As a specialty trade contractor, have you ever had a paycheck withheld or reduced because your GC didn’t have a record of your insurance coverage? This is a fairly typical situation. In most cases either the insurance broker didn’t get it delivered to the customer or the GC or customer didn’t keep track properly. In either case, it’s likely you want to know there’s an issue until your paycheck is reduced or held up for insurance reasons.
If you are new to the contracting industry or not familiar with why these requirements are in place, read on so you can know what you don’t know.
Why You Must Supply a Certificate of Insurance
Most General Contractors do not provide workers’ compensation or general liability for their sub-contractors. It’s not because they can’t, it is because it doesn’t make financial sense for the GC or the sub. If you are covered under your GC’s workers’ compensation or general liability insurance, you will most likely be penalized for claims being paid on other sub-contractors which result in expensive rates.
The only way your GC can be held not responsible for your insurance is by filing a certificate of insurance with their insurer on an annual basis. If, for example, you do not provide the certificate as requested, your GC’s insurance company will surcharge their policy because that company is at risk of having to pay claims for your sub-contractor business.
Audits Reveal Deficiencies
Typically, all workers’ compensation insurance companies have an audited completed before the annual renewal date and after a policy has been canceled. The purpose of the audit is to verify the risk to the insurer so they can charge an appropriate rate.
During the audit, if the insurer is not provided with certificates from all sub-contractors that were claimed on the GC’s tax return, the insurer will increase the workers’ comp insurance premium to provide coverage for the subcontractor.
It works the same way with general liability insurance although some insurers will provide coverage for sub-contractors as long as the total of the sub-contractors’ cost to the GC is less than 25% of the total revenue of the GC.
The Effect on Your Business
Although some GC’s will deduct their estimated cost for your insurance from your paycheck, the majority will simply hold the check until you have resolved the deficiencies. This situation could cause a significant financial hardship for any business, especially when the payment is a large amount.
It’s tough enough waiting until the contract is completed to get paid, consider how much tougher it would be if you have to wait an additional month to get your certificates delivered.
How Can I Prevent This From Happening?
Knowing how important certificates are to your business, it makes perfect sense to do business with an insurance broker that considers insurance certificates a priority. Fairbanks Insurance Brokers understand how important your certificate is to you financially and always considers your certificates as a top priority. After all, outstanding service after the sale is necessary to have a long-term relationship with a client.
You, as the sub-contractor, need only to make certain to notify your insurance broker of your certificate requirements and to make sure your policy remains active with the insurer. Once your policy is issued, you need only to make timely payments to keep it in force.
For more information and a free commercial insurance quote, contact an insurance professional at Fairbanks Insurance Brokers at (949) 595-0284.