobs. Contractors and subcontractors may not need to provide their own general liability insurance because it covers everyone on the job. Although GL-only policies are increasingly popular, the policy can be written to include both general liability and workers compensation coverage (known as “bi-line”). 

An OCIP or CCIP is typically used to purchase a wrap policy. Unlike CCIPs, which are purchased by general contractors, OCIPs are purchased by the owner. The policy will typically offer the same coverage regardless of who buys it.  

What are the risks associated with construction projects?

There is a great deal of risk in the construction industry. These include:

  • Construction or design defects: As a result of miscommunications, subpar performance, inadequate or ambiguous documentation, or unreasonable expectations.
  • Delays: Resulting from faulty equipment or weather and environmental hazards.
  • Equipment damage and theft: Vandalism, stolen or damaged tools,and stolen equipment are all types of equipment damage and theft.
  • Workplace accidents and injuries to third parties are included.

What Motivates Construction Companies to Buy Insurance?

To Protect The Business

Building a prosperous construction company takes a lot of time and work. It should come as no surprise that business owners in the construction industry seek security to prevent bankruptcy in the event of an accident.

Construction firms can purchase commercial insurance to cover their risks up to the maximum amount they believe will adequately safeguard their operations.

To Meet Contractual Requirements

The requirements of a project owner or general contractor must frequently be followed when performing construction work. The majority of the time, construction companies must present an application before beginning work or receiving payment for a project. Because of this, insurance is essential in the majority of construction trades.

To Comply With State Or Federal Laws

To keep their trade licenses, specialized construction firms are required to maintain a certain set of insurance policies. Furthermore, specific insurance policies are frequently required in the construction industry.

Workers compensation insurance is one type of coverage that is necessary in the construction sector. If the construction business employs people and is not run by a single person, this is necessary. Auto insurance is another type of mandatory coverage that you need if your employer provides company vehicles.

Purchasing insurance presents difficulties for construction companies.

1) Insuring large construction projects can be expensive.

The increased exposure to liability risk and worker injuries is one of the issues with heavy construction insurance (commercial general contracting, utility contractors, road and bridge construction, crane operation, etc.). You have very few options for insurance because the claims are typically more substantial in these fields.

Companies engaged in heavy construction should get in touch with an insurance broker who has knowledge of the heavy construction industry and is skilled in excess and surplus (E&S) insurance.

2) Non-admitted insurance companies, also known as E&S insurance companies, frequently write construction insurance. 

Construction companies frequently encounter difficulties when trying to buy subpar insurance coverage in the unadmitted market. To find a broker with expertise in this area, we advise doing your research first.

E&S insurance carriers have a much higher appetite for risk than traditional low-hazard insurance providers. This is due to the fact that they are not subject to the same regulations as common carriers. They can use specific forms and exclusions that admitted insurance companies cannot, giving them a far greater degree of flexibility in adjusting rates as they see fit.

In actuality, the majority of E&S insurance companies are branches of traditional insurance firms. To have more flexibility with coverage forms and pricing, they simply decide to write high risk businesses in their subsidiary.

This is permitted because high-risk businesses do require insurance. Because of their risk, certain types of businesses would not be covered by the insurance market without more lenient rules.

When taxes and fees are incorporated into the premium, you can determine if a policy is E&S. The insurance company should also make clear whether or not they are an admitted insurer in the quote they provide.

There will be some differences between an admitted and non-admitted policy, so if you have insurance with a non-admitted insurer, make sure you are aware of any exclusions or limitations in your insurance policy.

3) Smaller building companies might encounter “minimum premiums,” which means they might be required to pay more than their actual risk.

There are minimum premium requirements for specific trades, as some types of construction companies will discover. For example, some insurance providers have a $2,500 minimum premium requirement for liability coverage for residential remodeling contractors. Furthermore, we have heard that some insurance providers have a $25,000 minimum premium requirement for general liability coverage for roofing businesses.

This will not be a problem if you are a bigger contractor, but smaller contractors will probably need the advice of an insurance broker. In order to avoid paying more as a result of this requirement, your broker can assist you in locating an insurance provider with a low minimum premium.

How is the cost of construction insurance calculated?

The amount that each contractor or construction company pays will vary greatly because you are purchasing multiple policies, each with its own pricing factors.

The biggest influences on your company’s insurance premiums are the following:

  • What kind of building and contracting services you provide?
  • How much property and equipment you own?
  • Your yearly income
  • Your geographic location
  • Number of workers

Surety bonds for construction and contractors

A surety bond ensures that your construction company will adhere to the contract’s requirements. The insurance provider pays the client back for their financial losses if your company is unable to uphold the terms of an agreement.

Types of surety bonds

For your construction business, there are various surety bond types to take into consideration when buying:

  • License and permit bonds:  Ensures that your business will abide by applicable local laws and regulations
  • Bid bonds: The client is compensated the difference between their bid and the next lowest bid if they place a bid on a construction project, are awarded the contract, but are unable to complete the project.
  • Performance bonds: assures the client that your company will fulfill the terms of its construction contract and that, if you are unable to do so, you will pay the client.
  • Payment bonds: guarantee that all vendors, contractors, and other third parties will receive payment for their work on a project.
  • Fidelity bonds: This bond will compensate the client for their loss if an employee of your construction company steals from them. Employee dishonesty bonds are another name for them.

Cost of surety bonds

Contractors and businesses in the construction industry typically pay $8 monthly for surety bonds.

Several factors, including the following, affect the cost of a surety bond:

  • construction projects and contracting services
  • property and business equipment
  • Income and location of the business
  • number of workers

 

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