The best way to control insurance costs for your general contracting business is to avoid having to make claims if possible, and to control the cost of claims when they do happen.
Overall, compared to other types of contractors, general contractors have a very low insurance risk, meaning that they don’t make many claims and/or the claims are often for smaller amounts.
So, what kinds of claims do you need to watch out for?
What kind of work do you do?
Not all contractors do the same kind of work. The kind of work you do will determine, to a great extent, how likely you are to make a claim. Generally, working on a brand new construction or installation project is likely to lead to lower total claim costs than a project where you are renovating, repairing or retrofitting an existing structure. Also, work carried out on residential properties is more likely to result in a claim than work done on commercial or industrial structures.
Where will the claims come from?
Because general contractors usually oversee a project, but subcontract virtually all of the actual work, the most common type of insurance claim for a general contractor is a claim that arises from work done by subcontractors.
The following list provides a rough understanding of which trades have the most claims and/or most costly claims:
|Contractor type||Total claim cost||Most common claims|
|Landscapers/snow removal||High||Injuries to passersby. More|
|Plumbers||High||Water damage, Fire damage. More|
|Roofers||High||Fire damage, water damage. More|
|Carpenters||Medium||Fire, drill/nail into plumbing More|
|HVAC technicians||Medium||Water damage, gas leaks More|
|Bricklayers/masonry||Low||Façade detaches More|
|Electricians||Low||Fire damage. More|
|Floorers||Low||Drill/nail into plumbing. More|
|Painters||Low||Overspray, spillage. More|
Common claim scenario
You are overseeing a major home renovation. Your plumbing subcontractor installs bathroom fixtures, which start to leak overnight while the work site is vacated. By morning, a substantial amount of water has damaged the new floors and other materials that were left at the site.
Total claim: $22,000, which is shared between your insurance company and the plumber’s.
Tips for avoiding claims
Claims related to work done by the above trades will usually result in at least some liability for the general contractor that is overseeing the project. That said, for a general contractor, the best way to avoid claims on their insurance policy, or to minimize the cost of those claims, is to:
- Choose subcontractors that you know, or those with a good track record that you can verify
- Word your subcontracts in such a way that places more of the liability on the subcontractor
- Ensure your subcontractors have enough insurance to cover their share of liability
General contractor insurance usually includes coverage for:
- General liability (protecting your business from legal action against you) Learn more
- Tools and equipment (if they are damaged, destroyed or stolen) Learn more
Other coverage to consider:
- Commercial auto insurance – If you use your own personal vehicle for work, make sure to let your broker know. If you have one or more vehicles that belong to the business, you need a commercial auto insurance policy.
- Commercial property insurance – If your business has a physical location, you need property insurance to protect your office or shop and the stuff that you keep there. Also covers you if someone is hurt while visiting your location.
- Errors and omissions insurance – E&O protects you when you are found liable for damages which are caused by designs, plans, advice or other professional services you provide as part of your business.
- Legal expense insurance – includes unlimited legal advice in relation to disputes you may have with clients or employees or answers to theoretical “what if” questions. Can also provide funding towards any legal action you take as a result of a dispute.
- Cyber and data breach insurance – Cyber liability insurance is a very broad insurance which protects you in the event that you are hacked and personal client data is exposed, or if your system is infected or encrypted by a virus.
Learn more about insurance for general contractors
[Our thanks to Steve Schmelzle from RSA Insurance, one of our trusted contractors insurance partners, who agreed to share his expertise for this piece.]