Brad Eiffert wasn't quite sure he'd heard the insurance reps correctly. After years of scrambling to find liability and workers' compensation coverage, the vice president and co-owner of Boone County Lumber Co., a single-location dealer with 35 employees in Columbia, Mo., actually had agents courting him during his recent renewal. “I used to have people clamoring to quote business. Then it seemed like the calls stopped,” Eiffert says. “That's not the case this year. I've seen a lot of interest.”
He decided to stay with his existing carrier because his premium dropped 6 percent from the previous year, and the amount of property coverage actually increased. “I've been encouraged by this renewal cycle,” he says. “Maybe we've turned a corner here.”
He could be right. Insurance industry veterans cite the fact that insurers made their first underwriting profits in a quarter-century in 2004, which should make them more aggressive in writing and pricing policies. “I wouldn't call it a buyer's market just yet, but a much more favorable market,” says Wes Bailey, who teaches commercial insurance courses at Baylor University's Hankamer School of Business in Waco, Texas. “2005 should be favorable.”
Does this good vibe extend into building trades? Yes and no. While the overall insurance market is beginning to show some signs of softening after more than two years of tight supply and soaring premiums and retentions (deductibles), construction-related businesses continue to be considered a high risk by insurance companies. Litigation related to mold and product defects, and workers' compensation exposure are to blame, say insurance company executives and industry watchers.
As a result, dealers continue to face significant challenges related to liability and workers' compensation insurance, especially as more dealers cross over into installed sales, which significantly increases their risk of liability because most product defects litigation relates to improper installation. “Installed sales and dealing with subs create a lot of problems for independents,” says Greg Pianko, director of loss control for Indiana Lumbermens Mutual Insurance in Indianapolis. “They have to go out and provide more services above and beyond delivery of materials. With that comes a lot of exposures. It does open up a whole new ball game for coverage and who's liable.”
Moreover, in many cases the cost of insurance and the amount of funds that must be reserved to cover risk retention are hampering dealers' ability to grow, says Gary Raven, vice president of environmental health and safety at Dallas-based Builders FirstSource, which had $1.65 billion in pro sales in 2003. Raven also serves on the National Lumber and Building Material Dealers Association's (NLBMDA) Risk Management Committee. “If you want to build a new factory, you have to think about how much workers' comp will be,” Raven says. “You have to set aside real cash, liquidity, in net dollars. That's a tough proposition in today's business world.”
If that weren't enough, dealers also face continual increases and major frustration with health care coverage, regularly choosing between passing on higher costs or reducing benefits to employees. Plus, they are routinely asked to assume more contractual risk with their builder clients, who are trying to transfer as much liability as possible upstream. For example, requirements to name builders as additional insureds on dealer liability policies, even for acts that are the result of the sole negligence of the builder, are becoming commonplace.
For all the challenges, though, many dealers both large and small are reporting some level of success in managing insurance costs and negotiating contractual liability. Plus, industry veterans say that critical elements that play into reducing premium rates, such as safety and wellness programs, are absolutely within a dealer's control. Here's the lowdown on what you can do to find the bright spots in today's insurance climate and keep your business under the best possible cover.
Safety Net An insurer considering a liability or workers' comp policy application wants to see a commitment from the company's senior management to creating and maintaining a safe work environment. It begins as early as the hiring process, which should include a formal application, skills testing, drug screening, a physical, and checking driving records. Insurance providers also look for a formal safety program, requirements to use safety equipment, ongoing training, regularly scheduled safety meetings, a person (either an employee or a consultant) devoted to monitoring safety, and a clean work environment.
“It's not so much [an attitude of], ‘We're going to reduce losses,' it's ‘We're going to stop losses to make our jobsite the safest, cleanest one out there,'” says Ed Warren, vice president of commercial lines for Acuity, a Sheboygan, Wis.–based insurer that covers many construction-related companies. “Then, it's borne out by what our loss control reps find [on site]. They need to see hard hats, eyewear, safety gloves, and shoes.” It's not just having the rules, he adds, it's putting them into practice day in and day out.