The top 3 obstacles for construction producers

For agents and brokers servicing construction accounts, these three issues are making the job much more difficult.

Motor & Fleet

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Given the complications inherent in servicing construction and contractor clients, the majority of producers in the space are highly specialized. As such, they are accustomed to the detailed risks and intricate policy language attached to construction contracts and insurance coverage.

However, experts from national wholesaler Partners Specialty Group (PSG) told Insurance Business America there are a few areas making life difficult for producers in the construction space.

Here are the top three challenges producers face, along with some insight into how they might be overcome.

1. Changes in ISO’s policy form language
“The new 2014 ISO form adds additional problems and exposures for agents and brokers servicing contractor clients,” says PSG Executive Vice President Marc Rotter. “The new policy ties any liability the insurance company would be obligated to respond to back to the actual contract between the two parties.”

In other words, producers working with carriers who use ISO forms will need to develop and even more in-depth knowledge of the terms of the project contract in order to cover all bases and mind their own E&O exposures.

Specifically, Vernon Howerton, construction practices leader at the firm Gray Reed & McGraw, said the new ISO forms limit coverage to the lesser of the amount stated on the declarations page/policy itself, or the insurance required by the contract.

“If the contract between owner and contractor did not require insurance to cover the event at issue, under the endorsement, there is no coverage—even if the contractor has insurance that would cover the event,” Howerton says.

With those stringent requirements, Rotter says he sometimes advises his retail agents to seek advice from an attorney.

“We now tell the agents and brokers, or the insured, ‘We’re providing coverage that is now limited to obligations you’ve agreed to in that written contract,” Rotter says. “I now see a wide range of exposures there that are dramatic—in many cases we have to refer the agent and broker to talk to their attorney and get legal advice.”

Apart from bringing in a lawyer, Rotter also says it’s possible to simply sidestep carriers using the new ISO forms. They have not been adopted by every carrier in the market and if a risk is particularly troublesome, he advises producers “don’t even bother” marketing to carriers with the new policy forms.

Howerton notes that the area has not seen a lot of litigation yet as a result of the new forms, but in a “couple of years” there may be some “significant judicial interpretations” that shed light on the new requirements.

2. Auto insurance rates
While rates are generally steady in the construction space, the obvious outlier is commercial auto coverage for an increasing fleet size.

Mark Patterson, another Executive Vice President with PSG, suggests that of all contractor issues, “what’s driving pricing is the auto piece.”

Thanks to increasing auto claims, it’s very difficult to find affordable auto coverage for the construction sector currently. While accepting a higher deductible may lower premiums, escalating legal costs mean that if a client is involved in an accident they could be left without the means to pay for it.

Patterson predicts that “Auto will continue to drive who is going to participate in the market,” keeping pricing at a high level.
However, he notes there is “a lot of capacity” among insurers and while rates are high among most carriers, a savvy producer may be able to score a deal with enough searching.

3. Geographic challenges
The cost of doing business certainly varies state to state, thanks to unique regulation and jurisdictional peculiarities, projects in some states may require unique attention.

Being based in Manhattan, PSG’s Gary Ricker knows all about geographic challenges. New York City is home to the stringent Scaffold Law, regulation that requires contractors to purchase another layer of general liability to cover “gravity-related” injuries.
“We’re the only state left in the country where people can get both a workers’ comp and GL-related lawsuit. That’s a big issue for us,” Ricker says. “It gets reflected in our rates and in the insured’s renewal if they have a major loss on their portfolio—then rates go up significantly.”

In fact, the law is so powerful it can make the cost of insurance on a New York project double what it would be in other states.
Ricker says some brokers sell policies that have an action over exclusion, which negates coverage in the event of a fall, and brings down the overall cost of insurance. However, “it really puts them in a bad position because they’re putting their whole company at risk,” he notes.

Colorado is another tricky area. The legal climate there particularly favors plaintiffs in construction defect litigation, leading to high settlements and a need for higher insurance limits.

“Colorado is a complete mess right now,” Patterson says. “There’s a very limited market due to the court’s stance—they take a very broad definition of construction defects. Coverage is almost impossible to get; there’s a very limited market.”  

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