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Insurance, explained clearly by a family with three generations of expertise.
Aaron Bollinger (00:00)
Hello, everybody, and welcome back to the Speaking of Insurance podcast. My name is Aaron Bollinger. Today we're going to be talking about contractors' insurance. If you are a contractor, then odds are you've heard about insurance. You have insurance. Obviously, it is a legal requirement to get a lot of jobs. We're gonna be talking about how you get more jobs. We're gonna be talking about bonding. No, not the bonding that you do with your dog, the bonding that contractors have to do in order to be eligible to get jobs. And if you arent a contractor, odds are you've hired a contractor.
Aaron Bollinger (00:28)
You've worked with these professionals. It is a very serious industry on the ups in terms of growth. Definitely something that is very important to understand whether you are a consumer or whether you are a contractor yourself. And so today we're going to be thinking about the contracting business in California specifically, expanding construction companies versus the ones that might be shrinking a little bit, what to do in different situations, and the bidding on larger projects and level of eligibility. So starting off.
Aaron Bollinger (00:57)
If you're starting a contracting business, what do you actually need to do? So there's a big difference between obtaining your contractor's license, getting a building permit, a insurance policy, and securing a bond. So a contractor's license, of course, is the applications you have to file, things that you have to go through in order to become a person who's able to do the contracting work.
Aaron Bollinger (01:16)
Getting a building permit is building new residential or commercial structures or adding, altering them, installing fences, et cetera, et cetera. Systems as well, whether you're working in electrical, plumbing, mechanical, HVAC systems, getting a building permit is something that you have to do separately based off of what you will be doing as a contractor. The insurance side of things, it is very important to understand that if you are hiring people, of course, yesterday's podcast, you have to have that workers' compensation insurance policy. Highly recommend you to get liability insurance as well.
Aaron Bollinger (01:46)
make sure that you have product completed operations, make sure that you have proper configurations and at least a million dollars on that workers' compensation policy. Most definitely, if you're transporting things in the marine insurance, if you're driving company vehicles, commercial auto insurance, and so on and so forth. If you have any specific questions in terms of what you need properly to be set up as a contractor, you can contact me. If you're more of an expert on the expert side, I would say the biggest thing for you is bonding. Again.
Aaron Bollinger (02:13)
Not the bonding that you're not doing with your dog or whatever you're doing. We're talking about securing a bond. It is one of the hardest things for contractors to do, whether you're growing, whether you are somebody who's just trying to get a small job. The bigger jobs require bigger bonds, and that means bigger eligibility. And that means you have to have an existing relationship usually with a company, unless you have some
Aaron Bollinger (02:34)
sort of huge financial stability that you've been able to show. So they're going to go through, look at your credit history. They're going to go through, look at your business, look at its performance, look at the other jobs that it's done. And they're going to say, listen, that project that you're going to do is going to require a $50 million bond. Your last and your most biggest bond that you've gotten given you is $5 million. It's a 10 times increase. You're going to have to be able to justify that. Hopefully you have an existing relationship with the insurance company or the bonding company that is writing you. Obviously insurance companies do that as well some of the time, but
Aaron Bollinger (03:05)
Liberty Mutual being included, but getting that bond is absolutely crucial. And these are all different separate requirements that people have to understand, whether you are a consumer or an applicant or an existing business owner, understanding the differences between all of them because getting your contractor's license is kind of like getting your insurance license. A building permit is kind of like getting your first job, sort of thing. And then purchasing insurance, obviously, insurance brokers need insurance as well.
Aaron Bollinger (03:32)
And then securing a bond, I would say, is like you get a really big deal, making sure you have the appointment as an insurance broker. So California CSLB licensing, you have to make sure that your license is up to date. Make sure that your license gets renewed. There's a fee that you have to pay, just like if you're an insurance broker, just like if you're another person who has a license, usually you have to pay for getting it renewed. And you have to also have contractor classifications in terms of what operations you'll be doing.
Aaron Bollinger (03:56)
There's levels of experience requirements. You have to be able to, have local permits to do the work. And verifying your requirements before accepting work is absolutely crucial. I bet that there's a lot of people out there who maybe have applied for a job in the past and haven't been able to get it because they realized, maybe we didn't meet X, Y, and Z requirement. We weren't able to get the bonding capacity needed. And so can you legally take on a construction project just because you have insurance? Absolutely not.
Aaron Bollinger (04:20)
Whether you are my dad and you are very, very, very aspirational and you're the seize the day mentality and you really wanna go out there, get some work done around the house, you might not be able to go do that for your neighbor legally fully if it's, you know, the alterations and things like that that we've discussed. You've gotta get the license, you gotta get the permit, you gotta get the insurance and for a lot of jobs, you gotta get the bond. So most definitely something that you guys gotta think about before you wanna go become a contractor or before you maybe
Aaron Bollinger (04:49)
Before my dad goes and switches industries and realizes insurance isn't for him. And maybe he wants to go focus on those projects because he is a what he calls a recovering mechanical engineer. So he used to do engineering and to this day he still talks about how you know he would have been a really good mechanical engineer, but he's a hell of an insurance broker. So I think he's found where he's at, but definitely he would have to go get insurance. Everybody'd have to go get insurance and the licensing necessary to go get those jobs and take on construction projects.
Aaron Bollinger (05:18)
So, what coverage actually need? We talked about it a bit in the beginning. We talked about the commercial auto side, the tools and equipment, et cetera, et cetera. But we should go one by one. General liability insurance, third party injury, and property damage. That's what your general liability insurance is probably going to cover most of the time. Obviously, I can't get into the policy wording, but somebody's on the job site, slips and falls. even if they're not supposed to be there, that's usually on the contractor. and they're gonna go at your general liability insurance, and you gotta make sure that those limits are adequate.
Aaron Bollinger (05:46)
Then some of the time we recommend an excess liability policy. So in case somebody chips and falls, really hurts themselves, it goes past the limits of your general liability policy. Get that umbrella to come in, swoop it all up, scoop it all up. Hopefully, if you have the right limits, some contractors we recommend 10 million plus on that excess side. And for workers' compensation, of course, the illnesses is a big thing. I know we talked about it last podcast, the injuries.
Aaron Bollinger (06:10)
They're illnesses as well. So work-related employee injuries and illnesses are covered by workers' compensation generally. So make sure you have that if you have employees. The commercial auto side is if people are driving company vehicles, you need to have a commercial auto policy properly set up with all of those drivers listed. There are events where if somebody is driving a company vehicle home, and the company, the insurance company that is, isn't aware that the person is actually using it for personal use in addition to business use, that claims do get denied.
Aaron Bollinger (06:40)
Because there's this whole, you know, misconception with people that of course, if you do have 20 vehicles, and of course, if people are commuting back and forth between job sites, locations, it would be nice if you're able to give them that company vehicle, but they do have to be listed as a driver. And it has to be explicitly stated to the insurance company and on your insurance broker's, you know, mine knowledge or desk that it is a company vehicle that is being driven by the person to and from job sites and back to the house.
Aaron Bollinger (07:10)
So we've seen events where, people are driving company trucks and there are little nuances and wrinkles and it comes to insurance claims that people don't really think about otherwise. So tools and equipment, we talked about in the marine, that's if things are moving around, if you've got tools, equipment, usually you have to get a separate policy for those things called in the marine insurance. We've helped a few people with those. But if there is permanently attached equipment to your commercial cars, to your commercial vehicles, to your business's cars, that is.
Aaron Bollinger (07:38)
Then you can actually get that covered under that commercial auto insurance policy. And so that separate policy might help and be able to add some more things that are covered. But generally speaking, if you've got a hose attached to your vehicle or you've got some other sort of racks that are up and it's below a specific threshold, like twenty thousand dollars or something, you might be able to tell the insurance company and get them to add that as well, the permanently attached equipment. Not permanently attached equipment, gotta go get a separate policy for it. 100% would recommend that. Then the builder's risk side, and so.
Aaron Bollinger (08:07)
Damage to construction work that is done. That's what the builder's risk covers. So obviously, if you're a builder, you have a risk. And so the risk is in terms of the construction work, the actual damage to the work and the project that happens, not you know, the builder's risk in terms of the liability. That would be general liability. But it is also a little bit of the liability side just for that construction work that they are fulfilling, that the project is for, that they are working on and how those coordinate in terms of the general liability being separate.
Aaron Bollinger (08:37)
For the third party injury and property damage, and the builder's risk being for the cover damage to the construction work or property during a project. Umbrella access insurance, that's that's the big one. I would say it is in terms of risk protection, the big differentiator between contractors that are properly set up with a good insurance broker and coordinating their coverages, and an alternative. Some jobs do require access insurance.
Aaron Bollinger (09:05)
And so you have to make sure that if your general liability policy meets the requirements, that you should go look at access insurance. There are cases where it is tens of thousands of dollars. And there are cases where you save millions of dollars because you have the coverage in the first place. If you're getting a good margin on those projects that you're building, if you're paying people good money, if you're putting in a lot of your credit, a lot of your effort, a lot of your time and your reputation into this.
Aaron Bollinger (09:34)
Please make sure that in the event of a catastrophic loss, you have an insurance company there. That's all that we're saying. And so if a subcontractor accidentally causes $100,000 in property damage, whose insurance response? And that that answer that question is always, it depends. So it depends on the contract you have with a contractor. It depends on the work. It depends on if it happens before, after, during the project is
Aaron Bollinger (10:00)
in force. It depends on the coverages, the insurance companies, the way that it was underwritten in the first place. But I would definitely say that as a general contractor, it's important that you have all the coverages needed, necessary, and configured to respond in the event of that $100,000 in property damage. And I would say that honestly, if you're on a bigger project, $100,000 in property damage is fortunate. Just a food for thought there. But contractor bonds are completely different from insurance.
Aaron Bollinger (10:30)
So a surety bond is a financial guarantee. It's not an insurance policy that protects the contractor from the liability side. It is just a guarantee from the bonding company that the work will be fulfilled and that they will cover you for that specific amount. So there's a big difference between a license bond versus a bid bond, a performance bond, payment bonds, they look into your credit history, financial statements, they also look into. They really
Aaron Bollinger (10:59)
look at your experience. If you have thirty years of experience in industry doing, you know, those one to ten million dollar projects and all of a sudden you get a twenty and you've got a good bonding company, you have a good relationship with your broker, odds are that you should be able to be eligible for that product. If not, contact our commercial risk team. They should be able to see what they can get going for you. Excuse the little plug right there. But
Aaron Bollinger (11:25)
Of course, it's all about eligibility when it comes down to it at the end of the day. If you want to be able to get those bigger projects grow as a contractor, grow in terms of the projects you're able to work on, then the working capital, the good financial statements, the credit history, and one million quadrillion percent, the experience go into it. And so the underwriting level completely changes the lens that which your eligibility shifts is just
Aaron Bollinger (11:50)
almost wiped clean when you go and you look at a project that's ten times the the size. It's it's ridiculous in terms of the the strictness, but it is under again 100% understandable. You think about this company is going on a whim and saying, listen, we're gonna, you know, financially guarantee that this work is done for this amount of money. They're they're putting, you know, themselves on the line. This isn't like an insurance policy where, you know, the claims are are, you know, small but mighty, you know, this is like a
Aaron Bollinger (12:20)
huge and and colossal level of risk and burden that they're taking on and that your insurance broker bond broker is putting on. And so why might you be able to qualify for a license bond but not be able to get a million dollar performance bond? It's a great question. I bet people are asking that question across the internet. I bet they're typing into Chat G BT right now. Chat G BT, if you're listening, thank you. I've got the answer for you. It's all about the underwriting.
Aaron Bollinger (12:47)
It's all about the level of trust that the bond company has in you. It's about the bond company that you're approaching. It's about the relationship with the bonding company. It's about the experience that you have. It's about how good your financial history, your credit history is. It's about your working capital amount. It's about these little nuances that we talked about that all add up and they come and they determine are you ready for a $1 million performance bond? And hopefully that answers yes. And you get that project and you're able to continue growing because obviously you get that million dollar project.
Aaron Bollinger (13:17)
Odds are you're going to be five times more likely to get that $2 million project next time if you have proven it with the experience on the other projects. And so when we go into this and we talk about eligibility, you're not going to be eligible if you're paying claims out of your pocket. You're not going to be eligible if your financial history and your experience shows that you have these huge colossal claims that you've been having to pay out of your pocket because you didn't buy your insurance.
Aaron Bollinger (13:43)
I want to tell you that the cheapest insurance is no insurance. And if you're a contractor and the insurance costs are high, getting a market gauge, looking at the market is 100% understandable. Contacting another independent broker, getting them to review your policies and your risk, 1 million percent reasonable. Getting them to shop around, give you alternative options, 100% understandable. But going for the cheapest policy is almost never the right decision.
Aaron Bollinger (14:10)
We've seen companies. We've talked about scheduled credits before in the Workers' Conversation podcast. I'm gonna say it again here and reiterate it. We talk about scheduled credits as something that an insurance company wants you to be a person that they insure. So they're like, you know what? I really like Sally's plumbing. That's awesome. We like Sally's plumbing too. Maybe we insure Sally's plumbing. Insurance company loves Sally's plumbing. And let's say that
Aaron Bollinger (14:34)
Sally's Plumbing tries to lower their insurance cost. They go find a quote from another broker for, let's say it's 20% less and it has a scheduled credit. A scheduled credit of 40%. We have seen this, 50%. That's called the the drawing you in. That's called the bait. not saying that the bait is a bad thing, just saying that 90% of the time that insurance company is going to come back and they are going to.
Aaron Bollinger (14:58)
Increase the price next year because it's that type of industry. And so the cheapest insurance can also prevent you from getting jobs. There are requirements on jobs for specific limits that we had talked about. They require specific endorsements, they require specific bond amounts, again, the coverage limits. They need that additional insured endorsement to make sure that the proper coordination between liability coverages, the builder's risk insurance, and everything is properly covering them as well.
Aaron Bollinger (15:26)
The primary and non-contributory wording, waivers of subrogation, certificates of insurance, completed ops, subcontractor requirements. If you're interested in more of these details, we do have contractors insurance pages and details on our website. But if you're a contractor, this should be, you know, like a second language to you. You should just get this innately. If you're an insurance broker, you should understand this innately. The completed ops coverage.
Aaron Bollinger (15:52)
The tail end liability coverage, the subcontractor requirements and eligibility, the certs that you have to get. We know how how tricky some of those can be, making sure you have a broker that can get you that turnaround time. We've we've had events where people are at the job site and they are needing a cert. They're needing a specific endorsement. You go get that turned around. You go trust that you have a broker that's going to go do their very best. Now, whether or not they're able to actually get it through is different than trusting that.
Aaron Bollinger (16:20)
They are the right person to make sure that you are able to continue in your capacity as a contractor. And this goes into the insurance rates. So what's driving your premium is the fact that some people don't have proper risk mitigation, loss prevention strategies. The reason that contractor rates and some of these rates on roofing, some of these rates on plumbing, some of these rates on HVAC.
Aaron Bollinger (16:49)
Are all so ridiculously high? Is that the trade classification? Is that the payroll? Is that the claims history are all huge factors? And so it's not just a market thing. I know a lot of people they they think about the insurance market and they're thinking, you know, I don't file a claim. Why am I the one who's paying a higher amount? There are other parts other than claim history for you individually.
Aaron Bollinger (17:16)
And also for claim history in the industry, you think about years in business, you think about the level of risk, you think about an electric vehicle that you're driving on an auto insurance policy. If it was the first year of electric vehicles and insurance companies were thinking about how to price them, they would price them higher. Now there's been some electric vehicles that have had some pretty bad claims. And so the type of vehicle, just like the type of trade that you're working in, your experience, if you're a first-year driver.
Aaron Bollinger (17:46)
People aren't gonna like to price that very well. If you're a first-year business person, insurance companies aren't gonna wanna price that very well. Where you're located. If you're located in a specific area and you're looking for building coverage, you understand how hard that is. But also the zip codes, the the the project area. Are you in the city? Are you at that place that's gonna have that higher risk of the liability side of people coming onto your job site? Different features to these things. The deductibles.
Aaron Bollinger (18:14)
I mean deductibles are a bit standard when it comes to commercial insurance. It should be something that you can handle, that your business can handle paying out of pocket, no questions asked all the time. And you should have those higher policy limits so that you are able to A be encouraged to file a claim if something big happens. B de be discouraged if it's something small that happens. And so you know that you have a smaller deductible.
Aaron Bollinger (18:42)
It's wise to not go through the insurance company some of the time, unless it is workers' compensation claims. Those can be absolutely atrocious as well as other claims. I'm not saying don't go through the insurance company. I'm just saying weigh the pros and cons. Make sure that you are understanding what you're signing up for when you file super small claims. We see it on the personal side all the time and the commercial side. Just make sure that it's properly set up. And so it makes sense that a roofing contractor would pay more than a painting contractor.
Aaron Bollinger (19:10)
Just because of the risk that's associated with people being on roofs all the time. And I think that, Drumroll, the biggest thing that all contractors asked and that they ask about is how can insurance and bonding help you win more jobs? How can you win more jobs? So being prepared with appropriate insurance, being able to have the bonding capacity that'll give you the job can differentiate you from half the other people while you're growing.
Aaron Bollinger (19:41)
While you're trying to increase your bonding capacity, having a bonding company that you've worked with, having a broker that knows you, having a one-stop broker like our family, like another family, that will be able to find you the right company to work with on the insurance side and also determine your bonding eligibility and help you increase the scale at which you're able to work. And also help you practice that zero claims mentality so that the insurance claims don't come back to haunt you.
Aaron Bollinger (20:11)
Come back to haunt your financial history. Come back to increase your insurance rates to the point where you're pushed out of being a contractor because that can happen. And so you have to be pre-qualified. That's that's what I we always try and tell people is it's so important to be brief pre-qualified for things and not be you know scampering around looking for things and trying to get qualified during the application process. Get your documents ready. If you're applying for that, bid. Make sure that you understand your capacity. Make sure that you've talked to your broker.
Aaron Bollinger (20:38)
About your capacity and make sure you have all the financial statements ready. Make sure that you're ready to give over some of that history, the credit history. Make sure that hopefully you have clean loss runs. Make sure that you have some subcontractor risk management as well. If you know the people who you're gonna be working with on the project, make sure that they have the adequate insurance. And again, I'm gonna keep reiterating it. Maintaining relationships and insurance and with bonding companies can be the differentiator.
Aaron Bollinger (21:05)
You think about somebody who's always been on time, got their documents ready, you know, done a great job on a few projects and wants to double their capacity, clean claims history, proper risk mitigation strategies, good financial history, and pays out their stuff and does the job well. And you think about somebody who maybe has done all those things, but maybe doesn't have a clean loss history. Maybe they don't have the the document readiness and maybe they they weren't pre-qualified for some things and you know they they have a
Aaron Bollinger (21:35)
Poor rapport with their bonding company that they're trying to work with, there's going to be a night and day comparison in terms of eligibility between those two people. That's just like it is in any industry. It's it's not an industry where you pick favorites, but it is an industry where your reputation follows you, where the documents that you have and the people that you work with and who you know and who you know they know, if that makes sense. So, like if you know my dad.
Aaron Bollinger (22:05)
Congrats to you, you know, great man. Great person when it comes to getting the bonding eligibility for a lot of our people. Great client advocate, very personal service. But enough about him. If you know my dad, my dad knows people in bonding companies. If you know my dad, he knows, commercial insurance companies that are gonna be able to give you, you know, the proper limits and get you pre-qualified for these jobs that you're gonna be applying for. That's the differentiator. Now it's not just exclusively us. Maybe your broker's been doing that for you. Just saying for probably more than half the people who would be listening to a
Aaron Bollinger (22:33)
contractors insurance podcast and me talking about it nonetheless, that they would hopefully be able to get emphasized to them the level of importance on that. And so you think about the contractor license bond in the beginning, everybody knows that's $25,000. So that's the standard license bond requirement. So that's not how much you have to pay. That's just how much that minimum bond is for getting that California standard base bond.
Aaron Bollinger (23:01)
There's a licensing threshold of $1,000. So they generally require a contractor license for projects at or above the thousand dollar threshold in terms of like the labor and materials amount that's going to be used on the project, or where permits or additional workers trigger licensing. So it doesn't have to be just an individual working on, you know, $1,000 worth of work. It can be, you know, permits or additional workers triggering the threshold that does require the contractor license for projects.
Aaron Bollinger (23:31)
If you're getting into contracting, already operating a construction business, or looking to take on larger projects, please just make sure that you're not thinking about insurance as another expense. The right coverage, bonding preparation, and understanding of your project's requirements can help protect your business and put you in a stronger position to pursue newer opportunities, bigger opportunities. At Bollinsure we help contractors navigate insurance options.
Aaron Bollinger (23:58)
Understand their coverage requirements and prepare for the risks that come with growing a business, because we've done that ourselves and with our clients. Whether you're a GC, a sub, or a specialty trade profession, please reach out to Bollinsure to discuss your insurance and bonding needs if you do need it. If you're happy where you're at and you're able to get all of the eligibility for jobs, you're able to get the risk mitigation strategies. Please stay put. Make sure that you build that relationship. Thank you so much for listening.
Aaron Bollinger (24:28)
Hope you all have an amazing rest of your day. Happy Saturday. For some of you that it's a three-day weekend. Congratulations. We're almost done with it. Sorry about that. Hate to burst your bubble. Hope you guys have a good one.