General contractors are focused on managing the timeline and risk throughout the entire process. However, the Achilles heel of the industry is the construction insurance certificate. The subcontractor may be the weakest link in your risk management strategy. Based on interviews and feedback from over 50 firms, we identified the key issues facing the industry, and what general contractors can do to protect themselves.
Validating the insurance coverage of all your subcontractors is a critical way to manage construction risk. By ensuring subcontractors are appropriately insured for the work they are doing, the general contractor has an additional layer of insurance protection in case something goes wrong. Without this, the general contractor may need to rely on his/her own insurance policy to respond to a claim. In the worst case scenario, the general contractor’s own policy may not even respond. We have seen construction insurance policies that explicitly exclude any claims resulting from an uninsured subcontractor.
We interviewed 50 firms in the construction space, as well as insurance industry experts, and compiled a list of critical elements to validate in an insurance certificate. We also categorized firms into four levels of sophistication when it comes to managing certificates. The vast majority of the firms we interviewed simply check the expiry date and that they are listed as an additional insured. However, they do not follow-up with the subcontractor in case the policy expires in the midst of the project, and there is no process to receive notifications from the insurance company in case the subcontractor’s policy is canceled or changed. The scariest part of all is that almost nobody actually checks that the subcontractor is insured for the actual work being performed.
One extreme example we saw was a roofing subcontractor that was hired to fix a damaged roof. The task required the application of heat, which was excluded from the subcontractor policy. However, this exclusion was not listed on the certificate, and so the general contractor wasn’t aware of it. Such issues can only be caught by reviewing the actual exclusions in the policy, or by working with an insurance provider that is very thorough and truly understands the construction space.
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Zensurance is Canada’s leading online commercial insurance broker. We offer a full range of insurance products to small businesses, with a particular focus on digitizing businesses and technology startups. We understand what it is to work with new technology, and know the most common risks of which you should be aware. Based on that (and a lot of analytics), we recommend the ideal insurance coverage for your business.