Workers Comp – Why agents need to care about small construction companies

Small construction companies that diversify in response to economic pressure open themselves to more exposure, said an Insurance Business executive.
Edmund Dabrowski, senior vice president of workers’ compensation for Builders & Tradesmen’s Insurance Services (BTIS), highlighted the need for more attention to the risks these businesses face, particularly given challenging economic conditions. BTIS, based in Rocklin, California, specializes in small construction businesses.

“Because the time is hard, she is [businesses] Taking on jobs a carrier might not even accept? Do you hop on a roof to repair more roofs during a bad storm? he asked. “These are things customers should know.”

“Categorizing risk properly is crucial. With smaller companies, exposures change as they grow. They may tend to specialize. For example, maybe they were a painter and then gravitated toward a wallboard installer. Each rating carries its own price.”

“It is essential that the agent be in regular contact with the insured to ensure the company’s payroll and exposures.”

How do economically difficult times affect the construction industry?

For Dabrowski, the industry often pays little attention to smaller builders, who fetch relatively lower premiums. But he argued that agents should be particularly attentive to this market.

“What we found is that during periods of recession or inflation, we have an increase in the number of young believers,” he said. “Particularly under these economic conditions, some small insureds start to grow and some are medium in size [firms] shrink.”

This is because medium and large businesses tend to see less business during an economic downturn, as homeowners and businesses scale back their construction projects.

Dabrowski explained, “During inflationary times, a homeowner can’t afford to buy a new house, so they say we’ll either add an addition here or we’ll remodel the kitchen or whatever room it might be.

“What happens when you have some medium and large construction companies, they get hit during recessions because there isn’t enough work for the big jobs, so they lay off some of their skilled workers. The skilled workers, in turn, secure their licenses and become professionals in the trade.”

Labor shortages add risks for small construction companies

Small construction companies trying to grow during the current downturn should be in regular dialogue with their agents about covering their workers’ comp. Their exposure evolves as they add more employees to their payroll or add different trades to their portfolios.
“Another very important piece is that workers’ comp policies are under scrutiny,” Dabrowski noted. “The last thing you want as a business owner is to have a huge audit at the end of the year.

“So, it is important that agents and insureds have a regular dialogue about changes to their payroll. If they add or remove employees, it will affect the final insurance premium.”

In addition, the labor shortage in the construction sector has had a negative impact on small businesses. Accident rates for the first 60 days of new hires in the construction industry skyrocketed, according to Dabrowski.

“In the first two months of employment, the number of claims is off the chart. But since the employee is there longer, the injury rate goes down.”

The injuries are then reflected in a higher premium for that insured. If you have enough of them, it will reflect on the entire industry.”

How can agents better serve small construction companies?

Risk management is essential for clients in the construction space, and agents who perform regular and consistent check-ins with junior insureds will differentiate themselves in the market.

“Agents who keep their eye on their insured, loss ratio, profitability and retention in their book of business are much better than agents who don’t,” Dabrowski told insurers.

“The agents who set themselves apart from the rest of the group are those who reach out to their insureds in a regular rhythm and ask them, ‘What jobs do you do? Did you add more employees? Do you talk to your team?’”

“These proactive customers are the ones who have the best retention, the lowest loss ratio and have the most long-term customers.”

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