Have your company’s insurance premiums gone up even though your losses don’t justify it? There can be many reasons for such increases, but according to the American Subcontractors Association (ASA), Alexandria, Va., one major reason for spiraling insurance costs is often overlooked: risk transfer.
When specialty contractors sign construction subcontracts and insurance policies without knowing how to negotiate a balanced allocation of risk, the financial consequences can be enormous. Realizing this is a problem for subcontractors, ASA developed the Risk Transfer Management Kit: A Guide for Dealing with Insurance and the Risk Allocation Dilemma. The kit includes a 50-minute video on "Contractual Risk Transfer: Beyond the Basics for Subcontractors," presented by Richard Usher, CEO and managing member of Hill & Usher Insurance & Surety, Phoenix, Ariz., and a 70-page manual, which explains the "ins-and-outs" of complex insurance and contract issues.
The manual and video outline the three main ways project-related risks are inappropriately transferred to subcontractors: contractual indemnity, "additional insured" insurance clauses, and waivers of subrogation. Taken together, these three risk transfer devices account for billions of dollars of claims against subcontractors’ insurers annually. According to ASA, subcontractors end up bearing the costs through higher insurance premiums, deductibles, and sometimes inability to obtain coverage.