Construction companies are facing a growing challenge when it comes to their insurance needs. Chelsi Hobbs, a commercial lines producer at CoVerica, recently shared her concerns about the disconnect between what construction firms expect from their insurance and the reality of what is available. She emphasized that simply sending information to a broker for a quote is not enough to meet the unique needs of these businesses.
Hobbs pointed out that as project costs and liability risks continue to climb, many construction firms are still focused on minimizing premiums rather than ensuring their insurance policies align with their actual risks. “There is no one-size-fits-all insurance program,” she noted, highlighting that each company has different needs and capacities.
One major issue is that many construction firms believe that obtaining a quote is sufficient. However, Hobbs warns that this approach often leads to unsatisfactory results. Errors made during the quoting process can have serious long-term effects, such as builders’ risk and general liability policies being written with incomplete or inaccurate details. This can result in denied claims when companies need coverage the most.
Additionally, some firms are taking on projects that their current liability policies do not cover. For instance, in Texas, many residential construction projects come with exclusions due to a high number of construction defect claims. This leaves companies vulnerable to significant financial losses.
Hobbs believes that the insurance industry must shift from a transactional mindset to a more proactive approach. Understanding how a construction company operates—its risk tolerance, safety practices, and subcontractor usage—is essential for creating an insurance program that truly fits its needs. If insurers do not grasp the operational realities of a business, they cannot provide effective advice or coverage.
Beyond just policy placement, aligning operations with what insurers prefer can help construction firms lower their risk profiles. This includes having well-documented safety practices and clear subcontractor agreements. Hobbs describes this as striving for a “best-in-class” profile, which is more about clarity and consistency than size. Companies that adopt these practices are less likely to face major claims and are better prepared when issues arise.
As construction firms increasingly rely on subcontractors due to labor shortages, the risks associated with informal agreements are growing. Hobbs noted that handshake agreements are common but can lead to complications. Insurers are now requiring proof of subcontractor contracts and insurance, which can affect premiums and claims.
Another area of concern is the rise in business auto claims, which are often preventable. Hobbs pointed out that many of these incidents could be avoided with simple measures like installing dash cams or conducting regular driving record checks.
In light of the rising number of serious auto-related claims, Hobbs advises construction firms to focus on managing risks before they escalate into claims. She wants insurers to be seen as partners in the planning process, helping companies understand their risks before they sign contracts or expand operations.
The message is clear: in today’s challenging legal and regulatory environment, insurance cannot simply act as a safety net. It must be part of a broader strategy to manage risks effectively, helping companies avoid issues before they reach the courtroom.