I know I’m not the only one in this predicament, but is there someone out there who can tell me what can be done about the increases in liability insurance premiums? I run a small company (anywhere from 2 to 7 employees) with about $500,000 in revenue per year. We have never had a claim. Our revenue hasn’t fluctuated much in the last 3 years but our premiums have gone from around $700 per quarter one year ago to $4300 this quarter. Our agent tells me State Farm doesn’t want my business because small contractors aren’t profitable to State Farm. I’ve contacted the Colorado Insurance Regulatory Agency and they say if the insurance company can prove that they need to raise rates to offset costs, they give their approval. I simply can’t afford the premiums and won’t work without the insurance. I’m left with only one option… disolve the company. I’ve checked out other insurance carriers and most won’t even offer a policy (for the same reasons as State Farm is trying to get rid of us). Those that offer a policy are requiring similar premiums. Tell me there’s a solution other than closing the business!!!! I’ve enjoyed this business for almost 15 years not, but it looks like I’m going to be working for someone else soon. Any suggestions??? Thanks for letting me get this off my chest.
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Replies
Eddie that is a significant hike and truly a bummer but do you think it will really force you to close up shop.
I crunched some of the numbers for you based on the information you just gave us there and came up with this chart. I put together the chart based on the assumption that your employees are working at %80 efficiency meaning %80 of there time is spent on activities you can bill directly towards a job in progress.
Under your old policy when you were operating as a 2 person company your GL was costing you $.88 per billable hour and when you were a seven person company it dropped to $.25 per hour. While the jump under you new policy is like I said significant to a range of $5.38 to $1.54 that translates into raising the hourly rate that figure your project on anywhere from $4.50 per hour to a low of $1.29 per hour if your are running full bore. While you shouldn't use an average when figuring your rate on a project by project basis that and average rate increase of $2.39. Are you thinking that your market wont absorb or you can't sell your projects based on a $2.39 per hour increase in your price?
$.88
$5.38
$4.50
$.58
$3.58
$3.00
$.44
$2.69
$2.25
$.35
$2.15
$1.80
$.29
$1.79
$1.50
$.25
$1.54
$1.29
If you're thinking that that price increase will make you unable to compete remember that your competition is facing the same kind of price increases too.
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The problem with your chart is that it assumes the $4300 per quarter will be a constant. We're working a project now that was bid in June of 2004. How do I bid future projects with no idea of where my rate will be when it commences? But I do appreciate your input and the work you put into it. Thanks
Edidie,
There really isn't a problem with his chart. The real problem is most business owners do not see it the way Jerrald spelled it out and that's where most guys get into trouble. So what if your rate changes down the road, just change the numbers in the chart. You will never be able to foresee every bump in the road. The fact is, don't be affraid of covering your costs and don't look at the premium as the death pill to your business. Also shop around and put your frienship aside with your agent. Business is Business.
Sure it can be frustrating at times, but don't cave in to the pressure of business costs. Adapt and overcome! Good luck.
shop around.
I have Erie insurance. After all the 9/11 horror stories I heard ... I caled my agent to see how I'd be affected. I know him pretty well. He said companies that were invested heavily in NY and invested heavily in the stock market took major loses and had to recoup .... so they raised their rated and lowered their liabilities.
Luckily for me ... Erie wasn't hit hard by 9/11.
There may be different factors at work by now ...
but I can say for that one instance ... sheer luck of who I picked kept me in the game when lotsa people around me had their rates jump.
The number of employees will affect you .... so maybe drop to 5 or under when U shop? I'd ask to see what the cut off is.
Jeff
Buck Construction
Artistry in Carpentry
Pgh, PA
I went through the same thing myself 2 years ago. My carrier canceled my policy and my agent couldn't find a new carrier that would insure me for less than $10K a year. My old premium was about $4K a year. It only took me 3 phone calls to find another agent who said he was sure he could help. He called me back 5 days later and told me he had a quote but I should probably sit down. I assumed the worst but the irony is that his quote was for $2300.00 a year, $1700.00 less than what I had been paying. Naturally I bought the policy and still have it. Keep looking.
I dont know anything about INS, but I have gotten a good rate with Nationwide. I shopped and they undercut the others for the same services by about 30% in most cases. I didnt give them the info of what the others wanted to charge.
I went through a local agent.
-zen
Hi Zen--
I went with the insurance company you recommended and got an excellent rate on my liability. Just over half what I was paying in Mass. Thanks for the tip!
Mike
Hey Mike,
Alright! I have to pay mine as well but the taxman cometh.
Got about 5 things done the other day, and had plenty of days not getting anything done...
-zen
Eddie
20 years ago, my wife and I owned an answering service and provided the local emergency services with dispatching.
We paid $1000 a year for insurance, in 3 years we paid $3000 in insurance. As the income from dispatching was only $10,000 a year, we decided to raise our rate.
By the 5th year, our insurance was $10,000 and the company couldn't guarantee to provide it.
We almost closed our doors.
We found thru the answering service association an insurance rate of $2000.
We did close the doors after 10 years, but not because of that.
Moral of the story is to check around, you should be able to find something within reason.
Jeff
There may be a homebuilders or contractors association in your state or local area that could help. I know that up here there are a couple of associations I could go thru to get my insurance. You might start by checking the NAHB site.
eddie....
sorry to hear of your problem..
our rates are pretty stable... i've discussed this with our agent.. he wanted to know if i wanted to shop... i told him i liked the way we've been treated and as long as the rates were stable we'd stand pat..
as for jerrald's advice.. i'd echo it..
GL is payroll based , right ? so , it becomes part of your labor burden.. same as WC.. same as Social Security (employer portion)... any benefits for your people ?
that's part of your labor burden too.. so's downtime.. so's training.. and the company picnic & christmas party...
health ins ( any part you're paying ).. .... burden..
anyways..... your GL for your average 4.5 workers for 13 weeks is $4300....
for the 2340 mh you're paying about $2 / hr for GL
you have to raise your rates by $2/hr....less whatever your current GL cost is
do it.... your legitimate competitors have to do the same thing... and guess what.. the ins. companies eventually will have to offer competitive rates so , your burden will decrease
i have our burden calculated by %... last year we increased our burden from 50% to 62%.... ie: an employee paid at $15 will have an additional burden of $9.30
this allows us to cover all of our labor costs..
your alternatives are exactly what you said they were.... pay up... or go to work for someone else... you ain't gonna like working for someone else
your state legislature is undoubtably aware of the GL cost increase... they will be musceling the ins.cos. to toe the line to keep your state protected and competitve
in the meantime.. start shopping for a good agency that is going to work for you.. and make sure you package your policies ....
Auto... GL..... WC..... Tools.... Umbrella.. one package helps to compensate everyone and gives you more clout
your state legislature is undoubtably aware of the GL cost increase... they will be musceling the ins.cos. to toe the line to keep your state protected and competitve
I'm sure all those legislators (among other politicians) are just dying to dump all that money they receive from the lobbyists!
Insurance co.s (at least here in NY) are among the largest contributors to politicians.
What island did you say you lived on?
Eric
I Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
eric.. how do you think insurance regs get changed ?
RI was so bad all of the insurance companies refused to write comp..
same thing happened in Maine, if i recall.. eventually , even the pigs eating at the trough have to fix the system..
when the consumers start squawking about the builders not having GL, they'll create a commission and come up with a fix
so ... be cynical if you want.. truth is nothing stays the same.. and all laws come from the legislatureMike Smith Rhode Island : Design / Build / Repair / Restore
Mike,
In truth, I am being realistic.
Google on NY Scaffold Law, read around and you will learn why I stated what I did.
Facts, not cynisism, show that the insurance companies are among the largest donaters to political campaign fund and lobbyists in Albany.
Nearly every carrier for contractor GL in NY has stopped writing policies. We are being forced to purchase GL from out of state carriers, that are not regulated in NY, thus are able to set rates as they please.
Last summer the State Legislators went on vacation and left an insurance reform bill sitting on the table. They simply are not doing their jobs or willing to make the changes that the business' want.
I wonder why that could be?
You don't think people are writing their lawmakers?? Maybe you know something I don't know.
NY rated among the worst states in the nation in wich to do business.
I'm just making this all up though. You can call me anything you want Mike, but I read the paper everyday. I'm not an idiot.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
http://www.insurancejournal.com/magazines/east/2004/06/07/features/43085.htm
http://www.contractormag.com/articles/newsarticle.cfm?newsid=330
http://www.insurancejournal.com/news/east/2004/05/21/42460.htm
You can start right here Mike.
I'm not sure why you would suggest I am being cynical. You will see for yourself what I am referring to.
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
damn, eric....
seems like a race to the bottom..with every state claiming to be the worst to do business inMike Smith Rhode Island : Design / Build / Repair / Restore
The better half dragged me from sunny Maryland to the "Vampire State" (Mom getting up in years...we get to help)....you're absolutely right...are you in Erie Co. perchance?
No, Putnam Co, next one noth of Westchester.
Gee, someone who agrees about the current climate.
Only mistake I made in my essay to Mike, is that it is the trial lawyer that are carrying the poli's in there pocket.
And how's this one for ya Mike, the state gov. here in NY was given the title of one of the most dysfunctional state governments in the nation. I can't remember who assigned that. I think it was a rogue group of young state politicians who are trying to change things.
Who do you have insurance with JR?
EricI Love A Hand That Meets My Own,
With A Hold That Causes Some Sensation.
[email protected]
it might seem like a lot in terms of dollars out of pocket but it is only less than one percent of your gross, and the increase is a bit more than a half percent of gross. Any business that has to close its doors bnecause of a half percent of gross increase in costs has other problems than the cost of insurance. How hard can it be to pass on the increase of a half percent to customers and stay in busniness? Better yet, notice all the other business cost increases - gasoline and phone etc, and raise your prices by that amt plus another percent or two for your self.
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Taunton University of Knowledge FHB Campus at Breaktime.
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I second J.B.'s post, if youre in a state they cover. google erie insurance. Ive got them also for my liablity insurance and pay just over $500 a year. good luck
Eddie, I signed papers yesterday for GL that allows me to have $560,000 in revenue. My premium is $5,200. This is the first time I have ever been insured as a GC, and it is my first year "out on my own". The company that insured me is called Tapco. You may see if they serve your area.
I have a question though. How can you remain profitable with 7 employees and only $500,000 in revenue?
labour only service business?
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
Matt,The company is TAFCO, not TAPCO. I know because I recently picked up coverage with them as well.$1600/yr. for $1m per occurrence and $2m aggregate. Up to $500k in gross receipts. I can't complain.
Jon Blakemore
I was told a person should change their insurance every 3 to 5 years. I was with an insurance co. for 23 years, and the rates kept climbing, never once using their money. My wife had a 'no fault' in the mall parking lot, the next premium was for 3 times the amount!! I dropped them got another insurance co. saved 900 per year and got my commercial insurance for 595./year. My insurance co. now is Grange (Ohio)... Shop around.
GB