Follow the simple steps in this report to put underwriters' minds at ease and have them fight for your business. Learn what factors insurance companies look for and how to be a step ahead.

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A contractor recently asked us “what is a hard insurance market?”  His insurance was not up for renewal yet. We explained simply…it is when it is HARD to get insurance at an affordable price. Now that his insurance renewed, he fully understands!

Like many contractors, the increase in his insurance was more than the profit made last year. That is a powerful statement and very troubling to the industry as a whole. As competitive as the construction industry already is, and as tight as the margins already are, it is difficult for many contractors to remain in business with insurance costs skyrocketing.

The greatest problem is that the rising insurance costs are not equally reflected in bid prices for all contractors. Insurance is unlike any other cost of construction that contractors encounter. Contractors are used to rising costs. It happens all the time. The cost of steel, lumber and concrete is constantly on the rise, and contractors adjust bids accordingly, sometimes even having escalation provisions in their contract to guard against a sudden rise. Not so with insurance.

Since insurance only renews once a year, in a bidding atmosphere, contractor “A” might be using old insurance rates to bid against contractor “B”, while the insurance for contractor “B” may have recently tripled. If contractor “B” is going to compete with contractor “A”, the only thing that can give is bottom-line profit.

This sort of delayed reaction to rising insurance costs in a very competitive market causes those forced to absorb costs earlier to lose more. And since it takes the market an entire year for all participants to experience a spike in insurances, it also takes a full year for all of the participants to build in those rising costs into higher bid prices. In addition, when rising insurance costs in a hard market extend beyond a year, the problem is perpetuated.

To further the disparity, other considerations made by the carriers come into play that also cause an uneven playing ground. More than ever, insurance carriers are requesting financial statements of the insured. Certainly, a weak financial statement can result in a decline of coverage while another contractor may receive a quote.

The type of work performed is another huge variable. To really uneven the playing field, those contractors that are performing a mix of different types of work can have “the well poisoned” by one class of work that is undesirable. All you have to do is talk to a contractor that even touched any residential work along with the other 95% of its jobs.

By now, many insurance buyers have experienced the effects of the hard insurance market, some on the second time around. Nowhere has the impact of the difficult market conditions hit harder than the construction industry. At a minimum, this has meant higher insurance premiums — and in many cases, restrictions or exclusions of coverage.

The reasons for the rate increases are many, and include:

• Years of under pricing by insurance companies, magnified by the economic slowdown, have resulted in insurers looking for more premium dollars for risk assumed;

• Increasing legal and medical costs;

• Catastrophic losses incurred by the insurance industry in recent years;

• Explosion of construction defect claims.

For contractors, these price increases have been amplified by the fact that they are occurring at a time when acquiring work is extremely difficult due to competition and availability of work, and individual project and company profit margins are generally shrinking. With premiums and exclusions out of our control, the insurance crisis should prompt many to take a long, hard look at how our company operates. It is important to realize that there are some things you can do to help reduce the cost of insurance and to make you company more attractive to underwriters.