Why is New York Contractors Insurance So Expensive?




It’s mid-2024, and we’re seeing the marketplace for New York contractor’s insurance, specifically Contractor’s Liability Insuramce continue to worsen as some major insurers curtail their writings of contractors while others vacate the market.

Why? What’s causing many insurance companies to reduce writing contractors’ general liability, especially in downstate New York? I’m going to talk about this in just a minute.

Hi, I’m Gordon Coyle, welcome to my website where we talk about the risk and insurance issues on the minds of business owners. As an expert business insurance broker, I believe these videos are intended to help guide and educate decision-makers to help you become a more informed insurance buyer. If I don’t answer the question on your mind that brought you to this video, reach out, and let’s connect. I’d love to hear from you.

Why is the market for contractor insurance deteriorating?

New York Contractors Insurance

Much of the reason is due to the claim dollars paid out in what are commonly called Labor Law claims, or more accurately, third-party action over claims. If you’re in the construction trade, you’ve heard these terms. As a refresher, an action-over claim is when a trade contractor’s worker is injured on a commercial job. The injured worker collects workers’ comp benefits, but then they sue the property owner or general contractor for their grave injuries. The property owner or GC passes that claim back to the trade contractor or the employer under an indemnity agreement the trade contractor signed, agreeing to hold the GC and property owner harmless from all claims that arise on the job.

The trade contractor submits it to their insurer, who must tender the claim defense and ultimately pay the settlement.

The injured worker’s claim should have been resolved fully under workers’ compensation, but due to a unique twist in Labor Laws that only exists in New York, the worker can also seek remediation via the courts and usually obtain a large settlement.

Due to the increasing frequency of these claims and the ever-increasing settlements, insurers in New York and surrounding states charge more for trade contractors’ general liability insurance than elsewhere in the country, way more!

And now, as more insurers restrict their writings, we’re only going to see rates escalate further and the availability of liability insurance decrease.

There’s another problem that happens downstream from labor law claims.

That problem is fraud.

Some trade contractors so frustrated by the high liability insurance rates will commit insurance fraud by underreporting payrolls, misclassifying workers, or outright lying about their operations. Look, I get it. Many of these contractors are just trying to survive, so they think that a few “white lies” won’t hurt anyone, so they take a chance and don’t truthfully report payrolls, operations, or exposures on applications or audits.

This is a two-fold problem.

The first is that when the trade contractor is caught, they could face stiff penalties as insurance fraud is punishable by prison, monetary restitution, loss of license, and more.

Secondarily, when some contractors under-pay their fair share of premiums into the system, it means the legit contractors end up paying more to cover the claims that do happen.

It’s a vicious and expensive cycle that impacts hard-working contractors who are just trying to earn a living from their trade.

The bottom line is that New York and now New Jersey contractor liability insurance is a mess. So, what’s the solution?

Don’t put yourself at risk

For many contractors, it means purchasing a general liability excluding action-over claims, which is seriously dangerous. If you’re a two or three-person trade contractor that doesn’t do any commercial work and you’re in upstate New York, maybe this makes economic sense. But if you do any commercial work, you’re putting yourself at serious risk.

Why?

If you purchase a policy excluding labor law claims and a claim of this nature does occur, what are you going to do? How will you defend yourself? Hiring an attorney is expensive, and if you lose the suit – which is likely – how would you pay a six or seven-figure settlement out of pocket?

You can’t just walk away from it or close up your corporation, thinking the corporate shield will protect you. Real life doesn’t work that way. You are going to be held accountable.

Now, I want to give you a word of caution. Many online insurance sellers and some insurance brokers will quote you a well-priced general liability policy, but they don’t disclose that action-over claims are excluded. With the state of the insurance marketplace, you must be a savvy buyer – don’t buy on price alone, ask a lot of questions, read proposals thoroughly, and know what you’re buying. If it seems too good to be true, then it probably isn’t.

I would specifically ask any broker you get a quote from: “Does this include or exclude action-over liability coverage?

Thinking Strategically

In my mind, regardless of the insurance market conditions, you need to think and act more proactively than maybe you have in the past, and this includes:

New York Contractors Insurance

Having a robust safety plan. I’m not talking about a safety manual you buy online and stick on a shelf. I’m talking about a commitment to safety that’s reinforced daily on the job. It doesn’t matter if you’re a union electrical shop with 40 employees, a landscaper with five employees, or anything in between. A safe operation with fewer claims will do better in the insurance market than a contractor with no plan.

Don’t hire your next claim. In addition to safety, good hiring practices will help reduce worker injury claims.

I know that the labor market is tight, and finding good workers is challenging. Still, suppose you don’t have a proactive hiring strategy that includes background checks, pre-employment physicals, drug testing, and personality profile testing, all in compliance with state, federal, and local laws. In that case, you’re putting yourself at risk.

Understand your risks. Before bidding on a job or signing a contract, understand the risks you assume and agree to. There may not be much you can do to negotiate some risks away. Still, too often, I have spoken with contractors who won a job but didn’t know that they needed a $5M umbrella policy or that their GL policy that excludes action-over was no good and would cost way more than anticipated.

Be Strategic when it comes to insurance shopping. DO NOT engage 2 or 3 insurance brokers to get you quotes. As I’ve mentioned, the marketplace is limited, there are only a handful of insurers writing contractors in New York and New Jersey so working with just one broker makes a lot more sense for several reasons.

  1. The one-broker strategy puts more leverage in their hands to negotiate a better deal. Multiple brokers remove that leverage.
  2. One broker can usually access all of the underwriters simultaneously and provide the marketplace with a more consistent submission, avoiding confusion and duplicate submissions to the same underwriters, which will lessen your chances of even getting a quote.
  3. The One Broker approach also simplifies your life, so you answer questions and get documents and information to just one person rather than two or three.

Here’s the bottom line.

The contractor liability insurance market in New York is a mess, and it will be this way for a while. The only thing that will fix it, in my opinion, is the repeal of labor law 240 and 241, but i don’t see that happening anytime soon. That means you must be more strategic and aware of your business insurance.

Do you have any questions or need my assistance? Reach out, and let’s connect. You can hit the Get Insured Now button above.

Thanks!

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