At JDA Insurance Group, we take the time to educate our Clients on insurance and risk management. Our contractors learn how to lower their insurance cost by knowing the rules of the game. We work with contractors just like you every day.
We find that contractors have the same questions:
- What policies do I really need to carry if all of my subs are insured?
- What is the easiest way for me to get a quote?
- How do I properly collect certificates of insurance from insured subs?
- How do I properly deduct from uninsured subs?
Most insurance agents shy away from insuring builders because insurance for general contractors is complicated due to a number of factors. If the agent doesn’t explain to a Builder how to properly collect certificates of insurance, how to deduct for uninsured subs or how to prepare for the dreaded audit the resulting mistakes can literally cost the Builder thousands of dollars and more every year.
This is where we excel… in educating builders and contractors on the rules of the game. We educate our contractors on what kinds of policies they need, show them how to avoid mistakes in the administration of their insurance program and show them little known secrets that can result in significant savings every year.
Contractors are always on one or two claims away from losing AFFORDABLE insurance coverage. So setting up the correct program from the start is imperative.
Collecting Certificates of Insurance from Subs
The Certificate of Insurance is nothing more than a standard form used by the insurance industry that provides a brief summary of coverage as of the date that the certificate is issued by an insurance agent. The certificate holder is the person who requests the certificate.
The two main reasons to collect certificates are: 1) protect your own “loss history” under both your workers comp and general liability policies, 2) you need to provide the auditor with a valid certificate of insurance that was effective during the dates that the sub performed work for you or you’ll be charged on audit for both Work Comp and General Liability as if the sub were your employee.
Deducting From Uninsured Subs
There’s a lot to know about how to deduct or withhold from uninsured subs. It’s critical that you properly administer this important function because just one small mistake can be very costly. Furthermore, once you’ve made the mistake, you may not realize it until your audit and by that time it will probably be too late go back to the sub and ask for more money.
At the end of your policy year for both Work Comp and General Liability, you’ll be audited and you must provide the auditor with a valid certificate of insurance for each sub that you use. If you do this, you won’t be charged extra for the use of uninsured subs. If you can’t provide a valid certificate of insurance, the auditor will make a charge as if the uninsured sub were your employee. This extra insurance charge upon audit is a cost of doing business that should be accounted for. It’s standard within the industry for builders to deduct or withhold from their payments to uninsured subs to offset this extra insurance charge.
Surviving the Audit
The audit is the final word on the true cost of your Workers’ Compensation and General Liability. It’s critical that you understand the mechanics of the audit and that you prepare for it throughout the entire policy year so that you don’t make costly mistakes that can result in your getting slammed with a huge audit bill.
Policies are issued based on the work estimates that you provide. After the policy year ends, you’re audited to determine your actual payrolls, amounts paid to uninsured subs, amounts paid to insured subs and so forth. Next, you’re presented with a Final Audit Bill which compares the estimates that you’ve already paid for against the actual figures.
Avoid the following mistakes when it comes to your audit:
- Lack of preparation and record keeping
- Keep summary documents on payrolls and sub expenses (Auditors like summaries)
- Do not commingle personal and business expenses
- Do not be uncooperative with auditor (missing appointments, being unprepared or combative)
- Don’t leave it to your office staff, you are the owner…be present
- Take advantage of payroll credits (OT, double time, sick pay and severance pay)
- Make sure all invoices break out labor vs materials.