Contractor Insurance Gets a Bit Less Difficult

By Robert Celaschi
San Francisco Businesss Times

Building contractors and subcontractors renewing their liability insurance are breathing a little easier this year. Rates are coming down, and availability is going up.

After the triple-digit increases of only a few years ago, it's a welcome change.

But the situation is still not back to where it was before rates started rising to astronomical heights.

"Yes, it has stabilized, but at a very high price," said Michael Strech, vice president of member services for the California Building Industry Association.

"We have seen some relief, starting at about 18 months ago. There have been carriers that have returned to the California market, which is good news because it means competitive premiums," he said.

"But I would say it has not returned to the traditional market of 10 years ago or eight years ago. Carriers are very cautious and are employing what I call 'protective underwriting.' "

What makes the current market look good by comparison is the market of 2003. That was the year contractors and subcontractors saw rate increases of 300 percent, 400 percent and even 500 percent, on the heels of slightly lower increases in the previous couple of years.
At the time, several culprits were often cited, such as aggressive lawsuits over mold and construction defects, plus a lower level of tolerance among homebuyers as prices for new homes shot past the $300,000 mark.

In the wake of the Sept. 11, 2001, terrorist attacks, insurance companies found it tougher to get reinsurance coverage for themselves.

Subcontractors can't get jobs without liability coverage, so those carriers who remained in the California market could charge plenty more.

It takes a lot of cutting to chop rates down from such heights.

"We just renewed at the first of the year, and (rates) were 16 percent less than they were last year," said Robert Lindsey, general manager of Signature Drywall and past president of the Northern California chapter of California Professional Association of Specialty Contractors.

Signature is still getting less coverage than it had a few years ago, it has a higher deductible, and a change in the structure of the policy exposes Signature to paying it out sooner. Technically it's not even a deductible anymore; it's a "self-insured retention." The difference, said Lindsey, is that previously a company didn't have to cough up the deductible until the end of a claims process. A SIR has to be paid at the start.

"With my old insurance policy, I used to have a $5,000 deductible. Now I have a $25,000 SIR," he said. "Some of the larger framers, their SIR is $150,000. In essence, they are self-insured."
While that setup might work when the economy is good and contractors have a lot of business, during a slump it could prove difficult to pay the SIR on a claim from a policy written during the prior boom.

"I think it is going to drive a lot of these people out of business," Lindsey said of his fellow contractors.

From: San Fransisco Business Times (www.bizjournals.com)