Contractors often subcontract their labor to other construction workers. Class codes help insurance agents organize the types of subcontract work into groups.
This classification system makes it easier to find appropriate excess and surplus (E&S) insurance policies for construction clients.
Let’s explore how the E&S insurance market relates to the construction industry and some of the more popular subcontractor class codes.
What is the E&S Market?
The E&S insurance market provides policies for businesses with risks that standard carriers can’t cover. Insurance agents typically use it to place clients operating in industries with excessive or unusual risk profiles, such as construction contractors.
Carriers who offer E&S insurance policies are non-admitted, meaning they don’t have licenses in the states where they provide coverage. So, the regulations they’re subject to give them the freedom to create insurance products that can meet unusual coverage requirements.
For example, a landscaper needs a general liability policy with an aggregate limit of $3 million. However, admitted carriers can’t offer them more than $2 million. Therefore, their insurance agent turns to the E&S market to find a policy that meets their requirements.
Insurance Risks Affecting Contractors
Working in the construction industry often involves navigating dangerous circumstances. Contractors frequently need to use heavy machinery and tools under hazardous conditions to complete their projects.
Not only do they face potentially lethal injury in these situations, but they also risk liability for potentially significant damages to their customers’ property. And while it’s possible to mitigate these risks with skill and proper procedure, they’re impossible to eliminate.
As a result, contractors often need coverage beyond what they can get from standard carriers, and their agents must turn to the E&S market to find appropriate policies. However, E&S insurance policies have unique disadvantages that can affect contractors.
Here are some of the primary E&S insurance risks that agents should share with their construction clients:
- Higher premiums: Non-admitted carriers that write E&S insurance policies generally take on higher risks than admitted insurers. Therefore, they usually have to charge higher premiums to compensate.
- No coverage guarantee: Admitted carriers pay into a state fund that covers any outstanding claims if they ever go bankrupt. Non-admitted carriers don’t offer that benefit.
One common misconception you may encounter among clients is the idea that non-admitted carriers are less financially stable than their admitted counterparts. Fortunately, that’s not the case. A carrier’s solvency doesn’t correlate with its status as admitted or non-admitted.
Regardless, it’s becoming increasingly difficult for contractors to get standard coverage due to hardening market conditions. So, the E&S market is often the only way to get them the coverage they need, contributing to its rapid growth in recent years.
Subcontractor Class Codes
Pathpoint’s risk appetite includes several subcontractor class codes. Here’s what you should know about them.
GL Class Code 91581
Class code 91581 officially refers to: “Subcontracted work in connection with construction, reconstruction, erection, or repair - not buildings - not otherwise classified (NOC).” It can accommodate construction subcontractors who don’t fit into anything more specific.
For example, a contractor takes on a project that involves laying concrete in a client’s backyard. If they subcontract the work, class code 91581 might apply.
GL Class Code 91583
Class code 91853 officially refers to: “Subcontracted work in connection with building construction, reconstruction, repair, or erection - one or two-family dwellings.” It can only apply to projects related to residential properties with no more than two dwelling units.
For example, a remodeler reconstructs a single-family home after it burned down and subcontracts the drywall work to a specialist. Class code 91583 might apply.
GL Class Code 91585
Class code 91853 officially refers to: “Subcontracted work in connection with construction, reconstruction, repair, or erection of buildings – NOC.” It’s another generic code that might apply to subcontractors that don’t fit more specific ones.
For example, a roofer repairs water damage on the roof of a commercial building and subcontracts some of the waterproofing work. Class code 91585 might apply if more precise options aren’t viable.
GL Class Code 91591
Class code 91591 officially refers to: “Subcontracted work other than construction-related work.” It may apply to subcontractors who provide services tangentially related to construction projects.
For example, a landscaper removes the cement in a client’s sidewalk to make way for a flower bed, then subcontracts the sodding work. Class code 91591 might apply.
Insurance Best Practices for Your Contractor Clients
The dangerous nature of construction work often means contractors need E&S insurance to get adequate coverage. Here are some best practices to help you match them with the right product:
- Look for A-rated carriers: A-rated carriers are the most financially stable, making them less likely to go bankrupt.
- Trust your insurance expertise: Contractors often want just enough coverage to meet the minimum requirements for bidding on projects. However, that’s not necessarily enough to protect them. Inform them about the risks of insufficient coverage and guide them toward policies that meet their needs.
- Get multiple quotes for the best rates: Investigate numerous options to find the best policy for your client, including the lowest premiums and most favorable terms. Getting instant quotes with Pathpoint can streamline this process.
Following these best practices will help you find E&S policies that satisfy your contractor clients and adequately protect their interests, without breaking their budgets.
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