Insurance Issues

bmeyer

Just wanted to see if any of you guys have run into this or not, or if this is the standard everywhere.

We recently started hiring subs for our larger projects and I checked with my insurance broker to make sure my policy would still fully cover the company. Long story short, most of the insurance companies didn't want to insure me because we'd be subcontracting out more than 25% of the work on projects such as finishing basements (even though the subs had their own insurance). One company offered coverage, but it was 10 times what my current policy is. Is this typical, and if so, it'd be cheaper to hire employees if I could keep them busy 10 months out of the year.

Bryan

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Bryan Meyer

Bob Kovacs

Yup, it's getting to be pretty typical. The theory is that if you're subbing a large portion of your work, you don't have adequate supervision on the jobs to ensure that the work is being done correctly, which increases the risk of a problem. If you're a one-man operation swinging a hammer and subbing only 5% of your work, it's likely that you're on the job 99% of the time. If you're a one-man operation with 50% sub volume, you may have 3, 4, 5 jobs going at once, with no one there to oversee the progress.

It's not necessarily the actual case, but in the insurance companies' eyes it is- and what they say goes in this case.

Bob

bmeyer

I see. Even though we advertise that one of the owners will be on-site at all times, I guess that's not good enough for the insurance companies. Thanks for the reply.

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Bryan Meyer

thom

My workmens comp company dumped me a year and a half ago. No claims, they just weren't making enough money. It was a real struggle to replace them.

The issue was, I went to strictly subs. I manage the projects (new houses) and hire occasional labor for some things but not much. Because I insist all my subs carry WC (it's the law) and I get certs of ins from them all, there was not enough exposure/revenue for my insurance company to make it worth carrying me anymore. They dumped me after 15+ years without a claim.

I finally found one, the state pool. The rates are way higher, but it's not an issue because I insist my subs carry comp.

awesomepainting

I'm just starting out in this business and after questioning a few insurance companies the all say the same thing you said about anything in excess of 20-30% subcontracting raises your general liability insurance greatly.
10 times greater seems a quite steep, I thought it would be maybe 3 times more would be more like it.
However, I think you have to take ALL things into consideration for what your getting for your money from the subcontarctor.
For instance, I met a potential sub yesterday that charges $160 per day for himself and $140 per day for his workers.
That comes out to $20 and $17.50 respectively.
That INCLUDES wages, workamans comp, his liability insurance (naming me as additional insured), payroll taxes, his van & tools.
Seems like a bargain.

Dustball

When you guys are saying "20%" of the work being subbed out, how is that figured? Percent of the total hours, cost, or square footage of the project?

bmeyer

When I say 20% I mean the subs charges account for 20% of the total sale. So say we do a kitchen remodel for $20,000, if I subbed out the flooring, electrical, and plumbing for a total of $4000, my company would only account for 80% of the total sale.

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Bryan Meyer

Ed the Roofer

Hey awesome,

Verify with your subs insurance work comp carrier that they are actually claiming employees and not paying them 1099 day labor. If that is the case and something happens, then you and your insurance carrier are still liable.

I heard that California is cracking down, (what else is new), on the one man companies who say they never have any employees. There was a big roofing company who just got majorly busted. The union is backing the legislation and crack downs.

Also, you can lower their total % of the job if you supply and pay for the materials instead of them, if you don't do that already.

Ed

Bob Kovacs

In NJ, it's more along the lines of 10x. The quotes I got went from $2500 for 100% in-house labor to over $22k for anything over 20% subbed.

With regard to the "great deal" you're getting from your sub- sure, those prices are "bargains" as long as you're willing to have the equivalent of a $7/hour guy working on your job. If you need people with skill levels that would normally require a higher level of pay than that, you're either shortchanging the sub (he's shortchanging himself, actually), or something is going to suffer.

Bob