Liability Premiums Still Hit Contractors Hard

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Just three years ago, Larry Oaks paid about $5,000 for general liability insurance for his Little Rock construction company.

Today he’s paying $90,000 — a 1,700 percent increase.r

In Arkansas and across the country, contractors have seen their general liability rates soar. Some contractors in other states are seeing their rates rise 600-1,000 percent. Blame for the rate increase is being placed on everything from the Sept. 11, 2001, terrorist attacks on America to the rise of mold-related claims to a decrease in supply caused by insurance companies leaving the market.r

Contractors say there’s not much they can do but pass the costs on to customers and hope the rates drop.r

Steve Russell, president of First Arkansas Insurance of Little Rock, said premiums for 2003 should increase an average of 10-15 percent. In 2002, he said it was common for contractors in Arkansas to see increases of 50 percent and more.r

Oaks, a co-owner of Oaks Brothers Inc. of Little Rock, said, “There’s no telling what (the liability rate has) done to the cost (of a project).”r

A lack of insurance has also forced some out of business.r

Gary Stephen Searles of Pine Bluff filed for Chapter 7 bankruptcy protection on June 23 for his company, SS Construction, after a string of events tied to a $7,000 claim he filed with his insurance company in 2001.r

Searles, who is now operating Steve’s Home Repair and Remodeling, said he was in the middle of installing a roof and deck for a home in Sheridan when it rained and ruined the projects.r

His insurance company paid the claim but then canceled Searles’ policy.r

“It was ridiculous,” he said.r

Searles hasn’t bothered looking for new insurance because he figures no one will cover him with his history. So he makes sure the projects for which he applies are less than $10,000. If something goes wrong, Searles said he can withstand the loss of a few thousand dollars, but not $20,000.r

As of June, Searles reported making $12,000 this year, according to his bankruptcy filing. In 2001, he reported $53,000 in income, but in 2002 it fell to $46,000.r

Searles said things are looking up and he’s got enough work to last him the next six weeks.r

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Flying Without a Netr

It irritates Oaks to hear that contractors are working without insurance.r

Oaks said he’s losing business to several fly-by-night subcontractors who aren’t buying the liability insurance — and some general contractors don’t care.r

“It’s really putting us at a disadvantage,” Oaks said.r

Oaks Brothers, which installs Exterior Insulation and Finish System, commonly known as synthetic stucco, mainly for commercial projects, has expanded its operation to surrounding states to make up for the lost revenue.r

One of the reasons Oaks’ insurance rates are so high is the potential for rotting if EIFS work isn’t done properly. Oaks said his policy is up for renewal this month, and he’s not sure what the premium will be for the next year. But whatever it is, he’ll pay it.r

Roofing contractors are also feeling the pinch over the rise in rates.r

“They have killed us this year,” said George Covington Sr., owner of Covington Roofing and Sheet Metal of Conway.r

Covington wouldn’t say what he’s paying in insurance premiums, but the rates have almost doubled since 2001.r

“We’ve always had trouble with insurance companies, but it’s gotten a whole lot worse in the last couple of years,” he said.r

He said he can’t put his finger on the reason for the increases, except that it all goes back to September 11. And he can’t turn to another insurance company because so few issue insurance for roofers.r

“We just have to pass it on to the consumer,” he said.r

A lot of other roofing companies are in the same boat, though, Covington said.r

“Now, if you hire someone that doesn’t have insurance, you beat the system — unless you have something happen,” he said.r

All Covington can do, he said, is hope the rates drop.r

“If you don’t think they’re going to get better, it’s pretty bleak,” he said.r

Roofers have seen “big, big increases,” said Leslie Kazmierowski, a spokeswoman for the National Roofing Contractors Association, of Rosemont, Ill. She attributes the rise to the hard insurance market.r

Some of the events that triggered the rate increases include the terrorist attacks, losses related to asbestos claims, the stock market decline and soaring litigation costs, she said.r

“So the first thing (insurance companies) pull back on is the riskier classes of business,” Kazmierowski said. “Roofing is kind of risky.”r

The insurance company the association works with has raised its rates on average about 20 percent.r

“It’s bad all over the country,” she said.r

Kazmierowski said there’s nothing that can be done about the rates.r

“If (roofing contractors) can make it through this year, then next year shouldn’t be as bad,” she said. r

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GCs See Increasesr

General contractors also have seen their liability rates rise.r

Nabholz Construction Corp. of Conway holds a general liability policy and an umbrella policy. Greg Williams, Nabholz’s chief financial officer, said he’s seen increases in both policies, and the umbrella policy was particularly eye-opening.r

A few years ago, the umbrella policy’s premium was $180,000, and now it’s at $338,000 — an 88 percent increase.r

“We never had a claim against our umbrella policy,” he said. “So it’s not our history that made our premiums go up, it really is the market.”r

He said Nabholz is forced to pass the rates onto its customers.r

Bob Shell, president and CEO of Baldwin and Shell Construction Co. of Little Rock, said after September 11, the company saw its rates jump 22 percent for 2002. But for the current year, the rates have only increased 10 percent for approximately the same coverage. He declined to say what he was paying in premiums.r

Shell also said the rate increases are passed onto the customer.r

“That’s the only way we could do it is to absorb those kind of increases,” he said. “Every time we figure a job, we figure liability and insurance into it.”r

Home builders also have taken a hit with the rates.r

David Henson, owner of Arkansas Mortgage Group of Little Rock, had considered jumping into the home-building business.r

Henson’s vision was to create a one-stop shop for customers wanting new homes. He would handle everything from construction to the mortgage.r

But then he decided to stick with the mortgage business. One of the reasons was the rising liability rates.r

“When you are figuring a profit line of 10-15 percent, if you’re lucky on residential houses, and you factor in that other additional liability insurance, then you’re talking about making 5-10 percent on a house,” Henson said. r

Henson said because of the rates, several people are thinking twice about going into the home-building business.r

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Actuary Reasoningr

Matt Cashion, secretary-treasurer for the Cashion Co. of Little Rock, which writes commercial insurance and bonds, said the liability insurance rates have been rising over the past couple of years.r

But increases have varied depending on the price of the construction and each individual contractor’s loss history, he said.r

He said the rates haven’t gone up as much in Arkansas as they have in other parts of the country.r

Still, the rates had remained flat for 10 years, so “it’s not totally unreasonable” for them to rise, Cashion said.