Contractor’s Guide to Insurance: Part 1

As a contractor you are a skilled in a trade.  Insurance is a very important component of your business operation.  Most contractors are learning as they grow with their insurance.  This contractor guide was designed to provide the background information for you to understand the types of policies you have.  With this guide and a trusted agent who can make risk management recommendations insurance be a part of your growth strategy not just a line item on your P&L.

This contractor guide is broken into insurance product segments.  Each segment will walk you through the risk factors and solutions as well as provide a deeper understanding of what is covered on that policy.  Let’s get started by defining commercial insurance.  This simple definition explains what the insurance policies you purchase for your business are designed to do.

Definition of Commercial Insurance

A contract under which one party, the insurer, agrees—in exchange for the payment of a premium—to pay for specified losses the insured may suffer, up to specified amounts, under conditions specified in the insurance contract.

Contractor Guide: Commercial Property

Risk Factor

When a fire, theft, or another type of disaster strikes, your commercial property and everything within it can suffer a significant loss. This can have a detrimental effect on your business. In this contractor guide, we explain commercial property insurance, what it covers, and how you can protect your business.

Solution

Commercial property insurance safeguards the property owned and leased by your business, encompassing equipment, inventory, furniture, and fixtures. Regardless of whether you own the building or lease the workspace, you can acquire commercial property insurance independently or bundle it with other essential coverage to shield the physical assets of your business.

Commercial Property covers a building you own or lease

Understanding how external factors impact your commercial property insurance can be complex, especially for individuals with limited knowledge of the underwriting process. Commercial property coverage pricing can be influenced by various elements such as the nature of your business, your location, and the overall state of the insurance industry. However, there are often additional factors to consider.

In reality, insurers analyze four crucial characteristics of a building—construction, occupancy, protection, and exposure (COPE)—when underwriting and rating commercial property insurance. These factors collectively influence the pricing of commercial property policies, which can experience significant fluctuations following an inspection conducted by the Insurance Services Office (ISO). This is particularly true if there are disparities between the information provided in an insurance application and the findings of the ISO inspection.

This Coverage Insights explores each aspect of COPE and its impact on the rating of an organization’s commercial property insurance, subsequently affecting their insurance rates.

The Types of Property Rating

Before looking at the specific factors of COPE, it’s important to understand when it is used and how underwriters rate property in general. When rating property insurance, insurers will generally use one of two methods—class rating or specific rating:

1. Class rating—For the class rating method, buildings with similar characteristics are assigned to the same class. Insurance rates for class rating buildings will often be an average of all those in a particular group, with some rates fluctuating based on positive or negative features of a specific structure. Typically, your building will be assigned a class rating if it has all of the following characteristics:
   • It consists of 25,000 square feet or less
   • It doesn’t contain a sprinkler system
   • It is not fire-resistive
   • It is not used for manufacturing
2. Specific rating—If a building does not fall under the class rating method, the individual characteristics of the structure itself will determine a specific rating calculation. COPE plays a crucial role in this process. More complex buildings have specific ratings that consider their unique features, which ISO inspects closely. After the inspection, either ISO or the insurer will calculate a specific rate.

Construction

With a general understanding of the two rating systems, we can now examine how a building’s characteristics under COPE can affect policy pricing.

The first and most basic element of a commercial property insurance rating is a building’s construction (i.e., the materials the building is made of). Based on an ISO-developed system, insurers categorize buildings into one of six classes. These classes not only take into account the building materials used in construction (e.g., wood and concrete), but the combustibility of those materials as well.

These classes—numbered in order of combustibility, with Class 1 being the most likely to burn—are as follows:

1. Class 1 (Frame)—Buildings generally receive this classification if their exterior walls are made of wood or some other combustible material.
2. Class 2 (Joisted Masonry)—Buildings in this classification typically have noncombustible exterior walls consisting of concrete block, stone, brick adobe or another masonry material. In addition, Class 2 buildings usually have combustible floors and roofs.
3. Class 3 (Noncombustible)—Class 3 buildings will have exterior walls, floors and roofs made of and supported by noncombustible or slow-burning materials. This can include materials like metal, asbestos or gypsum. Often, Class 3 buildings are equipped with steel frames.
4. Class 4 (Masonry Noncombustible)—Class 4 buildings will often have exterior walls made of brick, concrete block or another type of masonry. Unlike Class 2 buildings, the floor and roof are constructed of metal or another noncombustible material.
5. Class 5 (Modified Fire-resistive)—The walls, floor and roof of Class 5 buildings will have a fire rating of at least two hours. Because these buildings are heavily fire resistant, Class 5 buildings generally have walls, roofs and floors made of solid masonry that are at least 4 inches thick.
6. Class 6 (Fire Resistive)—Similar to Class 5 buildings, the walls, floor and roof of Class 6 buildings will have a fire rating of at least two hours. In addition, the walls, floor and roof will consist of reinforced concrete and will be 4 inches thick or more. What’s more, structural steel used in Class 6 buildings will be load bearing and have a fire rating of at least two hours.

Following an ISO inspection, your building may be assigned a specific class, which could substantially impact your rates.

Occupancy

surers consider occupancy as the second factor in COPE analysis. Underwriters will specifically assess how a building is utilized, such as for retailing, manufacturing, or renting.

Moreover, underwriters show interest in the contents of a building and how they affect combustibility. For instance, if a building functions as a grain mill, it is likely to have dust that can cause ignition or explosions. Consequently, the rates for your commercial property insurance will fluctuate depending on the nature of your work within the building.

Protection

The third factor of COPE relates to protection and the methods used to safeguard a building from fire. When it comes to protection, insurers will take into account both public and private protection:

• Public protection—Local fire departments generally provide public protection, utilizing an ISO-developed system to assess the quality of such protection. This system assigns fire departments a Public Protection Class rating, ranging from one to ten, with one denoting the highest rating. Consequently, structures situated in communities with lower Public Protection Class ratings will receive a reduced rate for commercial property insurance.
• These ratings take into account:
  • The caliber of the fire department
  • The adequacy of the water supply
  • The effectiveness of the fire alarm and communication system
• Private protection—Private protection refers to the policyholder’s fire protection methods. This can include things like fire doors, fire alarms, fire extinguishers and sprinkler systems. Essentially, the more of these features your building has, the more likely your insurer will apply a credit to your insurance rate.

Exposure

The fourth and final factor of COPE refers to exposure. Exposure relates to external hazards that exist primarily due to a building’s location. This can include natural hazards (e.g., wind, hail and lightning) or man-made hazards from local infrastructure (e.g., highways) or the general public (e.g., high-crime areas).

The closer your building is to a natural or man-made hazard, the more likely you are to pay higher prices for commercial property insurance.

What This Means for You

Commercial property insurance rates are anything but static, and a variety of outside factors can influence pricing. Despite this, you aren’t alone when it comes to managing your risks and gaining insight into your unique policies. We’re here to help.

Contact O’Connor Insurance Associates at 704-510-8884 today to learn more and speak to a qualified insurance broker.

Contractor Guide: Commercial General Liability Coverage

Risk Factor

As a contractor, you may face various risks that can threaten your business, including claims arising from bodily injury, property damage, personal injury, and more. Additionally, if you enlist other contractors to carry out work on your behalf, you will bear responsibility for any damage they cause during the job. This contractor guide aims to provide comprehensive information on commercial general liability coverage, ensuring your business remains protected.

Solution

Commercial general liability insurance is an absolute necessity for every contractor. This type of protection comprehensively covers premises, operations, products, and claims to third parties or property when you are deemed responsible and liable. It will also pay to defend any covered lawsuit or action regardless of its merit.

General Liability Insurance: Your Defense Against Liabilities

The only way to effectively protect the assets of your business is to carry adequate commercial general liability (CGL) insurance coverage. CGL safeguards your business against damages resulting from bodily injury or property damage for which your business is legally liable.

What Does CGL Cover?

A typical CGL policy covers claims of bodily injury or other physical injury, personal injury (libel or slander), advertising injury, and property damage that arise from your products, premises, or operations. Insurance companies can offer it as a package policy with other coverages such as property, crime, automobile, and more. As a safeguard against liability, CGL enables you to continue your normal operations while dealing with real or fraudulent claims of negligence or wrongdoing. CGL policies also provide coverage for the cost to defend and settle claims. Here is more detail into what a typical CGL policy may cover:

• Automatic additional insured: Coverage is provided for written contracts, agreements and permits.
• Personal and advertising injury: Protects against offenses made by you or your staff during the course of business, such as libel, slander, disparagement or copyright infringement in advertisements.
• Defense costs: Provides coverage for legal expenses for liability claims brought against your business, regardless of who is at fault.
• Medical expenses coverage provides compensation for medical expenses in case someone sustains an injury on your premises or due to your products.
• Premises and operations liability: Provides coverage for bodily injury and property damage sustained by others on your premises or in conjunction with your business operations.
• Products liability: Provides coverage for bodily injury and property damage sustained by others as a result of your products.

How Much Coverage Does Your Business Need?

The amount of coverage that your business needs depends on three factors: perceived risk, where you operate your business and the type of products you manufacture.

• Perceived risk: Consider the amount of risk associated with your business operations and functions. For instance, if you manufacture heavy machinery you would generally need more coverage as compared to another organization that manufactures stuffed animals.
• Premises and operations liability: If you operate in a state that has a reputation for rewarding high damages, then you may wish to purchase higher limits of liability.
• Type of product manufactured: If you manufacture a dangerous product, you may want to carry higher limits of liability.

Remember, you can purchase an Umbrella Liability policy to help achieve the desired limit of liability.

Contractor Guide: Other Ways to Protect Your Business, In Addition to CGL

Here are some other tips for protecting your business.

• Establish a high standard for product quality control at your organization.
• Keep all company records up to date and accurate.
• Train your employees thoroughly and properly.
• Ask O’Connor Insurance Associates for safety and compliance information.

Contractor Guide:  Business Auto Insurance

Risk Factor

As a contractor, you have many exposures associated with your business vehicles–owned or leased. With a fleet of cars, trucks, vans, or other types of vehicles used in the course of business, a single accident can potentially put your contractor business in financial jeopardy. Keep reading to learn about the coverage needed for business auto insurance in this handy contractor guide.

Solution

Business auto insurance provides coverage for vehicles owned or leased by a contractor and provides coverage for bodily injury, property damage, and other exposures, and could include comprehensive and collision coverage as well.

When businesses operate, vehicles play a crucial role in performing a variety of tasks, regardless of whether the businesses lease, rent, or own thesWhether transporting materials and tools to worksites, hauling goods for deliveries or driving to meet clients—companies of all kinds rely on safe and functioning vehicles to serve customers and generate profit. It is important to protect your drivers and vehicles through proper insurance coverage.

That’s why many organizations turn to commercial auto insurance, which can provide the following benefits:

• Liability coverage. Collisions damage vehicles and nearby property. Commercial auto insurance protects you when you damage someone else’s property in an accident.
• Physical damage/collision protection. Commercial auto insurance covers vehicle repairs after an accident, for both your vehicle and the ones you hit. It also includes coverage for uninsured and underinsured motorists, offering extra protection.
• Comprehensive coverage. Commercial auto insurance offers comprehensive protection for damages unrelated to accidents, such as theft, floods, vandalism, and fires.
• Medical payments. Collisions can cause injuries and costly medical expenses. Commercial auto insurance provides protection and covers medical costs for you and others involved in an accident.
• Uninsured and Underinsured Motorist Coverage.  Uninsured motorist coverage pays when the at-fault driver lacks insurance. Underinsured motorist coverage pays when the driver’s liability limits are too low for the accident costs.
• Protection beyond personal auto insurance policies. Personal auto insurance doesn’t cover accidents during business driving. Without commercial auto coverage, companies must pay for accidents during business activities.
• Optional add-ons for even more security. Commercial auto insurance policies go beyond basic collision protection and can be customized to fit your requirements. Additional coverage options, known as endorsements, include roadside assistance, new vehicle replacement cost, towing reimbursement, rental reimbursement, and gap coverage for auto loans or leases.

Commercial Auto Insurance Isn’t Just For Large Fleets

You must have insurance coverage for any car, truck, van, or similar vehicle that you use as part of your operations. Organizations should have a strong understanding of their exposures and regularly examine the root causes of collisions and similar commercial auto concerns. Additionally, businesses should seek the help of a qualified insurance broker with a deep understanding of their operations and effective risk management strategies.

Contact O’Connor Insurance Associates, Inc. today to learn more.

Contractor Guide: Equipment Coverage

Risk Factor

You’re constantly moving your tools from one job site to another, exposing your contractor business to potential loss due to damage or theft. And without your specialized tools and equipment, your job site may come to a screeching halt.

Solution

As a contractor, you need contractors’ equipment insurance – a policy or endorsement specially designed to protect your tools and equipment on the move. The policy or endorsement will cover equipment for a variety of losses, including fire, explosion, vandalism, theft, collision with other equipment or objects and overturning. Unlike standard commercial property insurance policies, contractors’ equipment insurance often covers losses caused by floods and earthquakes.

For part 2 of contractor guide to insurance, stay tuned until next week. Contact O’Connor Insurance Associates to have a conversation with a team member!