Two electricians.
Same city. Similar work. About the same revenue. Roughly the same number of employees.
One gets an insurance quote for $6,000.
The other gets quoted $14,000.
What the hell happened?
It’s tempting to assume one contractor found a cheaper insurance company or has a better agent. And sure, carrier selection can make a difference.
But there’s usually a lot more happening behind the scenes.
When an insurance company looks at your contracting business, they aren’t just asking what kind of work you do. They’re trying to figure out how you run your business and how likely you are to have a claim.
That means two contractors who look almost identical on the surface can look completely different to an insurance underwriter.
And that can have a big impact on what you pay for commercial insurance — and sometimes whether an insurance company wants to quote your business at all.
Your Insurance Application Tells a Story About Your Business
Think about this from the insurance company’s perspective.
The underwriter reviewing your business probably hasn’t met you.
They haven’t ridden around with you for a week. They haven’t watched your crew work. They don’t know that you’ve spent the last 15 years building a solid reputation and doing things the right way.
They have paperwork.
They may have your insurance application, loss history, website, business information, driving records and other details about your operation.
From that information, they’re trying to answer a pretty simple question:
How comfortable are we insuring this business?
That’s really what underwriting comes down to.
And some of the things that influence that answer might surprise you.
Years in Business and Experience Aren’t Exactly the Same Thing
Let’s say you’ve been an electrician for 15 years but opened your own electrical contracting company six months ago.
Compare that with another electrician who has owned and operated the same company for 15 years.
Both might be excellent electricians.
But from an insurance standpoint, those aren’t necessarily the same situation.
Insurance companies may look at how long you’ve been in business, how much experience you have in the trade and whether that experience matches the work you’re doing today.
That last part matters.
Maybe you’ve spent 15 years doing residential electrical service work, but now you’re bidding larger commercial construction projects.
That’s a change in your business.
Changes aren’t automatically bad. But they can create questions.
The bigger the jump from what you’ve historically done to what you’re doing now, the more information an underwriter may want.
“I’m an Electrician” Doesn’t Tell the Whole Story
One of the biggest mistakes contractors make when talking about insurance is oversimplifying what they do.
“I’m a plumber.”
“I’m an electrician.”
“I’m a roofer.”
Okay.
But what kind of work are you actually doing?
A residential service electrician replacing panels and troubleshooting problems in existing homes can have a very different operation from an electrical contractor wiring large commercial buildings.
The same goes for plumbers, HVAC companies, roofers, general contractors, concrete contractors and just about every other construction trade.
Insurance companies may care about things like:
- Residential versus commercial work
- New construction versus service and repair
- Maximum height exposure
- Average and maximum project size
- Types of customers you work for
- Types of projects you perform
- How much work your employees perform versus subcontractors
That’s why two companies with the same revenue and the same basic trade can still receive very different contractor insurance quotes.
The details matter.
Your Website and Social Media Can Tell a Different Story
Here’s something contractors sometimes overlook.
Your insurance application doesn’t exist in a vacuum.
If your application says you only perform small residential projects, but your website is filled with photos of your crews working on large commercial buildings, don’t be surprised if somebody starts asking questions.
Insurance companies may review publicly available information about a business as part of the underwriting process.
That can include your website, online business information and social media.
This is another reason accuracy matters.
You don’t want one version of your company on the insurance application and a completely different version online.
And trying to make your operation sound smaller or simpler just to get a cheaper contractor insurance quote can create bigger problems later.
More on that in a minute.
Your Claims History Matters — But So Does What You Did After the Claim
Of course insurance companies look at prior claims.
If your company has had several losses, that’s probably going to get some attention.
But here’s the part contractors sometimes miss:
Having a claim doesn’t automatically mean you’re a bad business.
Claims happen. That’s why insurance exists.
What can matter is what happened afterward.
Imagine one of your employees causes a serious accident while driving a company truck.
What did you do next?
Did you start checking employee driving records?
Did you create a company vehicle policy?
Did you change your rules around distracted driving?
Did you put a process in place to prevent the same thing from happening again?
Or did you hand the employee the keys again Monday morning and say, “Try not to hit anybody this time”?
There’s a difference.
A company that identifies a problem and makes changes can tell a very different story from one that keeps having the same types of claims over and over again.
How You Manage Subcontractors Matters
Subcontractors are another big issue for construction companies.
Using subcontractors isn’t automatically a problem.
Not managing them can be.
If your company uses subcontractors, an insurance company may want to know what percentage of your work is subcontracted, what type of work they’re performing and what controls you have in place.
Do you use written subcontractor agreements?
Do you require subcontractors to carry their own insurance?
Do you collect certificates of insurance?
Do you make sure those certificates stay current?
And please don’t tell me:
“Yeah, I think my office has those somewhere.”
That’s not a procedure.
That’s a scavenger hunt.
If you’re paying hundreds of thousands of dollars to subcontractors every year but don’t have a consistent process for contracts and insurance documentation, that can create additional concerns for an underwriter.
It can also create headaches when your insurance policy is audited.
One Bad Driver Can Create a Big Commercial Auto Problem
Contractors tend to focus heavily on general liability insurance.
Meanwhile, commercial auto can quietly become one of the hardest and most expensive parts of their insurance program.
Your company might have a great loss history, solid operations and good safety procedures.
Then we look at the drivers.
Uh-oh.
Speeding tickets.
At-fault accidents.
Serious moving violations.
Suspended licenses.
Maybe even a DUI.
Those driving records can affect your commercial auto options.
And depending on the circumstances, one problematic driver can create issues for more than just that employee’s vehicle.
That’s why growing contractors should have some type of fleet management process.
It doesn’t need to be a 97-page corporate manual that nobody reads.
But somebody should be asking:
Who is allowed to drive company vehicles?
Are driving records checked before someone is hired?
Are they checked again periodically?
What happens if an employee receives a serious violation?
Can employees take vehicles home?
Can family members drive company vehicles?
What’s the company policy on distracted driving?
Those aren’t just insurance questions.
They’re business questions.
Growing Too Fast Can Actually Create Insurance Problems
This one catches business owners off guard.
Growth is good, right?
Usually.
You want more revenue. More customers. More employees. Bigger projects.
But rapid growth can also change your risk.
Imagine your construction company did $800,000 in revenue last year and you’re projecting $2.5 million this year.
That’s fantastic.
But an insurance company may naturally ask:
What changed?
Did you hire a bunch of employees?
Add trucks?
Start using more subcontractors?
Move into commercial work?
Start accepting larger contracts?
Expand into new territories?
Those changes aren’t necessarily negative.
The question is whether the systems inside your company grew along with the revenue.
A contractor doing $500,000 a year might be able to keep a surprising amount of information in his head.
At $5 million?
Good luck with that.
You need processes.
You need documentation.
You need people responsible for things like safety, vehicles, certificates, contracts and recordkeeping.
Rapid growth without those systems can make an otherwise successful company more difficult for an insurance company to evaluate.
Prior Cancellations and Non-Renewals Can Raise Questions
Your insurance history matters too.
Insurance companies may want to know whether you’ve maintained continuous coverage and whether previous carriers have canceled or non-renewed your policies.
A cancellation or non-renewal doesn’t automatically mean you did something wrong.
Insurance companies change underwriting guidelines. Some stop writing certain types of businesses. Others leave markets entirely.
Context matters.
But repeated cancellations or non-renewals can naturally lead to more questions.
Was there a payment problem?
Did the company’s operations change?
Were there claims?
Was information missing or inaccurate?
Did the insurance company discover something about the business after the policy was issued?
The cleaner and more consistent the story, the easier it generally is for everyone involved to understand what they’re being asked to insure.
Don’t BS Your Contractor Insurance Application
This one deserves its own section.
Be accurate on your insurance application.
I understand the temptation to make something look a little better.
Maybe the payroll estimate gets shaved down.
Maybe you leave out a new operation because you’re worried it’ll increase the price.
Maybe someone gets described as a subcontractor even though the actual working relationship isn’t that simple.
Maybe you occasionally perform a certain type of work but decide not to mention it.
You might get a cheaper number today.
But you haven’t actually solved anything.
You’ve just moved the problem down the road.
Maybe it gets caught during an audit.
Maybe the insurance company asks questions later.
Or, much worse, maybe the issue comes up after a claim.
That’s a terrible time to discover that the insurance policy was built around a different version of your business than the one you actually operate.
Cheap insurance isn’t cheap if it doesn’t accurately reflect the risk you’re asking the insurance company to cover.
Why One Contractor Gets a $6,000 Quote and Another Gets $14,000
Now let’s go back to those two electricians.
They have similar revenue.
They work in the same city.
They perform similar work.
But let’s look closer.
Contractor #1 has been operating for ten years. He has a good loss history. He uses written subcontractor agreements. His office collects certificates of insurance. The company checks driving records, has basic safety procedures, keeps good payroll records and has experienced steady growth.
When the insurance company asks questions, the answers are clear and documented.
Now look at Contractor #2.
Similar revenue.
Similar work.
But there have been several claims.
The company uses subcontractors without consistently collecting insurance information.
There’s a driver with a rough motor vehicle record.
Revenue doubled over the past year without many internal systems changing.
The previous insurance company non-renewed the account.
And some of the information on the application doesn’t line up with what the company advertises online.
Same trade.
Similar revenue.
Very different businesses from an underwriting perspective.
That’s the part contractors need to understand.
Insurance Companies Aren’t Just Looking at What You Do
This is the bigger point.
When an insurance company evaluates your construction business, they’re not just putting a price on plumbing, electrical work, roofing, HVAC or whatever trade you’re in.
They’re also looking at how the business operates.
Do you keep good records?
Do you manage subcontractors?
Do you pay attention to who’s driving your vehicles?
Do you learn from claims?
Do you have safety procedures?
Are you growing in a controlled way?
Is the information you’re providing accurate?
Those things help tell the story of your business.
And here’s the good news:
A lot of them are within your control.
How Contractors Can Become More Attractive to Insurance Companies
If your renewal is next week, there’s only so much you’re going to change before then.
The better approach is to work on this stuff throughout the year.
Keep your subcontractor certificates organized.
Use written subcontractor agreements when appropriate.
Have a basic driver policy.
Check employee driving records.
Document your safety procedures.
Keep accurate payroll and subcontractor records.
And when something significant changes in your business, talk to your insurance agent.
Bought three trucks?
Tell us.
Taking on a much larger contract?
Let’s talk about it.
Moving into a new type of work?
We should know.
Revenue is about to double?
Yeah. Definitely tell us.
I’d much rather have that conversation months before renewal than try to explain everything to an underwriter at 4:30 on a Friday afternoon while your policy expires at midnight.
Nobody enjoys that Friday.
The Cheapest Contractor Insurance Quote Shouldn’t Be the Only Goal
There’s nothing wrong with wanting competitive insurance pricing.
You should.
But price shouldn’t be viewed in isolation.
The goal is to accurately represent your business, understand the risks you’ve actually created and find insurance companies that are comfortable with the kind of contractor you’ve become.
Sometimes a good contractor keeps getting terrible insurance quotes because insurance companies aren’t seeing enough evidence of the well-run business behind the application.
That’s something you can work on.
And in many cases, the same things that make your company more attractive to an insurance company — better safety practices, cleaner records, stronger subcontractor controls and better fleet management — can also make it a better business.
That’s the real takeaway.
Your insurance quote isn’t only about what kind of contractor you are. It’s also influenced by how you operate your company.
So before your next renewal, try looking at your business through an underwriter’s eyes.
You might be surprised by what you see.
If you’re a contractor in Texas and you’re trying to understand why your general liability, commercial auto, workers’ compensation or umbrella insurance keeps getting more expensive, Leal Insurance Services can help you look beyond the quote and understand what’s driving it.
We’re here to help you build an insurance program around the business you’re actually running — not just sell you another policy.
Frequently Asked Questions About Contractor Insurance Rates
Why do two contractors doing the same work pay different insurance rates?
Insurance companies generally look at much more than a contractor’s trade. Factors can include revenue, payroll, years in business, experience, claims history, type of projects, subcontractor usage, driving records, safety practices, insurance history and other characteristics of the business.
That’s why two electrical contractors, plumbers or HVAC companies with similar revenue can still receive very different insurance quotes.
Does my claims history affect my contractor insurance rates?
It can. Insurance companies may consider the number, type, frequency and severity of previous claims when evaluating a business. They may also want to understand what steps the company took after a loss to reduce the chance of the same problem happening again.
Can subcontractors affect my general liability insurance?
Yes. How much work you subcontract, the type of work subcontractors perform and how you manage those relationships can affect how an insurance company views your operation.
Written agreements, certificates of insurance and consistent procedures for verifying subcontractor insurance can all be important parts of managing that exposure.
Can bad driving records increase commercial auto insurance costs?
Yes. Employee driving records can affect commercial auto underwriting and pricing. Serious violations, multiple accidents or other driving issues may limit which insurance companies are willing to insure a contractor’s vehicles or drivers.
Why does an insurance company care how quickly my business is growing?
Rapid growth can mean more employees, vehicles, payroll, subcontractors, projects and larger contracts. Insurance companies may want to understand whether the company’s management, safety procedures and internal systems are keeping up with that growth.
Growth isn’t necessarily a bad thing. It simply changes the business an insurance company is being asked to insure.
Can an insurance company look at my contractor website or social media?
Publicly available information may be reviewed during the underwriting process. If your website or social media shows operations that don’t match the information submitted on your insurance application, it could lead to additional questions.
That’s one reason your application should accurately describe what your company actually does.
Will a previous insurance cancellation or non-renewal hurt me?
It can affect underwriting, but the reason matters. A carrier may non-renew a business because of claims, payment history, changes in operations or underwriting guidelines. In other situations, the insurance company may simply stop writing a certain type of business.
Be prepared to explain what happened rather than assuming a prior non-renewal automatically makes your business uninsurable.
How can a contractor get better insurance rates?
There isn’t one trick that guarantees a lower premium. Contractors can, however, work on the factors they control: accurate records, driver screening, safety procedures, subcontractor management, claims prevention and giving the insurance company complete information about the business.
It also helps to work with an insurance professional who understands construction risks and knows how to present the business accurately to appropriate insurance markets.
When should I start preparing for my contractor insurance renewal?
Don’t wait until the week your policy expires.
If your business has experienced significant changes — new employees, vehicles, locations, services, large contracts, substantial revenue growth or increased subcontractor usage — discuss those changes with your insurance professional during the policy year.
That gives you more time to address potential issues instead of discovering them when the renewal is already due.
Read more from Leal Insurance Services
- Your Contracting Business Grew. Did Your Insurance Grow With It?
- Why Two Contractors Doing the Same Work Can Pay Completely Different Insurance Rates
- Before You Sign That Construction Contract, Read the Insurance Requirements
- Contractor Insurance Audits: Why You Got a Huge Bill After Your Policy Ended
- Real Contractor Claims That Put Small Construction Companies Out of Business: Employee Injuries in Texas