September 23, 2005

Insurance

Rates still dropping for contractors

Underwriter competition is forcing premiums down

IRWIN RAPOPORT

correspondent

General contractors can look forward to a continued decrease in insurance premium rates, says David Mew, the National Broking Director for AON Stenhouse Inc., an insurance broker that provides coverage for up to 25 per cent of the Ontario construction industry.

“We have seen,” he said, “through the second and third quarters this year, a softening of rates across most sectors in Canada, including contractors. We have seen a softening on property rates, more so for contractors. We have started to see a softening on liability.

“As we go into the fourth quarter,” he added, “certainly there should be the expectation of not having to pay increases. Good contractors with good risk management and good loss records, should on average be getting five or 10 per cent decreases.”

For the second and third quarters of this year, Mew said that decreases averaged between five and 7.5 per cent, with some of the larger contractors receiving bigger credits.

And while contractors working on smaller projects receive lesser credits, Mew stressed that there is competition amongst the underwriters covering this sector.

“On the individual basis some clients have been getting a lot more than the average, but there are still some tough segments in the market,” he said. “Road maintenance contractors are still pretty tough.

“We are starting to see a little more competition. There are a few with renewals in the next couple of months, so we’ll see how the market responds to those.

“But they shouldn’t be seeing any increases.” he added. “Depending on their size, individual loss management and loss records, they should probably be seeing some competition which will ultimately drive down the rates a little bit.”

In terms of residential construction, Mew said some markets are really competitive, while others are still struggling.He also pointed to the fairly large loss due to the destruction of a condominium development in Edmonton in mid-August, which led to focus on everyone involved in wood frame construction.

“It’s still really not a profitable class,” said Mew, who noted that insurers are looking to those involved in working with combustible materials to have fire extinguishers on site and to have somebody ready to use the extinguishers while another is doing the hot work.

There are also concerns over losses involved with propane heaters employed at the drywalling stage. Insurers have a number of requirements regarding these heaters, particularly with regard to the distance they must be placed from the walls.

As well, some markets still insist upon fencing around work sites to prevent unauthorized access at night and for the employment of security personnel services on large sites.

The key is to reduce break-ins, general theft and to be able to handle emergencies such as heaters causing fires when the work site is closed.

Contractors that have drug and alcohol programs, provide first aid training to their employees and have emergency plans in place have the ability to make favourable impressions upon underwriters.

“From an underwriters’ eyes, if the contractor has those plans in place, is selective about the employees they have working on their work sites, set higher standards - all of that will differentiate one contractor from another and should overall, get them better insurance rates.”

Insurers are also keen to see contractors follow ‘best practices” as the standard on a daily basis and to upgrade installation and work techniques that are required to reduce risks.

“Iinsurance companies are starting to be a little bit more pro-active with doing inspections. A number of insurers are focusing on ‘best-in-class.’ If you are regarded as such and you prove over the long-term that you are, they will provide you with the ‘best-in-class’ type rating module.

“Sometimes being ‘best in class’ costs a little more money,” he added, “but at the end of the day, over the longer period of time, that should even itself out.”

Many insurers look at claims brought to the Workplace Safety and Insurance Board, a factor that can have an impact on rates.

The use of security cameras, as a deterrent to theft and vandalism - especially fire, is taken positively.

The key factors for contractors in terms of insurance are physical property damage, which includes equipment that the firm owns and leaves on site, supplies and general liability.

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