Small construction companies that are diversifying in response to economic pressures open themselves to more exposures, an executive told Insurance Business.
Edmund Dabrowski, SVP of workers’ compensation at Builders & Tradesmen’s Insurance Services (BTIS), highlighted the need for more attention to the risks that these firms face, especially amid challenging economic conditions. Rocklin, California-based BTIS specializes in small construction businesses.
“Because of a tougher time, are [businesses] taking on jobs that a carrier may not even accept? Are you jumping up on a roof to fix more roofs during a bad storm period?” he asked. “Those would be things that agents should know.”
“Classifying risk correctly is paramount. With smaller firms, exposures change as they grow. They may tend to specialize. For example, they may have been a painter and then gravitated towards wallboard installation. Each classification carries its own rate.
“It’s imperative that the agent is in regular contact with their insured to ascertain the company’s payroll and the exposures.”
For Dabrowski, the industry often doesn’t pay much attention to small construction firms, which bring in comparatively lower premiums. But agents should be especially attentive to this market, he argued.
“What we find is that during recessionary or inflationary times, we have an increase in the number of small insureds,” he said. “Especially in these economic conditions, some of the smaller insureds begin to grow and some medium-sized [firms] shrink.”
This is because medium and larger firms tend to see less business during a downturn, as homeowners and businesses scale back their construction projects.
Dabrowski explained further: “During inflationary times, a homeowner can’t afford to purchase a new home, so they say we’ll either add an addition here or we will do a remodel of the kitchen or whatever room that might be.
“What happens when you have some of the medium and larger construction firms, they then become negatively affected during recessionary times because there’s not enough work for big jobs, so they will lay off some of their skilled workers. The skilled workers, in turn, secure their licenses and become trade professionals.”
Small constructions companies that are trying to grow through the current downturn should be in regular dialogue with their agents about their workers’ comp coverage. Their exposures evolve as they add more employees to their payroll or add different trades to their portfolio.
“Another very important piece here is that workers’ comp policies are audited,” Dabrowski noted. “The last thing you want as an owner of a company is to get a huge audit at the end of the year.
“So, it’s important that agents and insureds have regular dialogue on changes in their payroll. If they add or take off employees, that will affect the final premium.”
Additionally, the labor shortage in construction has had a negative impact on small businesses. Accident rates for the first 60 days of new employment in the construction industry have risen dramatically, according to Dabrowski.
“For the first few first two months of employment, the number of claims is off the chart. But as the employee is there with longer tenure, the frequency rate of injuries decreases,” he said.
“Injuries will then be reflected in higher premium for that insured. If you have enough of them, it’ll be reflected for the entire industry.”
Risk management is imperative for clients in the construction space, and agents that make regular and consistent check-ins with small insureds will set themselves apart in the market.
“Agents that keep their eye on their insureds, their loss ratio, profitability, and their retention on their book of business are significantly better than agents that do not,” Dabrowski told Insurance Business.
“The agents that differentiate themselves from the rest of the pack are those that are reaching out to their insured on a regular cadence, and asking them, ‘What jobs are you taking? Have you added any more employees? Are you talking to your team?’
“Those proactive agents are the ones with the best retention, the lowest loss ratio and have the most clients in the long term.”
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