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In the Crosshairs: Contractor’s General Liability Part 1

The number seven has long been associated with good fortune; visitors to Las Vegas dream of getting them lined up on their favorite slot machine. However, while Lady Luck often shines upon the number seven, her evil twin Penelope Peril has been known to crash the party from time to time. Especially when shopping for contractor’s liability insurance. The following are seven of the most egregious perils you can face when choosing contractor’s general liability insurance.

1. Going with Joe Blow to save a little dough

A friend tells you he’s found super cheap insurance and gives you the phone number to the company’s call center. You dash off to call them, dollar signs sashaying through your imagination as you think of the money you’re going to save. Here’s where the fun starts.

First, the receptionist transfers you to sales, where someone who sounds like she could be the receptionist’s twin sister answers. You ignore the screeches and caws, believing them to be caused by transmission. As the squawking reaches a climax, she gives you a price. Switching to Raven Mad Insurance, will save you a couple of bucks. With all that money, you’ll be able to buy that nose-hair trimmer you’ve had your eye on. Is the company highly rated?

She replies like a politician at a picnic. “We’ve got a number one rating!” What she fails to mention, is that it is one out of five stars. You sign on the dotted line, and then six months down the road, discover that Raven Mad Insurance has flown the coop. They had a low rating, even lower cash reserves, and their owners ran for the border when their chickens came home to roost. Don’t let this happen to you. Instead,

  • Ask for the insurance company’s A.M. Best rating, which grades on a scale of A to F, just like in school. If you have any doubts, verify that rating directly with A.M. Best. They’re the accepted standard for insurance company quality.
  • Standard and Poor’s is another valid rating source. They rate insurance companies, in part, on financial strength and stability.
  • Be aware that when you bid on jobs with government agencies, your insurer must have at least a “B+” rating with A.M. Best. Why spend money on insurance if it isn’t going to benefit you?

2. Going to an oil refinery when you need to gas up your ride.

Like most people, you go to the gas station when your car gets a bit thirsty. That station is set up to take care of you, the individual customer. Imagine how much time it would take for you to navigate your way through the bowels of a major oil company just to buy fifty dollars worth of Premium Unleaded. The corner gas station deals with the refinery, so you won’t have to. You just drive up to the pump, get your gas, pay, and go on your way. The gas station works as your agent.

Insurance is the same way. Some of the largest corporations in the world are insurance companies. The people that work for them are trained, but you, as a customer, are not. Let’s say you place a call to Mutual of Tombstone Insurance Company for a quote. Their rep is going to give you one single quote for your contractor’s general liability insurance. Do you think he’s going to tell you Acme General Insurance has a lower price and/or a higher A.M. Best rating? No way. His bosses want him selling policies, not being a consumer advocate.

A reputable insurance agent or broker, such those found at FarmerBrown.Com Insurance, has your best interests at heart. FarmerBrown.com Insurance is not beholden to any insurance company. We’ve got a slew of carriers to choose from, and care enough to make sure you get the best price as quickly and as easily as possible. Remember:

  • Calling the insurance company directly means you might not necessarily get the best quote available in the market.
  • Your FarmerBrown.com agent/broker is uniquely qualified to find you the best possible coverage for the lowest possible price. We operate in all 50 states, have a staff of insurance experts and speak your language.
  • Do you already have insurance but are concerned about price, rating, reliability, or any other issue? We’ll gladly help. Call FarmerBrown.com Insurance Agency today (888) 973-0016 and speak to one of our licensed agents. Or visit our website, www.farmerbrown.com.

3. If you were non-admitted, would you admit it?

That’s the big question when it comes to insurers. Some insurance companies are admitted; that is, they and the other admitted companies in their market participate in a program that guarantees continuation of coverage if one of them fails. Here’s how it works.

In any given market, you might have 10 insurance companies vying for business. Let’s say that five of them are admitted, and five are not. The five admitted companies each pay into a guarantee fund that is held in escrow. If one of the companies suffers a financial catastrophe and cannot cover its claims, the fund kicks in. In essence, those five insurance companies step forward to protect each others customers in times of dire need.

The non-admitted companies don’t do that. If one of them fails, its customers are on the hook with little to no protection. Fortunately, insurance companies do not go out of business every day; for the most part, they are adequately supervised and regulated. However, for peace of mind and financial safety, it is always preferable to elect coverage with an admitted insurance company wherever possible. You can find admitted insurance companies functioning in most markets. Remember:

  • Admitted means protected. An admitted insurance company’s customers are protected by the other admitted companies operating in the market. That minimizes risk. The situation is akin to investing in a financial institution that is FDIC protected.
  • Non-admitted means the insurance company is on its own. If it runs out of money and must shut its doors, its customers are left high and dry. This is akin to investing in a financial institution that does not enjoy FDIC protection.

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