Working with a good construction-oriented insurance agent can save you a lot of money and headaches as a contractor. On this week’s episode, we’re getting some of those money-saving tips straight from our bonding and insurance expert himself: Stephen Brown.
Topics we cover in this episode include:
- Ten ways to save money on your insurance
- Five money-saving strategies you should definitely avoid
- Why you shouldn’t shop your insurance every year
- How to make insurance carriers hungry for your business
Read the blog post: How to save money on insurance (and how not to)
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[00:00:00] Rob Williams: Welcome to the Contractor Success Forum. Today, we are talking about insurance tips for contractors.
We are the Contractor Success Forum, discussing financial strategies for running a more profitable, successful construction business. Check out our show notes at Contractor Success Forum– well, check out our show notes on here and then go to ContractorSuccessForum.Com to find out more about us, your guests, who are Stephen Brown, a construction bond agent with McDaniel-Whitley bonding and insurance agency for over 30 years of experience underwriting and placing bonds for you as contractors. And Wade Carpenter with Carpenter and Company CPAs, helping contractors nationwide to become permanently profitable for over 30 years. And I am Rob Williams, your profit strategist with IronGate Entrepreneurial Support Systems, driving profit in your businesses with decades of vertical integration as a contractor, manufacturer, aviator, financial strategist in the construction industry.
Woo. All right guys. So today we are talking about insurance tips for contractors.
[00:01:23] Stephen Brown: Does it get any more exciting than this? I, I don’t think.
[00:01:27] Rob Williams: Wade, is this exciting?
[00:01:28] Wade Carpenter: Absolutely. And a lot of my contractors don’t realize that having a great insurance agent that knows construction can save them a lot of money and save them a lot of headaches if they’re trying to get bonds and things like that.
[00:01:40] Rob Williams: Yeah. Well Stephen, saying a lot in what you do. Well, what don’t you do? Do you, what do you have? You have the five worst ways?
[00:01:49] Stephen Brown: Well, I do Rob , the five worst ways. It’s funny you should ask. No, you talk about insurance tips, maybe hacks, anything like that, but you know, I’ve read a book once called 101 ways to save money on your business insurance, which a majority of them really were intricate and made no sense.
But as a general rule, I broke it down into the five worst ways to save money on your insurance and then the 10 best ways to save money on your insurance. And, and well, I tell you, the reason I did it is because the worst ways are being uncooperative, number one. hate Insurance. I hate talking to them, I dealing with them, I hate thinking about it. I’m sorry. You got to change your attitude. I try to do everything I can to make insurance fun. It’s exciting. It’s a blast, and we get together, sit around the campfire and read the insurance policies. That’s just good stuff. I don’t care who you are.
I don’t care who.
[00:02:51] Rob Williams: I mean don’t we all do that? That’s what fire pits were made for.
[00:02:55] Stephen Brown: Throwing the insurance policies into the fire pit. Yeah. Well, look, it’s a part of risk management and a good agent handles a lot of your headaches for you. So anyway, you pretend that you don’t have claims. That’s the number one worst thing you can do.
[00:03:10] Rob Williams: So that’s number one.
[00:03:12] Stephen Brown: Deny. Pretend like it never happened.
You never had a claim. I don’t want to talk about it. I don’t want to think about it. Look, claims happen. Construction is a dangerous business.
[00:03:22] Rob Williams: Now is that the same thing is question, is that the same thing as me, like paying for something and not turning it in? Or you’re saying…
[00:03:29] Stephen Brown: It is. And I get to that in a little bit. Insurance companies verify your losses. You can’t get around that. And in personalized insurance as soon as they pull up your driver’s license number, boom, they have every wreck and accident, fender bender that you even thought about having. So there you go.
Also, another thing that you see folks do to try to save money on construction insurance that’s just not a good idea is cutting back on coverage. I’m gonna cut back because the, that’s expensive. Your agent should be pushy and at least saying, this is what you need.
And then you can make up your mind whether you want to buy the coverage. Our job is to make sure you’re covered adequately, but you don’t have to buy everything we’re selling. But then again, there’s a reason why we’re quoting you what we’re quoting you. Give that some thought.
The next thing: reclassify. And Wade, you’ll love this one. Reclassify all your employees as clerical, because for worker’s comp code clerical’s only like 22 cents per a hundred dollars of payroll.
[00:04:31] Wade Carpenter: Those paper cuts will kill you.
[00:04:35] Stephen Brown: Look, throw, all your job superintendents and your general laborers and anyone else you can think of in the clerical… that, you know, that ain’t gonna work. So we’ll get into what you do about that in a little bit.
Here’s another great bad idea. Only list the good drivers that you have MBRs on, on your drivers list. Don’t list the bad ones. Because out of sight, out of mind. All I can say is that those bad drivers, I guarantee you will have a wreck within a month of you getting an insurance policy. It always happens. You can’t get away from it. So talk to your agent about that, and then there’s ways to skin that cat.
And then last but not least. Downplay anything that you do on a regular basis that could possibly be interpreted as dangerous or deadly, you know, especially like tank painters. We’ve ensured a number of water tank painters that
[00:05:31] Rob Williams: Not, not, not like military tanks,
[00:05:34] Stephen Brown: No, no, no, no, no.
And they’re classified as interior painting. Two stories or less, but we had that sort of thing all the time. And if you have a website and you’ve got pictures of projects that you hope to do, or you think you could do, but you haven’t done like painting tanks, please don’t put them on your website. These underwriters look at your website. All right. Enough of the bad things.
[00:05:58] Rob Williams: Well, I was about to say, usually in these , Stephen, I give a personal example for everything we talk about in every single subject. Because I have one that I have done. In this one, I decided not to include these for self-protective reasons. I could have given an example of all of these five.
[00:06:19] Stephen Brown: This is evidence against you, Rob.
[00:06:21] Rob Williams: I thought about that.
So not that I’m– any underwriters out there. Not that I’m saying I ever did anything. But I did not give any examples today. Just, just clarifying.
That’s why I stayed in quiet.
[00:06:34] Stephen Brown: Thank you. Thank you. Hey look, your insurance is what it is. Okay. Whatever you do for a living, if it’s risky, the insurance is going to cost more. But what I have to beg you to do, listeners, is to look at that insurance as job cost, not as overhead.
Allocate that insurance costs to job costs. Your agent can help you do it. Which again brings back the subject of insurance agent. That’s the number one thing on the list. Pick a good insurance agent.
[00:07:06] Rob Williams: What list is this? That we’re
[00:07:07] Stephen Brown: This is a 10, the 10 best ways to save money on your insurance.
[00:07:14] Rob Williams: Wade, you ready for this?
[00:07:15] Wade Carpenter: Absolutely. But I just wanted to say amen to the job costing, you’re–
[00:07:21] Rob Williams: Yeah.
[00:07:21] Wade Carpenter: Absolutely there, but I mean, having a great insurance agent, I know you’ve talked on the podcast about having a great CPA construction oriented CPA, but there’s a huge difference between Stephen, somebody that deals in construction bonds, those kinds of things versus your general practitioner.
I’m not knocking anybody, but you know, those are for personal lines. And if you’re in construction, a lot of the things that Stephen can tell you about, what that relationship should be, can be huge and, getting a bond and working with your financial statements to dress up that bonding at the end of the year. So that’s why we had to work with you.
[00:08:01] Stephen Brown: Thanks. I strongly believe that your bonding and insurance agent ought to be the same person. For one reason, when you call in for a bid bond, I’m looking at those specs and I’m an extra set of eyes to make sure that you’re getting all the insurance those specs require you to have. Do you already have them in place?
If not, I’m going to give you a price so you can add it into your bid, but you’re not going to be left flat-footed. So reading specs is something a lot I do. Okay. So you find a good construction insurance agent and say I’ve already got one. What’s the next step? Well, you need to decide whether you’re going to shop it. Is your current insurance agent and independent agent, which may say represent many different companies? Or are they an agent that just represents one company?
And if that’s the case, you may want to get another insurance agent to come in and quote. There’s lots of good construction oriented insurance agents around this country. And you can find someone else to quote it. That’s the first thing that you do is you decide I’m going to shop my insurance.
And the key, guys, is don’t do it all the time. I recommend no more than every three years. And the reason is, is because there’s only limited markets out there and there’s only there is a limit to good construction oriented agents, and they quote you for free and they’re not going to do it more than once. They need a fair chance at quoting your insurance.
So you pick another agent, first order of business.
Tip number two.
Make your insurance carriers hungry, starving for your business. So the way you do that is you sell yourself, guys. I mean, we all sell ourselves, but why would an insurance company want to write your business? Well, I’m a good contractor and I’m safety conscious and we communicated safety comes from the top down in my organization.
So the way to make the insurance companies hungry are to put together an RFQ. Requests For Qualifications. Most of you federal contractors know about those.
RFQ means I’m putting a copy of my policies and my five, five years of loss runs. Five years is how far they look back. Loss runs are your losses that come straight from the insurance carrier.
And here’s the thing, guys, when you put your RFP together and you get the loss runs from your agent. And when you order the loss runs from your agent or your agent’s assistant, then your agent’s gonna know that you’re shopping insurance. That’s like number one red flag.
So if you’re going to do it, tell your agent what you’re going to do and set the ground rules. Just say, hey, look, my company’s really growing. Insurance, we think, is getting out of control. And we’re going to shop our insurance this year. I’m going to pick another agent or I’ve picked another agent and we’re going to let you pick the companies that you want and you get our current carrier automatically.
Then they get a pick and we go on down the line until all the companies have been assigned. So that’s one way to make sure that you’re getting your RFP out to all the right markets.
[00:11:25] Rob Williams: That is actually a point. I think most people don’t know this.
How does this work? Only one agent can quote per company? You can’t get like five quotes from the same company. Is that–
[00:11:36] Stephen Brown: Yeah, that’s right. That’s right. Once you turn in a quote, which is a set of applications and a set of loss runs, then they log you in as the agent of record. And so in order for that to be changed, you, as the contractor have to write a letter to the Insurance carrier saying, hey, I want so-and-so to be my agent of record with your company.
[00:12:00] Rob Williams: That’s different than other types of insurance, like life insurance or some other things.
[00:12:04] Stephen Brown: Right. Absolutely. Completely, completely different.
[00:12:08] Rob Williams: Interesting. That’s good to know. I think I made that mistake a few times in my insurance quoting history.
[00:12:15] Stephen Brown: Okay. All right. You put together your basic package. By the way, if you go to our link, there’s an article that outlines all of this for you. I’m just kind of giving you the big picture.
[00:12:27] Rob Williams: Go to the link, right, Wade? Tell them to go to
[00:12:29] Wade Carpenter: Go down in the show notes. Where is it? Down at the bottom of the page?
[00:12:33] Rob Williams: In the show notes. At the bottom. Look it rate us by the way. Okay. Five Stars or, or if you don’t don’t rate it. So I didn’t say that at the beginning, but okay.
[00:12:43] Wade Carpenter: We got off topic. Sorry, Stephen.
[00:12:45] Stephen Brown: That’s okay.
[00:12:46] Rob Williams: Are we number three, is this number three now?
[00:12:49] Stephen Brown: This is number three, make your insurance companies compete. So we talked about finding an agent, making the companies hungry. You make them hungry by putting together a good Request For Proposal that lets them know why you’re a good risk. And then finally you want the companies to compete and the best way to do it is companies get quotes all the time from agents that they just may be blocking them as a market.
They know they’re going to be high or they know they’re going to keep it with a certain carrier. Guys, we have 20 different insurance companies to be fed here. And they all want a minimum of a million dollars from us. So we’re constantly feeding them premium so we can get the best quotes for our customers.
But they all come in and they go over their list of applications that come in the office to say, hey, we got these accounts in here. Which ones can we write? Well, you can write them all if you give us the best price. Well, that’s not what they want to hear. Are we being shopped or are we being blocked?
You want the companies to compete. And the best way to do it is, you make sure your agent tells everyone that they’re sending it to that I am going, I’m getting this RFP, it says, here are the coverage is that I have to have. And I’m going with the best price because my agent wouldn’t even shop it to you if you weren’t a good insurance carrier. So there you go. I want the best price.
Because the insurance underwriter’s gotta know that it’s going to take price to get this. They know that with new accounts, but at the same time, if you’re the incumbent agent, they’re like, hey, we really want this account. We can do a little better on this line of business and that. It’s kind of a negotiating deal.
So make them compete. Next thing is put together a loss control report. All the good insurance carriers have good loss control people. And if you’re a big enough account, usually $50,000 for more in premium, they’re going to come visit you before the underwriter gives you a quote, and they’re going to have their checklist of things.
So, either you meet with them yourself as the owner, or you have them meet with the the safety manager that you have onsite. But either way, make sure they’re welcome and make sure you answer all their questions about safety. Now, you don’t have to be worried about that. If you’ve got a good agent, they will help prepare you for that.
But we list in the show notes all the things that need to go in that loss control report. And there’s a lot of stuff. And you may not have all that stuff, guys. You might not have the safety program the way it needs to be. Your agent can help you with that. Again, this is something your agent should do.
[00:15:34] Rob Williams: Wade, it sounds like we got a great agent here. Knows what he’s talking about. So,
[00:15:38] Wade Carpenter: No, I already knew that.
[00:15:40] Stephen Brown: Thanks. Man, it’s getting thick. All right. Now the thing that.
[00:15:46] Rob Williams: Insurance!
[00:15:47] Stephen Brown: Another thing you can do guys, is if you pay enough in premium and that’s generally $250,000 or more a year in premium for all your coverage, you can start talking to your agent about larger deductibles program,
[00:16:01] Rob Williams: must be number Five, then. Are we on number five?
[00:16:03] Stephen Brown: Number five, larger deductibles, or forming a captive. Your insurance agent can tell you all about this. Forming a captive basically means you’re starting your own insurance company and you’re paying another insurance company to handle your claims and some re-insurance limits. So as you get bigger that may be a viable option, but you can always look into larger deductibles.
Okay. Number six, guys. Number six is minimizing your fleet of vehicles. Guys, auto insurance is the tail that’s wagging the dog right now. It’s the big kahuna. And it used to be worker’s comp was a main chunk of your insurance premium, but now it’s auto, guys. And you know that usually all those auto insurance lawyers were on TV during the day, during soap operas. Now they’re out at night, they’re 24/7 hitting you. They don’t stop do they?
[00:17:06] Rob Williams: No,
[00:17:07] Stephen Brown: So you,
[00:17:07] Rob Williams: Attacked by one.
[00:17:09] Stephen Brown: Well, you got a sign that says so-and-so construction company. You’re a commercial. They know you got commercial insurance and odds are you carry higher limits. Payday, man.
So if you’re going to have a wreck go hit a commercial vehicle. That’s my advice.
[00:17:26] Rob Williams: Yep. I’ve got stories on that, but let’s let’s well, I’m not..
[00:17:29] Stephen Brown: It used to be, you would have all your personal vehicles, yours, your wife’s, your kids vehicles, all under the commercial auto policy for your business. That way it’s a tax deduction. Just throw it all in there. You can’t do that anymore guys. Pickup trucks. I remember, well, I’m showing my age, but I remember a big fleet at Ford F-150 is I had insured for $615 a piece.
And that was a million dollars liability and a comp and collision deductible of 500 bucks. Now just liability only on an old Ford F-150 is $1,200 a year. And the newer the vehicle it is, that premium is getting over 2000 to $2,300 a year. That the price on an average dump truck that I’m seeing that used to be $3,000 a year is now $4,800 a year.
Anyway, if you’re not using it, don’t insure it. And if it’s a personal vehicle, even yours, if you can take it and put it with your personal insurance agent, it’s gonna be a fourth of what you’re paying commercially. So I say, minimize your fleet. Now is not the time. Now you got vehicles that are commercial, you don’t have a choice as a different animal.
Next one. You ready guys?
[00:18:47] Rob Williams: We’re ready, man. Lucky number seven.
[00:18:50] Stephen Brown: Yeah number seven. Review how all your employees are classified. Insurance premiums for contractors are based on payroll, not sales. And your payroll is rated by classification for general liability and workers’ comp. Workers’ comp, it’s a rate per a hundred dollars of payroll. So you’ve got.
[00:19:09] Rob Williams: Does that mean make them all clerical?
[00:19:11] Stephen Brown: Now, you’ve got – you’re picking it up. You are grabbing hold to everything.
No, you can’t do that, Rob. But I tell you what there’s,
[00:19:21] Rob Williams: Would never.
[00:19:22] Stephen Brown: If they legitimately paint 90% of the time and 10% of the time they do some carpentry, then technically your auditor can pick it all up under carpentry. But.
[00:19:37] Rob Williams: Interesting.
[00:19:37] Stephen Brown: The best way to handle that is just put them all under painting. When the auditor comes, have a list of everyone in their right classification, try to be fair and reasonable. They’re going to know. They’re going to look at your sign when they pull up to do your audit and have some idea of what you do. So anyway, work with your agent on that. Make sure every employee is classified correctly.
You know, in the old days, guys, only the state of Tennessee wrote worker’s comp policies through the assigned risk pool, when I was starting off in Memphis as an insurance agent. And now everybody wants workers’ comp. So, now more than ever, it may be a good time to have your workers’ comp outside of your current carrier. Get a separate quote for worker’s comp. I do it all the time.
Generally, you want to keep all your policies with one carrier because that’s more premium. And then when you have some losses, they think, well, this is a hundred thousand dollar account. We only had $80,000 in losses. So, we made 20%, that’s, you can save a ton of money on workers’ comp right now. So definitely shop that.
[00:20:46] Wade Carpenter: Kind of just to echo what you’re saying about what worker’s comp, we help contractors multiple times a year with worker’s comp audits and general liability audits. And you know, having those people in the right classification, having a system that puts people in the right classification if they change job for, change codes for whatever they’re doing, and you’ve got documentation of that, the auditors will buy it. But if you have no documentation, they’re gonna put you in the highest risk class. Is that not right?
[00:21:20] Stephen Brown: That’s exactly right. Your agent should help you get your audit ready before the auditor comes. That’s the key. And I do it all the time. Most good agents do. They make sure, at least until whoever’s handling the audit is so well-versed to handling they don’t need you anymore. Which is a good feeling.
Next thing beside classifying people properly is read your policy.
you get it
[00:21:46] Rob Williams: That doesn’t sound fun. No, but it is fun. It’s
[00:21:50] Stephen Brown: Just, look, scan through it. And every place you see a dollar sign with the number, that means there was a charge for it.
[00:21:58] Wade Carpenter: Well, it’s not quite as exciting as tax law, but right on there.
[00:22:03] Stephen Brown: Now you’re talking.
There might be three or 4% of your premium tied in there and small coverages that were just thrown in that were charged for that you don’t need uh, do that. And along with talking about the policy, I recommend people move your effective date to the end of the second quarter of the year.
A lot of people have December 31st year end, and they have December 31st insurance renewal effective dates. It may be easier that way, who cares, but to save money at the end of the second quarter, all the insurance companies are really hungry to hit their numbers for that year. That’s when it’s just starting to get real. End of May or June, I have a lot of effective dates there. It’s just a good time for marketing insurance.
[00:22:48] Rob Williams: I didn’t know that.
[00:22:49] Stephen Brown: Yeah.
Number nine. You’ve got your RFP, you’ve got your loss control done, and you’ve got to set a drop dead date with your agent or agents as to when you want your quote. And you can say, I want this quote two months before renewal, that ain’t going to happen. Even one month before I knew that ain’t going to happen.
It doesn’t matter. Your insurance carriers are playing the same game, the last one in with the number wins. Because that way, if you’re the last then you can always kind of feel out your contractor to see how your numbers are looking.
[00:23:23] Rob Williams: Yeah.
[00:23:24] Stephen Brown: Always. So have a drop dead date of one week before the renewal date.
That’s it guys. And then if someone comes straggling in the day of the renewal or the day after with a good quote, it’s too late. You got to kind of live and die by that. Or they won’t take you seriously. So, that’s my advice on that.
[00:23:45] Rob Williams: Interesting. So, so the other thing to read between the lines on that, is they, they have some flexibility bidding against each other. So it’s not just a calculation. They fill it in and it comes out of a spreadsheet that just, and then
[00:23:59] Stephen Brown: You want to make sure they’re coming in, what their best numbers.
[00:24:03] Rob Williams: Got it.
[00:24:04] Stephen Brown: We call it in the industry generally the FYI look, which is what you give your incumbent agent when the other agent’s coming in and trying to write the business. It’s like, hey man, hey you’ve done a good job for me. Hey, this is where you need to be. Just get it there. Because I like working with you, you’re a good guy. Hey, that’s not how the game’s played. That’s how you might want to play it, but you won’t be able to shop every three or four years if you play it that way. Just got to be fair about it.
[00:24:35] Rob Williams: All right,
[00:24:36] Stephen Brown: Yeah.
[00:24:37] Rob Williams: Ready for number 10?
[00:24:38] Stephen Brown: Number 10, number 10.
[00:24:39] Rob Williams: God, Wade, the suspense is killing me. How about you, man?
[00:24:42] Stephen Brown: Wade can barely talk. He can’t even talk.
Hey guys, the last thing to remember is it’s a process, all right. Don’t be a heavy hand in this process. Give everybody what they need, make sure they meet everyone. Make sure they know that you’re glad they came by to quote your insurance. And you’d be amazed at what they will do for you just simply being respected and appreciated for what they do.
Because remember insurance agents can work on two bases. A lot of them work on a commission basis. And some of them work on a fee basis where they just charge you a flat fee to handle your insurance policies. But either way, odds are, if your agent’s working on a commission basis, if they don’t get your business, they don’t get anything.
And you say, well, that’s fine. That’s the way I am. I throw out bids all the time and I don’t get them. Okay. Well, think of it that way. How would you want to be treated in a fair world? Just looking at the lower numbers is not the answer. But in this situation, if you put together absolutely everything you require and you check your quote and you make sure those items are there and you get the lowest price, you’re going to be amazed how much money you save.
[00:25:55] Rob Williams: That’s great. That is great. Those were our top 10. Is that right? Wade was that 10? You’re the accountant.
[00:26:03] Wade Carpenter: Yup.
[00:26:04] Rob Williams: Good.
[00:26:06] Stephen Brown: That was officially 10.
[00:26:07] Rob Williams: All right. Hey, is it always the low bid though? That you take?
[00:26:12] Stephen Brown: No, I mean, you need to make sure in the Request For Qualifications what you require in a service.
Here at McDaniel-Whitley we’re proud of the fact that we are rated as one of the best practices agency, the top 5% of the agencies in the country on how we run our business. When you call you’re going to get a person to talk to, and there’s always, anyone here can handle any problem you have if the person you need to talk to is out. And we’re getting insurance certificates for you quickly, we’re turning in claims. And then we’re following up on those claims.
Because if you just turn in a claim and let them drift into outer space then those numbers get higher and higher. And then when your agent sits down with you with your loss runs you’re sending you say, whoa, how did this claim get so big? Well, I told you that this was not our fault. Did you communicate that to the claims adjuster?
Well, you know, it was their decision. Okay. So a good agent is involved with claims because all you’re buying is a piece of paper until you have a claim.
[00:27:18] Rob Williams: I hope everybody’s listening to this by the fire pit and their campfire. So this is great campfire talk.
[00:27:25] Stephen Brown: Just feeding that fire with their policies. Yeah.
[00:27:28] Rob Williams: All right, Wade, you got any parting words?
[00:27:30] Wade Carpenter: Yeah. I mean the parting words, absolutely, the relationship you have with your agent can definitely make a huge difference in your business. The ability to get bonds, to building a healthy company. I can’t tout enough that, you know, when you have a great relationship with the CPA and all that, you definitely can make a big difference in your business.
[00:27:55] Rob Williams: All right. Well, I appreciate it, Wade and Stephen. Great discussion, our great campfire talk about insurance tips for contractors.
We are the Contractor Success Forum. Bringing enlightened clarity to your contracting business. So thank you for listening today. Give us a rating of five stars down there.
Five. See, Stephen’s holding up his hand for five. I know you can’t see it if you’re listening to a podcast, but you can also watch us. Oh Wade wants 10! Or five twice. Can you rate twice? I don’t know! But we are Contractor Success Forum. Thank you for listening to us and have a wonderful day thinking about your insurance. See y’all.