Today, we are pleased to present a little insight from our in-house insurance guru, Jay Cohen. We know the world of insurance can be somewhat dry to some folks, but Jay breaks it down for us now, because as he so wisely notes, cost savings are interesting to everyone. And now, here’s Jay:
All general contractors and most subcontractors utilize subcontractors to perform work. The premium for General Liability insurance will be affected by the amount of insurance carried by a company’s subcontractors. The premium can be reduced if the company’s subcontractors have Adequate Insurance.
Adequate insurance means the Certificate of Insurance provided by the subcontractor is (1) in force during the policy period being audited; and (2) the policy limits are equal to or greater than the limits of your policy, or $500,000 per occurrence/$1,000,000 aggregate, whichever is less.
- Subcontractors who have adequate liability insurance will be classified and rated under the specific “Contractors-Subcontracted Work” classification.
- Subcontractors with no insurance will be classified and rated based on the classification for the type of work performed. The total subcontractor cost will be used.
- Subcontractors who have insurance but with less than adequate limits will be classified and rated based on the classification for the type of work performed; however, credit will be given for the limit per occurrence the subcontractor actually has. This credit is calculated by dividing the subcontractor’s limit by the company’s limit. The percentage credit obtained is then deducted from the total subcontract cost for that subcontractor.
If the company fails to provide the premium auditor with copies of certificates of insurance for subcontractors that are adequately insured, as defined above, then it will not be able to take advantage of the lower rated classification for the work performed by those subcontractors. As the difference in rate can be sizable, strict adherence to this requirement can significantly reduce insurance costs.
This is not common knowledge, and I know that insurance is not very interesting; however, the cost saving IS interesting. Present this to your Agent and ask what savings you might have, if you have your subcontractors covered by their own insurance. Don’t let your agent tell you the savings is minimal… it’s a lot more than that.