Be a better buyer

There are ways to make a more informed decision when purchasing insurance

For the average roofing contractor, insurance is the third largest expense surpassed only by the costs of materials and labor. It is so significant it can affect your ability to be competitive and, in severe cases, lead ton business failure. Insurance companies rely on base rates developed by outside rating bodies that are segregated by industry—including the roofing industry—from which your company's final premium ultimately is calculated. How you manage and present your company can affect your net rates by 40 to 50 percent either favorably or unfavorably. To get the best coverage for your money, you need to learn how to be a better buyer of insurance.


Many things will affect how much you pay for insurance, and modifications are one of them. Premium modifications affecting your net rates fall into three categories:

  • Experience modification factors. These are calculated based on the loss experience of your company as compared with the average of all roofing contractors. The most significant of these is the workers' compensation modification, which is calculated by the National Council on Compensation Insurance or a state bureau that collects experience data from all insurance companies. This factor must be used by all insurance companies and can result in a 40 percent discount to a 30 percent surcharge in most states. In simple language, your past four years of experience as compared with expected losses for the industry produces a multiplier. More information about how the experience modification factor is calculated can be found at
  • Schedule credits: Most insurance companies file with the state the ability to apply "judgmental credits or debits" based on other risk factors. A positive example might be a credit for a great safety program. These credit swings are as much as plus or minus 25 percent and are used by insurance underwriters to arrive at the final price for coverages. You can ask your agent whether you are receiving any schedule pricing credits and, if not, how you may be able to earn them.
  • Package credits: These credits reward buyers who buy multiple lines of coverage.

So how do you present your company in the best light to gain the most competitive insurance prices? There are three main steps:

  1. Make sure your company image is accurate and positive.
  2. Select the agent who will represent you wisely.
  3. Pay real attention to safety.

Company image

The public's first impression of your company often is your website. It also is one of the first places an insurance underwriter will look to learn about your company. The information on your website needs to be consistent with what is on your insurance applications and reflective of your real operations.

Unfortunately, many contractors have not taken the time to develop websites that tell their real stories. When websites were first developed, advice was given to think of sites as online brochures, a literal "brag sheet" or puff piece. Too many contractors have not progressed from that positioning.

For example, a contractor may do work for the energy sector and place an image on his or her website of a nuclear cooling tower that looks like Three Mile Island. An insurance underwriter would not be inclined to offer that company coverage. If the underwriter did offer coverage, the rates would be reflective of that exposure. And what if the firm had never completed the project or wasn't considering such a project but a web designer simply thought it was a cool image reflective of the energy sector.

My advice is to make sure your website's images and words accurately reflect the types of projects you have completed and the services you provide.

Your website also is a great place to talk about your company's commitment to safety and any awards you may have received.

Agent selection

Choosing the right insurance agent to represent your company is one of the most important decisions you will make in the protection of your investment and achieving the best possible combination of price and service for your insurance plan. I see many contractors making the huge mistake of letting the insurance market choose the agent by picking the "low bidder" when they shop the insurance market.

Your agent should be considered a member of your advisory team along with your attorney, accountant and banker. Would you choose your attorney in an open bidding process? If you take one thing away from this article, I hope I can successfully communicate what a bad approach this represents.

The insurance market flows much like the stock market. Market pricing and the best carrier to provide the necessary coverage and services may change over time. A good agent will be able to help position your company correctly during these market fluctuations.

So how should you choose an agent? The same way you chose your accountant. You probably asked others for recommendations and conducted personal interviews to find a person you trust. Insurance agent selection should be done in a similar manner.

Because the roofing industry has not always been viewed as a desirable risk by the insurance industry, it is important to work with someone who represents many contractors. These agents will understand your business and be familiar with the insurance markets in your specific area. I suggest you solicit recommendations from your peers and arrange personal interviews with two or three agents to make your selection. It is during these interviews that you also can outline the types of service you need during the year. How many certificates do you need per month? Do you often need bonds? Do you need the agent to help with your safety program?

It is critical you trust your insurance agent to match coverage to your unique exposures to loss. For more than 45 years, CNA, Chicago, has been the endorsed carrier of NRCA. If you would like, NRCA can find a CNA agent in your local area to contact you directly or you can visit to get matched with an agent. NRCA also has support available to members who have other unique operations that may not fit in the primary program.

Once you have hired an agent, he or she can help you create a request for proposal submission to the appropriate insurance companies. Be prepared to provide copies of sales brochures, typical contracts and a list of the top completed recent projects. You also will need to request five years of loss information from your current insurance carrier and the corresponding premium information.

Why should you provide your premium information? This information helps the underwriter understand how profitable your account has been in the past. Of course, this is a double-edged sword. The better your results are, the more likely the carrier will increase the discounts it offers. "Underwriters fill gaps in information with premium" is an old adage in the insurance business.

I frequently am asked how often a contractor should get proposals from the market. The process of creating and reviewing a good submission to an insurance carrier is a time-consuming process for you, your agent and the carriers. I usually recommend no more than every three years unless you are having difficulties with your current carrier. Carriers that see the same contractor submitted every year will soon decline to issue a quote. You don't want to create a negative reputation as a buyer.

This is the time in the process your agent should review all the operations you conduct and the types of insurance you may need. You also will need to provide a percentage breakout of your operations. Insurance carriers are interested in your split between commercial and residential projects and any exposure to multifamily projects. They also look differently at new construction and repair or reroofing. Projects higher than three stories also are of interest.

Some carriers limit the amount of residential exposure, multifamily, new construction and higher-than-three-story work allowed in their eligibility guidelines. These concerns are driven by losses coming from construction defect claims that historically have run higher in new residential and multifamily construction. One claim suddenly can become a class action case. Steep-slope roofing work and projects higher than three stories historically have had greater incident rates in worker injuries. If you are involved in these operations, make sure you present the controls you have in place to mitigate concerns an insurance carrier may have.

What insurance do you need?

All roofing companies need coverage for owned property and equipment, general liability, owned vehicles and workers' compensation. Additional coverage areas you may need to consider and discuss with your agent include but are not limited to the following:

  • Umbrella liability. Many construction document insurance provisions are demanding higher limits. It often is less expensive to buy an umbrella policy than to increase primary limits, and project limits can be as expensive as increasing coverage for the entire year. This option should be discussed with your agent, and a strategy should be developed.
  • Professional liability coverage. Many contractors are getting involved in ever more complex roof systems. Your role often may go past that which is anticipated in general liability coverage. Remember, most general liability policies exclude design or professional consulting exposures. A professional liability policy has been designed with NRCA's assistance to cover these new emerging exposures.
  • Open roof exclusions. Many policies exclude claims arising from an open roof. Some carriers allow a buyback endorsement. Make sure you understand your coverage.
  • Torch-applied roofing exclusions. Some policies have exclusions for heat-applied products. Others require adherence to the CERTA program.
  • Blanket additional insured/blanket waiver of subrogation/blanket primary wording. These are provisions that have been appearing more often in construction document insurance provisions. Make sure you discuss these concepts with your agent.
  • Hired and non-owned auto liability. The most common exposure is employees using their own vehicles for company errands. Most policies make this coverage standard.
  • Drive other car coverage. Many company owners only drive company-owned or -leased vehicles. As such, they have no personal auto coverage. If you fall in this category, talk to your agent.
  • Equipment rental coverage. If you rent equipment, this is another area with several specialized coverage options.
  • Personal umbrella. All business owners should have a personal umbrella liability policy. As a business owner, your profile in the community is usually higher and often you have assets not protected by the corporate veil. These policies are inexpensive and provide some peace of mind.

Safety program

Having a strong safety program in place is key to securing good insurance rates and coverage. The first step to developing a successful safety program requires the sincere belief by top management that worker safety is the most important part of their jobs. That commitment must be communicated daily to become ingrained in a company's culture. The experience modification discussion earlier shows the economic incentives to avoid losses, but a company leader who has told a widow her husband isn't coming home understands the importance of safety in a unique way.

Your company must have a written program that contains certain sections required by the Occupational Safety and Health Administration (OSHA). NRCA has materials contractors can use to meet these requirements. It is important to give this process some thought and not place a written program on a shelf in case of an OSHA visit. It should be a real document that sets company policies.

Many larger projects are requiring a job hazard analysis (JHA). Analyzing hazards associated with daily operations empowers your company to continually improve worker performance and hazard awareness. Providing a safe work environment for employees is a goal that is achievable and a responsibility you must take seriously. You should have a JHA template and develop a library of JHAs for common job tasks your company performs.

When necessary, the preplanning process should take place at a job site. Once safety hazards and danger zones are identified, you can develop the JHA. Writing a JHA should involve owners, superintendents, foremen, project managers, safety managers, competent people and industry experts. Most important, you need to involve people who are experienced and able to recognize the hazards associated with the task, as well as recognize the appropriate solutions to remove the hazards and protect the workers.

In the first column, list the step-by-step components of the work you must perform to complete the task. In the next column, list the hazards associated with each step. In the third column, describe how you will eliminate or control each hazard. Once the written JHA is completed, reviewed and approved, the foreman should review it with the crew. It's important to revise a JHA whenever crew, operational and/or weather conditions change. To ensure controls and safe practices are implemented, supervisors and/or foremen should observe the working methods and practices of their crews during JHA operations. Recommendations for improvement should be communicated to crew members to maintain the highest level of safety.

If possible, hire a safety professional to direct your safety program. In almost every case, doing so will create more savings than cost. For smaller companies, someone must be assigned the responsibility. There are many fine schools that are graduating engineering students with degrees in safety who need to develop real-world experience. Some have summer internship programs, and a recent graduate may be a great hire.

If someone is injured while on the job, it is important his or her claim be actively managed. Studies have shown that helping an injured worker return to productive activity quickly is good for all parties. Consider a predetermined "light duty" program. In addition, conduct at least an annual review of all open claims with your agent and insurance carrier if possible. Often, you will be aware of workers who have returned to work or spot other discrepancies of claims reserves that are too high or should be closed. Remember, these claims will be taken into account when calculating your experience modification and renewal pricing. When your agent provides this information to a potential insurance carrier, you are far more likely to receive all available credits.

Proposal review

When the coverage proposals arrive and you review them with your agent, how do you decide the better value? Several factors should be considered.

First, the agent will compare rating worksheets to make sure the carriers are using the same exposures and determine the credits each carrier is offering. There have been instances when an agent or carrier underestimates sales numbers to drive a lower quote. This can become a huge surprise for companies when an audit is conducted at year end.

In theory, the coverage offered should be the same, but all carriers have slightly different provisions to differentiate their product offerings. This is important to consider depending on your exposures.

If risk control support is important to your company, it should be stressed some companies have far superior service available. You agent should know local capabilities.

Also, consider whether a carrier has a reputation of being steady in the market or has a history of short-term entry and exit. This is particularly important in the roofing industry.

Price obviously is of paramount concern, but the low price may not offer the best value. I also believe in loyalty. In my opinion, the incumbent carrier needs to be beaten by a significant amount to justify the effort and costs involved when making a change.

An informed choice

The topics I have discussed offer a broad overview of the insurance buying process and are not an exhaustive review of all the factors of becoming a good insurance buyer. My hope is you will find an idea or two to implement.

Byron Spencer is CEO of Norman-Spencer International Inc., Lombard, Ill.

For articles related to this topic, see:

"Ensuring insurance," March 2015 issue
"A real risk," January 2013 issue
"Facing safety," March 2005 issue

Did you know?

NRCA can help you with your insurance search and assist you with creating a safety program.

For more information, go to and click on the Safety and Insurance tab.


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