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2 years ago · by · 0 comments

Six Non-Insurance Methods Construction Businesses Can Use To Deal With Risk

There will always be a risk that something will go awry during construction projects. When something does go wrong, the result is usually costly time delays and mild to devastating additional material, labor, and damage costs. As far as risk goes, most construction business owners view insurance as their first line of defense. Not that insurance isn’t an appropriate risk prevention tool, but it’s not always economically feasible or efficient to try and cover each and every possible risk with insurance. There are actually many risks that can be dealt with thorough the concepts of risk transfer, risk sharing, risk retention, risk control, risk prevention, and risk avoidance. Let’s look at some key points about each:

1. Transfer of RiskThere are parties, aside from your own insurance, to which you might transfer the risk. The two most common risk transfers are through being named as an insured person on an alternative insurance contract, and through express indemnification clauses. When you’re named on another party’s insurance, their coverage extends to you. If you’re a general contractor, for example, then you might require the electrical contractor to name you on their liability policy. As long as the other party’s insurance covers the loss, your portion of any loss would be paid by the other party’s insurance policy.

The second common method of transferring risk is through an express indemnification clause in a contract. This is also referred to as a hold harmless clause. There are three varying degrees of risk transfer. The type one indemnity clause, also called a broad form, states that the indemnitor (party that will be responsible for the loss) will hold the indemnitee (party that will be protected) harmless regardless of whether the loss was caused by the indemnitee. A type three clause, also called comparative fault, holds the indemnitor responsible for only the loss that they caused. The most common type of indemnification clause is the type two, also called the intermediate form. The indemnitor assumes all the risk unless the sole cause of the loss is fully attributable to the indemnitee. An example of a type two clause would be a general contractor agreeing to hold an owner harmless (regardless of whether the loss was partly caused by the owner) if the loss was caused in part or entirely by the contractor.

2. Risk Sharing. There are often opportunities to share the risk with the other parties involved with the construction project. The contract should have a clause that stipulates each of the involved parties would be liable for those losses caused by his/her actions or inaction.

3. Risk Retention. Whether they want to or not, all construction businesses are going to retain some of the more minor risks. It’s simply not monetarily feasible to cover every single risk with insurance. These minor retained risks, such as errors that cause a couple of days of redoing work, are funded from the operating budget. Insurance deductibles are another way that risk is retained. Just be sure that whatever risk is retained has a value and can be funded should a loss actually occur.

4. Risk Avoidance. Although risks are often tempting, such as a supplier offering a cheaper material, most risks are best avoided. If you suspect that the cheaper material could be defective, then it simply makes better sense for you to put the longevity and reputation of your business first and avoid the risk.

5. Risk Prevention. Risk prevention is a very broad topic with many elements, but the premise of the concept is taking action to avoid negative events from occurring in the first place. It’s usually very simple carelessness that causes accidents. So, risk prevention may include simple things like keeping passages free of debris and idle tools secure. Risk prevention should be an ongoing training program for employees, supervisors, and managers.

6. Risk Control. Like risk prevention, risk control is a very broad topic with many elements, but the premise of the concept is reducing the amount of loss incurred during a negative event. A good example would be posting emergency response phone numbers so that immediate help can be called during an accident. Risk control should also be an ongoing training program for employees, supervisors, and managers.

 

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2 years ago · by · 0 comments

Are You Ready For A Crisis Today?

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Hurricane Sandy, tornadoes, flood — all of these disasters affected construction firms during the past year. Some companies took direct hits, while others suffered from massive service demands, and shortages of help and supplies.

Although your business might never face such massive “destruction and distress,” other events –everything from IT failure to vandalism — could trigger a crisis.

Whether it’s a catastrophe or a stressful disruption, the best way to prepare for any potential disaster is to develop a catastrophe plan in advance. This plan should allow your staff to mobilize the right resources quickly in the right order so you can get up and running with as many contingencies as possible accounted for in advance.

How do you go about developing a plan? What’s the process? Who should you include? How often should you review and update it? An effective plan should involve a “business resumption team” with managers from these areas:

  • Information technology
  • Communications, both internal and external
  • Moves and relocations
  • Services and logistics
  • Salvage and security
  • Customer service

Before a crisis erupts, the team will determine what activities to follow, assign responsibilities for these tasks, and provide the resources and information needed. When compiled and organized, these activities, responsibilities, resources, and information make up the disaster plan.

Don’t wait for a crisis to uncover the gaps in your preparations. Get started now on creating and/or updating your plan.

Feel free to give us a call so we can offer our advice and recommendations. Insurance might not solve all your crisis planning problems, but it can provide a solid foundation.

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2 years ago · by · 0 comments

Audit? What Audit?

1Whenever you’re asked to bid on a job, you’re usually required to certify that the price is firm and that there won’t be any unexpected expenses and cost overruns once the project is underway. Because this is standard practice in the industry, it’s understandable that some contractors are surprised that their insurance costs don’t operate the same way — especially when the contractor has asked agents for “bids” on the insurance package.

Neither Workers Compensation nor General Liability, two of the key coverages in Construction insurance, usually set fixed premiums. Because payrolls and/or revenues the contractor pays or earns during the policy period determine the premiums, and there’s no way to know these costs in advance, the premiums will also be estimates. Once actual payrolls and revenues are known (usually after an insurance company audit after the end of the policy period), the company will set the final premium based on these figures. The contractor — you — will then receive either a refund (if your insured losses were lower than expected) or a bill for the additional premium due (when these losses are higher than expected).

Although it’s never pleasant to owe more money after a policy has expired, keep two things in mind: First, if the insurer were able to predict the final results accurately, it would have charged this amount in advance. Second, an additional premium due after an audit shows that you had a better year than expected — and that’s always good news!

If you have any questions about how your insurance works or how premiums are calculated, just give us a call. We’re here to help.

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Scurich Insurance Services
Phone: (831) 661-5697
Fax: (831) 661-5741

Physical:
783 Rio Del Mar Blvd., Suite7,
Aptos, Ca 95003-4700

Mailing:
PO Box 1170
Watsonville, CA 95077-1170

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(831) 661-5697

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