Contractors and "New Construction"
September 24, 2014
I ran over a construction cone today. I'm not especially proud of it -it just happened -and that's that. It got me thinking about construction and all the new projects we are seeing around town. As banks begin to loosen underwriting guidelines for equity lines and as home owners begin to see equity in their homes rise we see more and more construction projects. What's the first thing we do when our equity line of credit is approved? We upgrade the kitchen or bathroom! Contractors who had closed up and let their license lapse at the CSLB are beginning to reinstate their licenses and take on new projects. Contractors who had to lay off crews are hiring them again. Contractors who had relied on "handyman" type work are taking on larger building jobs.
About 40% of our business is working with contractors - and we are seeing a great increase in activity. We are writing payments and performance bonds for construction projects, and we are writing contractor bonds for the CSLB. We are busy writing workers compensation insurance for contractors who are hiring people to help with new projects - and we are busy endorsing existing work comp policies as our clients' payroll grows! We are seeing the most growth in commercial general liability insurance for contractors.
One area that contractors need to pay particular attention is to whether or not their insurance policy allows them to do "new construction". While it can be tempting to take on any and all work that comes in - contractors who had previously specialized in remodels and additions need to either switch to a insurance policy that allows for new construction or have their current policy endorsed to allow for new construction. Having a claim denied because the carrier prohibited new construction could be disastrous to a firm. In the most general terms, new construction is when a home or building is being built from the ground up. There are some exceptions. If you are adding square footage to an existing home or business by building OUT that would NOT be considered new construction. If you are building UP to create more square footage on an existing structure that is NOT new construction.
New construction projects are statistically more likely to be a source of litigation than remodels and additions. As such, many insurance companies will say "no thanks!" and not offer a policy to contractors who wish to take on new construction. The nature of the insurance marketplace is such that there are almost always options and a good insurance broker will help you find those options. Contractors should not be shy about asking their broker to explore options that allow them to work on new construction projects. While the number of insurance carriers may be limited, that does not always mean the rates will be higher.
Last week we helped a HVAC contractor modify his policy to allow him to work on new construction projects and the increase in premium was less than 5% - not bad for being able to increase revenues by 20% (in his case). This week we are working with a wood flooring contractor who is changing his policy at no increase in cost. Of course, every contractor and every policy is unique - but in general terms the modest increase in premiums, if any, allows for that much more in revenues. The bottom line is this: contractors who want to take on new construction projects have options when it comes to being insured properly - and a good broker will help you explore those options.
Gregory R Culley
Culley Insurance Services
CA Dept Ins License#0f22083