Author: Nancy Germond Tap into Today’s Booming Construction Market
The construction industry is prospering, driven by these factors according to Property Casualty 360.
- The onshoring of formerly offshored manufacturing
- The data demand for chips such as those that power artificial intelligence
- Increased government spending for infrastructure improvements
- The trend toward net-zero targets to limit greenhouse gases
Experts predict a “mixed bag” for the industry, according to the Associated General Contractors Association. According to their recent publication, contractors see an increasing demand for certain types of construction (think of all the new roofs that America will need given increased weather volatility). However, labor shortages with increased competition for employees demanding higher wages, higher interest rates and some continued supply chain disruptions may hinder the construction industry.
Why Insurance Carriers Avoid Writing Roofing Companies
My partner is a contractor so many of our friends and strategic partners are contractors, as well. He learned a few days post-accident that our friend, who has been a highly successful roofer for over 20 years, fell off a roof and landed in intensive care with a shattered spleen, a ruptured kidney and broken ribs. Even very experienced employees can experience catastrophic injuries.
Fires, falls, faulty workmanship, labor issues—all can create underwriting reluctance.
Always Offer and Document Any Rejection of Workers’ Compensation Coverage
This event highlights the importance of offering business owners workers’ compensation insurance. Never assume they don’t want the coverage.
I have had many smaller contractors report that “My agent said I couldn’t get workers’ compensation insurance!” This misconception leads to loss of premium for the agent, a potential errors & omissions exposure due to failure to offer coverage and potential catastrophe for the seriously injured business owner. Especially for smaller contractors, there may be no disability policy or key person insurance to turn to if the owner experiences a critical injury.
Additionally, drive into a big box retail outlet such as a Home Depot and you will see many casual laborers waiting for contractors to hire them for the day or the project. Language barriers can increase safety concerns.
Many contractors will confidently inform you that their workers are independent contractors. Very often, administrative law judges (ALJs) who determine compensability for workers’ compensation claims disagree. If the contractor sets the time to work, supplies the tools, directs the workers and those laborers are not actively offering their services to others, my experience is that ALJs generally find in favor of the injured party. ALJs do not like to see the burden of medical payment and lost wages fall on an uninsured worker.
Additionally, in many states such as Arizona, even one part-time employee requires the employer to purchase workers’ compensation insurance or the posting of a bond to cover potential injuries.
Today’s labor shortages lead to poor workmanship and project delays. Picking up day laborers creates at least two insurance problems.
1) English may not be a primary language, which means the laborer may not understand the provided safety instructions. Those workers may be reluctant to admit they do not understand safety training or report faulty equipment
2) A lack of site supervision with managers going from site to site can create work quality and safety issues.
Dangers Roofing Contractors Face
While in the past, it was much easier to place roofers with standard market carriers, today’s carriers take a guarded approach to writing roofers. Here are just a few of their reasons.
- Weather Damage—There is little doubt that weather is becoming more extreme. Take a recent atmospheric river/bomb cyclone event on the West coast, where winds can blow up to 70 miles per hour. Even the best installed roofs may not repel heavy rain. The injured roofer initially mentioned, who remains in intensive care at this writing, had over 70 faulty roof claims on newly installed roofs in Phoenix-area homes a few years ago when as much as five inches of rain fell in an hour.
- Faulty Installation—Although the commercial general liability policy largely excludes faulty construction, carriers often become involved in defending a claim. When class actions arise over faulty workmanship in new construction, opposing counsel may serve everyone who “delivered a nail” to the site, according to one construction defect adjuster.
- Hot Work—Flat roofs and torch-down roofs require the use of propane torches. Open flames, lack of a fire watch and other issues such as overheating the roofing material during installation can cause significant fire damage as well as liability concerns.
- Injury Rates for Roofers—The top cause of injuries to roofers are falls to surface, according to an Occupational Health and Safety advisory report. Additional risks include burns, heat exhaustion (which can lead to death) and exposure to toxic materials including asbestos, lead, silica, dust and more. These exposures cause many carriers that offer workers’ compensation coverage to shy away from writing roofing companies.
- Labor Shortages—Like many construction companies, a shortage of labor can cause a higher injury rates and delayed projects. Additionally, the hiring of unskilled workers can expose any construction company to employment problems.
Due to the risks roofing companies pose, today’s carriers are highly selective in accepting or renewing roofers and charge higher premiums for coverage than some other contractor classes pay.
Where Has All the (Roofing) Insurance Gone?
The bulk of today’s roofing coverage probably lies in surplus lines.
According to Joe Binsfeld, Past President of the Big “I” Arizona, “In Arizona, I would say about 95% of roofing general liability coverage goes to surplus lines. If it’s an established roofing company with a good safety record, there are still standard markets writing workers’ compensation for roofers.”
With all the money flowing into the construction industry, carriers’ appetites may return, and newer market entrances may be more willing to write roofers, according to some experts.
Some Coverage Issues When Placing Coverage in Surplus Lines
This means that producers must understand that the coverage they can obtain may be quite different than what might have been available had the producer been able to place the insurance for a contractor with a standard market insurer.
You may be a whiz at interpreting ISO forms. However, today’s insurers increasingly add exclusions or write their own coverage forms which can be eerily like ISO forms yet have major restrictions. Additionally, watch for vaguely titled exclusions. You can’t scan the dec page and read only the title of the exclusion. You must read the exclusion in its entirely to know how that exclusion impacts coverage. As Malecki said in the article linked above, “Exclusions are rendering some policies useless.”
Guard against some of the following major coverage problems.
- Watch for exclusions on the types of properties where the carrier either covers or excludes work.
- Some policies cover only residential work, for example, while others cover only commercial work.
- Some exclude risks where the development is over a certain number of units or other exclusions concerning the type of work performed
- Some work only below certain heights either in feet or number of stories.
- Some insurers exclude torch down or “hot work.”
- Watch for protection requirements—weather monitoring and tarp offs.
- Watch for protection for heat detection monitoring and/or a fire watch patrol for heat from torch down roofing or other techniques.
- Watch for requirements when the roofing contractor uses subs—a common occurrence with roofers. What might the insurer require in the contract with the subcontractor and subs’ insurance requirements to preserve coverage?
If your insured does not meet these requirements, the error may extinguish coverage, or coverage drops down to a sublimit.
While your insureds are also responsible for reading their policy, you do not want to, as my father used to warn, “get into a stink fight with a skunk (opposing counsel).” And if your insured uses subs, remind them of the need to review all subs’ insurance coverage and certificates of insurance. A certificate is worthless if a major exclusion limits or eliminates coverage.
What Can an Agent Do to Help?
Here are some recommendations to help you write more roofers.
- Make safety recommendations to set yourself apart from your competition. Something as simple as paying a National Safety Council trainer to work with your insureds on fall protection or other challenges faced by roofing contractors could be one rather inexpensive solution.
- Drill down on loss runs for existing and potential roofing clients. First, are the reserves current and accurate? Is the carrier aggressively pursuing subrogation when appropriate? Can the carrier decrease reserves or close any claims? Any claim problem you can solve, even if it’s as simple as obtaining a current claim status from the adjuster to ensure they have a plan of action in place, can reap big dividends.
- Know which standard carriers will write roofers in your state, and if writing, know which lines of business they accept. Don’t bother pitching the work comp to a carrier that either doesn’t offer workers’ comp or won’t write roofers. It wastes your and the underwriter’s time. While you may have to use several markets, perhaps both standard and surplus lines to accommodate the risk, turn to your fellow Big “I” members or your professional network for current market intelligence.
- Build relationships with managing general agents (MGAs) before you need them. If you are considering specializing in writing any line of business, especially ones where you may have less familiarity, reach out to MGA underwriters who specialize in that coverage. They can be a big source of coverage expertise as well as market knowledge.
I asked some of my risk management peers to weigh in on coverage issues for roofers. They provided some of these tips. One thing that stood out was this comment from one of those experts: “Contractors lie. While they say they only do commercial, when their best customers ask them to come by their house to perform a function, they do it.” I’m not so sure that contractors consciously “lie,” but they certainly may misremember.
Be candid with your insureds. Encourage them to be transparent about the services they provide. Then, check their website to ensure that there are no other services that will flag the underwriter for a supplemental app or further information, or an outright “Won’t quote.”
Various insurance experts often recommend specialization in today’s insurance marketplace. Picking those hard-to-insure businesses can be rewarding. The more you learn about that line of business, the better producer you will be.
Once you’re a known insurance professional to one type of contractor, they usually won’t hesitate to refer you to their tradespeople friends.
Originally Published: January 3, 2025
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