Insurance experts offered tips for tackling common issues encountered by contractors in the current hard insurance market during a recent panel discussion.
The presentation was billed as Extinguish the Top Five Fires affecting Contractor Insurance Programs in 2021 and it was part of the Educate Me! Virtual symposium hosted by the Ontario General Contractors Association.
Insurance companies are sometimes labelled as the “bad guys,” especially with what is going on in the market right now with rates going up, explained Peter Janzen, vice-president, national mid-market, commercial insurance with Royal Sun Alliance Canada.
“Today we are in a very low interest rate environment that logically impacts the amount of investment income that the insurance companies see and it puts more emphasis, more pressure, more onus on the underwriting profit,” he said. “That puts a lot of pressure on the underwriter to make good decisions and be conservative in what they are doing in order to support the insurance company’s objectives.”
Claims costs are also rising for a variety of other reasons including climate change and inflation on claims is exceeding inflation in the economy.
“All of these things are coming together right now and resulting in a bit of a perfect storm. The result of that is that insurers are changing the way they behave in a number of ways,” said Janzen.
“One, they are far more selective when they deploy the capacity, what type of projects they will insure. Secondly, when they do decide to insure a project they may be more conservative with the amount of capacity that they will offer. Thirdly, when they make the decision to offer capacity, how much they will offer, they may be more focused on the price adequacy that they need to charge in order to do that. That’s the crux of the issue we’re seeing right now.”
He advised contractors and builders to engage their brokers.
“I also encourage brokers to look into getting multiple insurers on a given project,” Janzen added.
“Therefore, if one of them were to have a change in appetite you are less dependent on any single insurance company, you have a more diversified spread of risk. I think that would certainly help with some of the issues we see today.”
Jake Wellington, president of Wellington Builders Inc., agreed.
“The insurance market, the commodities market, it’s so volatile that we do have to engage our broker for every project,” said Wellington. “There used to be a square footage price, a unit cost, that’s gone out the window right now and you do need to treat things project specifically.”
Shawn McCallum, insurance and surety adviser, London branch manager of Petrela, Winter and Associates, said one thing that has changed over the last 12 months is honing in on scheduling and in particular the start date.
“If a project is being tendered and the start date isn’t for three or four months, just given the challenging and forever changing insurance marketplace, we are encouraging our prime contractors to carry a buffer,” said McCallum. “At the end of the day, we are asking more questions at time of tender, getting more information and it’s a result of the insurance company requiring more information to give those indications or those project insurance quotes.”
Panellists also discussed loss prevention inspections done by insurance companies and although businesses do not look forward to them, they do provide benefits.
“It gives the insurance company first-hand experience in terms of how the business is run, what’s going on on project sites, policies and procedures,” said McCallum. “Contractors, it’s important to take it as a learning experience and not to shy away from these types of things.
“Controlling losses is the most effective way to contain your insurance costs. Loss prevention visits, that’s what they are doing, they are helping contractors prevent losses and ultimately reduce their overall insurance premiums.”
Janzen referred to risk control as the “eyes and ears” of the insurance company.
“It never feels good to have someone come and check up on whatever it might be, but it is an opportunity,” he said. “If you have a few gaps, some things to improve, an inspection will point these out. It will drive changes in your business that will only improve it.”
From the insurance company’s perspective, working collaboratively with contractors is in the industry’s best interest, he said.
“Insurance companies are in the business of offering insurance to customers. This is not a witch hunt and we are not running around looking for problems,” he said. “Our aim is to identify the best risks and insure them and then to look for ways that we can improve the balance of the risks for the clients out there.”
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