By Allison McGreal, Assistant Vice President
Much of the insurance industry business is driven by contract requirements. Two specific areas that come up quite often are the need for Contractors Pollution Liability (CPL) for non-environmental contractors and higher limits of insurance for any type of contractor.
When a non-environmental contractor bids a job and is required to provide evidence of CPL coverage, it’s often a last minute request with some urgency in order to get their bid submitted on time. To obtain a quotation, the agent will typically need project specs, including the name, location, duration of the job, scope of services, and revenue associated with the project. Most carriers have minimum premiums per layer of insurance requested and don’t pro-rate project specific policies. The premium is based on the job details and not on the job duration.
On the other hand, practice policies are written to provide coverage for all the applicant’s projects over the policy term. The total revenue is used to calculate the rate and in theory, the higher the revenue, the lower the rate. This translates to paying a lower premium per $1,000 of revenue.
To illustrate the benefit of a practice policy vs. a project policy, let’s examine a $6,000,000 plumbing contractor. PartnerOne Environmental was recently asked to quote CPL for a contract based on $685,000 of revenue. The project was the construction of a new apartment complex and the contractor was hired to install all cold and hot water systems and fixtures, sanitary and waste systems, electric water heaters, sump pumps, and other plumbing operations. The job duration was scheduled to last 12 months. After underwriting the risk, PartnerOne was able to offer a $2,500 minimum premium quote for this project, but also provided terms for a practice policy for $5,238 annual premium, which also included Mold coverage. Had this client purchased the project specific option, the $2,500 premium may have been attractive when actuality, they’d be paying $3.65 per $1,000 of revenue. With the practice policy option, the rate is $ .87 per $1,000 of revenue. If the client intends to bid multiple projects requiring CPL coverage, it’s much more cost effective to buy a practice policy. Additionally, with the practice policy, the insured no longer has to worry about last minute bids for jobs and can actually present their bid showing the coverage is already in place. This may make them more marketable to clients if they are proactive with their insurance.
The second frequent contract requirement deals with midterm increased limits. Insurance carriers and their reinsurers typically have a minimum premium charge per $1 million dollars of coverage limit. The following is an example of an account that would have benefited from binding a higher limit at inception. A tank contractor bound a Commercial General Liability/Contractors Pollution Liability policy with a $2,000,000/$4,000,000 limit for roughly $24,500 annual premium. During the policy term, they were asked to provide higher limits of insurance for various projects. The first project required another $3,000,000 occurrence limit for a $30,000 project that was to last one week and the second was a project for $3,000 to last one day. Because of the minimum premium per layer, each job rated up to anywhere from $4,500-$6,000. Had they purchased a policy at inception with a $5mil/$5mil limit, they cost would have been about $28,500. Now, because it’s a midterm request, it’s actually costing $6,000 for each job.
By having a policy in place with the broadest coverage and the limits usually requested in the industry, your client will be more marketable, the agent won’t have to scramble for last minute quotes or endorsements to prove the limits are in place, and the insured will actually save money in the long run.
To learn more about the differences in insurance policies, or to discuss a specific risk, please contact us.