Premium Hikes for Surety Bonds Probed by State Insurance Commissioner

Complaints and questions from licensed contractors, CSLB, and elected officials about significant price hikes for many contractor license bond premiums have prompted an inquiry by the California Department of Insurance (DOI).

DOI's ombudsman, in a letter to CSLB Registrar Steve Sands, says the department's research is not yet complete, but explains that current law does not prohibit the use of credit scores for rating or underwriting commercial insurance, as is the case for private passenger auto premiums. The letter, which provides general information regarding the DOI inquiry and recommendations for contractors who have received rate increases, is available at http://www.cslb.ca.gov/
Resources/PAO/DOI
Bond Letter.pdf.

I don't have to tell you that the construction industry is facing some tough times. I'm certain you're tired of being reminded of it.

As a result, a lot of builders and tradesmen have made the decision to widen the scope of their work. Where a builder may once have specialized in multi-unit dwellings, that same builder might now be pursuing single-family homes or taking on remodeling contracts. I'm aware of one builder who is looking into property management as a way to bolster his income.

From a business perspective, this decision is not only valid but often recommended. But, before doing that, I would like to implore you to examine your insurance policy to make certain your coverage extends to this new line of work.

Just because you're covered for the construction of single-family homes, does not necessarily mean you hold coverage for other work. If your prior business was all commercial construction and you decided to diversify into residential contracting, imagine your shock when you learn, after a claim, that your commercial policy contained a residential construction exclusion (some do and some do not).

An insurance policy is neither the easiest, nor the most exciting thing to read. Therefore, I strongly recommend that you seek the advice of your insurance agent to confirm you have the necessary coverage for the work you are undertaking. It is also wise that you confirm the discussion in writing so that you're protected in the event a claim arises. The last thing you want is that dreaded denial letter which can cost you precious capital and valuable time.

The best kind of claim is the one never created; therefore, I would advise you to seek the professional guidance of a risk manager to learn how to avoid these claims in the first place. You no doubt already know how to avoid the most common claims in your traditional lines of business, but a new frontier offers not only new streams of income, but new areas of risk as well. Remember, the pioneers take not only the gold, but the arrows as well.

This so called "Great Recession" can be a boon for the adventurous, outside-the-box type thinker; but it can also be a bust if the proper coverage is not in place. To ensure a happy and healthy future, you must also ensure you are insured.

Brian Savage is an Account Manager with International Risk Resources in Atlanta, Georgia. He can be reached via email at bsavage@irresources.com.