Helping Construction Companies Succeed with Insurance
EPISODE 8
On this episode of (un)covered, Dan Vander Kooi and Caleb Hazel talk about insurance for construction companies. Caleb peels back the curtain on insurance for construction companies, shares what is often overlooked, and provides a handful of practical advice for those in the construction industry. For anyone working in construction, this is a fantastic episode to listen to.
In This Episode:
The Construction Insurance Industry Today
What To Look For In A Broker & A Policy
Questions To Ask Your Broker About Construction Insurance
How To Ensure You Get Competitive Rates & Proper Coverage
Why Surety Bonds Are A Massive Part Of The Insurance Industry
How To Set Up Surety Well For Your Company
Podcast Episode Transcription
Intro:
Welcome to the (un)covered Podcast, brought to you by Manna Insurance Group, where we pull back the curtain on the insurance industry and provide valuable insights, guidance, and truth so that you can make informed decisions when choosing the right insurance.
Dan Vander Kooi:
Hey everybody. Dan Vander Kooi here with the (un)covered Podcast. I'm really excited today to have Caleb Hazel, he's our lead commercial sales director. Caleb, welcome to the show.
Caleb Hazel:
Happy to be here.
Dan Vander Kooi:
Yeah. So you've been in insurance for what, just over 10 years now?
Caleb Hazel:
Yeah, so I started in 2013.
Dan Vander Kooi:
Okay. Yeah. You're 11 right now.
Caleb Hazel:
Yep.
Dan Vander Kooi:
So tell us a little bit about just your journey through that, what you've learned. I know we both started very similar, we're just given a Yellow Pages book and started going and here learn insurance. But what you've learned over time where you come and then you specialize a bit in the construction industry. I mean, you do everything, but that's been a focus and a niche for you too. So maybe just share a little bit about your journey, what you've learned, and even where you see the market today.
Caleb Hazel:
Absolutely. Yeah, so I got into insurance because a friend of mine who I respected and loved, owned an insurance agency in Bellingham, and I said, "I want to be like him when I grow up." Tim Dickerson, shout out if you ever listen to this. But yeah, I didn't know a ton about the industry and like you said, you just call your friends and family and start figuring out how to sell insurance. And through that, I found success with a lot of local contractors, construction related companies, and ended up focusing on that as probably my main source of business. And like you said, we do a little bit of everything and those contractor connections can lead into real estate owners and multiple other downstream industries.
But I like contractors in particular because it feels like you almost get to participate in building things even though we sit behind a desk and what we do is coverage analysis and brokering of policies and all that good stuff. But it's really, really fun when you see a new house get built or a new commercial building and you go, oh, I know the guy who did the HVAC on that or did the site prep. And the dirt work. Makes you feel like you're a part of something beyond just the cubicle. So it's just fun for me.
And so yeah, with construction, I train a lot of brokers as well and did that in my previous company. And then also here at Manna, that's a big part of what I do. And I like contractors because they're more complex from a coverage perspective. If you own a restaurant, the coverages are pretty straightforward and they don't vary a ton carrier to carrier. There's always going to be small differences. But with contractors, your insurance policy language can be night and day difference from one carrier to another, and it can be buried 75 pages into a policy. You may never catch it if you don't read through the whole thing. And even if you did read it, I mean the odds that you understand the language, you might be great. And I do work with buyers that understand their policies well, but we really feel it's our job to understand those policies, to communicate to our clients, what are you covered for and what are you not?
And in Washington State in particular, we've seen just the way that the courts have ruled on different construction defects and other types of lawsuits. It's not a friendly state for construction companies. And insurance carriers have responded by putting a ton of limitations into what their policies will actually cover, from a liability perspective. I can't tell you the number of times that I've looked at somebody's policy, read through the fine print, ask them, "Well hey, what type of projects do you take on?" And they say, "Well, we're working in a subdivision and we're going to be laying the foundations for 25 homes in this subdivision." And you're like, "Oh, that's awesome. Sounds like a great project."
And you read the policy and they're limited to actually only doing 10 homes in a subdivision, but they had no idea. It wasn't communicated to them by whoever their agent was. Their agent may not even know that that exclusion exists on the policy. The general contractor didn't catch it. And we're just sliding by without anybody realizing there's actually no coverage on this policy. And so while you definitely want to look for an option that's affordable and competitive for market rate, you really need to have a relationship of trust with your broker, understand that your team is reading that policy and putting you in a position asking the questions about your projects so that you're not running into issues or worst-case scenario, getting kicked off of a job site because your insurance isn't compliant.
Dan Vander Kooi:
Well, and a lot of times in that too, a contractor might not even know if they're not speaking that language. And that happens a lot, right? There's a lot of times people don't understand the insurance language. And like you said, to some people's credit, yeah, absolutely, they dive in and they know it exactly. But there's a lot of people that don't understand it and they rely on their broker to do that. And I think you said it too, trust is a big deal and building that relationship.
But I think the other thing to hit on is one, as maybe a contractor grows in their career and their company grows too, and all of a sudden they start working for different types of general contractors, that can have a big play in different policy language that's built in contractual things. What are some of the things that you've seen over time that are a big deal that some of these contractors who start small and they start growing, all of a sudden they get put in from, I'll call it from a minor league to a major league. What are some things that they should be looking out for or conversations they should have with their broker? And if they're not having those conversations, what does that look like? Because that could be scary, they get down the road, right? And then they find out when a class action or a lawsuit's filed and they have no coverage.
Caleb Hazel:
Honestly, the biggest emerging issue for contractors in the Pacific Northwest in particular is actually on the auto side. Obviously we talked some about the liability, but on the auto side, we're seeing a lot more emphasis from the insurance carrier side and also from the courts around driver selection.
Now, when you're a growing company, we already know in this economy it's difficult to find quality labor, people that are going to show up on time, do the job, right? The good people sometimes get recruited away to another company. The labor force has been a big challenge. And how that relates to commercial auto is carriers will only insure drivers that have relatively clean driving records. There's a point system, and as soon as you have too many violations or even just one violation of a certain type, you're no longer allowed to drive for that company. So if you run a landscaping crew and your foreman gets a DUI, he's now uninsurable everywhere, or you're going to be paying out the nose to, we're talking $10,000 plus a year for one guy to be insured on one truck if there's a DUI situation.
So that driver selection is a big deal. And the companies that are being proactive about it, they will run NVRs before hiring. They will implement different new technology. So dash cams are controversial. A lot of people don't like having, some companies are doing the driver facing dash cams and just a higher level of accountability, with really good results. Honestly, from a claims perspective, it does make a difference. But for companies that aren't doing that, you can get telematics installed and have driver scores, make it competitive, pay bonuses to your safest drivers, but really just having that culture of safety around the vehicles in particular is where we see some of the largest claims come from is when you've got a guy who should not be driving for anybody really, and they have your company name on the side of his truck.
Dan Vander Kooi:
Well, and we're seeing that across the board in the industry. It's not even just in the commercial insurance, the personalized insurance too. The auto insurance is driving a ton of rate in the state. And so we talked about that earlier with Kyle Boone, I think on the last podcast we did, about just carriers taking rate after rate after rate and filing with the insurance commissioner's office. And now you're seeing that even on the commercial side too. And where companies, you used to always find someone that would just say, "Hey, we'll play ball on it." And now they're just saying, "Hey, it's too much of a risk," or, "We might have to section off this driver," like you had mentioned.
Tell me what else is going on in the construction industry as far as what you're seeing and maybe some things that are key to making sure that you're getting competitive rates, that you're getting the proper coverage that you need, and even choosing through a broker and making sure that they're educated on some of that.
Caleb Hazel:
Yeah, no, I think at large what's happening is there's still some uncertainty post-COVID about what is new residential development going to look like? And in Washington, compared to other parts of the country, we've been still seeing a lot of new residential development. And that provides work opportunities for everybody.
With that residential buzzword though, I would say, that's where it's most important to make sure that your agent, your insurance broker are well aware of your planned projects upcoming. And everybody thinks about insurance and they're like, "Oh man, I got to fill out all these forms and these applications and why are they asking for all this stuff?" There's a really good reason for it. And if you have planned out your job list for the next six months to a year, and if you can provide really good narrative around, well, here are the projects we've completed, here's what we're doing moving forward, a clear understanding of those types of work that you're doing allows for underwriters to get more comfortable with you as a potential insured of theirs. And it allows your agent to effectively tell your story to the marketplace. You're always going to get the best result when there's trust.
Dan's going to laugh at me here, but I always talk about that the best insurance deals possible is when there's trust from the client to the insurance agent, to the insurance company. And when all three of them are working together for a positive outcome, all on the same page, you get the best results. And even beyond that, if you're with an insurance carrier that provides some safety resources and different add-ons that you can participate in. I think shifting the mindset away from all these insurance companies are just about money and whatever, and they are to an extent-
Dan Vander Kooi:
Yeah. They have to be profitable.
Caleb Hazel:
They want to help you with safety because they don't want claims to be filed, but they throw tons and tons of resources for companies. We're talking about contractors in particular, but they'll come out and they'll help you with quality control on job sites, design a fleet safety program that all your employees sign off on, driving standards. And if your agent isn't necessarily helping you access those things, usually they can. So it is worth being a little bit proactive and, "Hey, we want to review our hiring procedures, can you guys help?" "Absolutely." Don't just think of it as buying an insurance policy. We want to be an advisor for you.
Dan Vander Kooi:
I would think too, that relationship that the agent then has with the carrier, I mean you and I were just out of state visiting with a carrier and their entire leadership team, we had their president and VP of Sales and Operations and President of Underwriting and everything there. And for us to fly over there for a day, spend time in a room with them for four or five hours, go to dinner, it's things like that where I feel like carriers still want work with that family-owned agency where they can build that level of trust. And so taking time to do that is something that I'm really proud of our team and of you and building those relationships with underwriters where we can go and we have that level of trust.
Because in our industry, that just to be flat out honest, there's a lot of people who just try to slide stuff through and there's a lot of gray in different things. And so we just try to be really upfront with underwriters and really diligent in being able to tell that narrative and that story and say, "Hey, this is why this is a good risk. This is why maybe they've had some claims in the past, but if you look at the last seven to 10 years, this is the story. And then this is what they're trying to do to continually get better." And when there's a high level of trust and it's a relationship and it's a back and forth and your broker's being honest and upfront with you and showing you what they've done to, not plead your case, but to show your story and who you are and what you're about, it creates long-term relationships for the carrier and the agent, for the carrier and the client, for the agent and the client.
And it makes things go a lot smoother because when an underwriter and an agent know your story and know who you are and know what you're about and what your company's trying to do and your goals, that's going to then in effect allow you to have probably better rates, maybe some more flexibility at times, not all the time. There's certain markets that things get hard in the market and you got to balance that, but there's that level of trust like you talk about, and that's a really big deal.
What are some things that people can tangibly do if they're like, "Hey man, I haven't looked at my thing, my policy in years. I just look at the premium page. This is how much I got to pay." What are some proactive steps that they can take to get educated more? And then, anything else in the industry going on right now?
Caleb Hazel:
Yeah, I think there's a little bit of a fallacy in the client side in their minds that, well, the best way to get a good result is I'm just going to shop this everywhere. So I'm going to call six brokers and I'm just going to have everybody all compete to get me the best possible deal. And that can achieve a result in the short term. But really, you're becoming your own insurance broker. If you're feeling like every two or three years I have to go talk to four or five insurance agents and figure out who's going to come in with the best possible rate.
What you really should do is interview a couple insurance people and your own current agent included, and just figure out what's the plan, what's the strategy, what do you think it's going to look like for this next year or for the next five years? Have a long-term perspective on that. And really at the end of the day, you're picking an agent who's going to be a part of your team and who's going to be able to anticipate your needs, has access to carriers that are going to be relevant to your industry, and then give that person the ability to go out and tell your story to the insurance companies and get the best result.
So instead of making a huge mess of which agent was I talking to here and there, spend some time upfront, figure out what your prospective agent is about and choose that person and let them work, partner up, link arms. And that tends to achieve the best outcomes, at least from what I've seen. And those long-term relationships are critical. And I would say, especially if you start looking at the surety side, for example, a lot of people, I say surety and it sounds like, yeah, that's a word, but I have no idea.
Dan Vander Kooi:
But it's a massive part of our industry, right?
Caleb Hazel:
It's a massive part. And it's a massive part of the construction industry period.
Dan Vander Kooi:
Why is that?
Caleb Hazel:
So surety is different than insurance in that insurance is if an accident happens, the insurance policy pays out. In a nutshell, surety is a contract. It's a three-party contract that's essentially guaranteeing you're going to perform a job correctly. That would be in its case of a performance bond. That's one of the most common surety items that we see in construction. We need you to post a performance bond because you're getting this job and we need to guarantee that you're going to complete an on time, on target and that there's not going to be any issues.
Now for those surety bonds to get issued, in the performance bond context, for a performance bond to get issued, the surety company has to feel comfortable in you as a company that you have the financial resiliency to manage a project if something were to go south, that you have a track record of delivering on time, on target. And that they can then put their stamp of approval on you and say, "Yes, you qualify for this million-dollar Public Works contract."
There's a lot of opportunity out there for companies to start to get into Public Works, but it requires a different level of attention to detail and some backend work to even put yourself in position to bid on those types of jobs. So that's where having a CFO or having a CPA who's well-versed in getting a contractor set up for surety makes a massive difference. Having a broker that's comfortable with the surety situation can quickly get bid bonds out on time, can help advise you on how much capacity can we potentially get? Is this a job worth pursuing? And those are the long-term relationships that you don't just switch around all the time, but if you're in a position where you don't feel you're getting the level of surety credit that you would like to have, a lot of times that's a relationship that just needs to be built with an insurance agent and with a surety company.
And for me, that's some of the most fulfilling stuff that we do because I have one client who's newer in business, but they're running a very, very strong company doing civil projects. And when you start out, you can usually qualify for up to $500,000 for a performance bond.
Dan Vander Kooi:
Because those bonds are all based off your financial, right?
Caleb Hazel:
Yes.
Dan Vander Kooi:
So you mentioned CPA and you even mentioned CFO at first, but it's a little bit of both, right?
Caleb Hazel:
It is.
Dan Vander Kooi:
Because you got to make sure that you're putting your best foot forward financially, that you have a certain amount and reserves and all that stuff. And there's a lot from the financial side that goes into it. So I mean, my grandpa told me back in the day, he goes, "If you get into business," he goes, "You need to have a good attorney and you need to have a good accountant." Those are two critical things.
Caleb Hazel:
I would add a good insurance agent.
Dan Vander Kooi:
And I would say I agree. Absolutely. But those are, especially as you're growing in that public work sector, having that relationship with a surety company is a big deal.
Caleb Hazel:
It is. And even if residential does slow down and companies are looking for, hey, we need to schedule a lot more work this year, we're seeing a lot more public funding become available for infrastructure projects and things like that. If you can be in position to even go after those jobs, it is one of those things that it's worth being proactive about. You can't just go out and get a surety bond for $2 million overnight. You really can't. It doesn't move quickly. The underwriting is intense, but by getting in early and starting to build that relationship, you can be in position to go after some really cool contracts.
But the client of mine that I'm really proud of, we started off on a credit only program where financials aren't required, but you can bid small projects. They did a good enough job that when we re-evaluated their surety, we were able to triple their capacity quickly. Their rate was cut in half, so their performance bonds cost 50% less than they were prior. And all of that was due to some really proactive financial management by the leadership team at that company. And it's stuff like keep cash in the bank. Make sure that we have working capital, make sure that we're liquid, that if something were to go south on a project, we're not dipping into our line of credit or our credit cards.
And by doing that, they're now able to pursue much larger projects than they were even just two years ago. And that's really fun for me because you go, yeah, did I save you a couple bucks? Great. But for me, the fact that a company now can open up millions of dollars worth of opportunity for that company to grow into, I think is really fun.
Dan Vander Kooi:
And sometimes in the contractor's eyes, it almost makes their insurance policy secondary to the surety relationship there.
Caleb Hazel:
Big time.
Dan Vander Kooi:
What's one of, I guess the key sides of things for you, when you're working on that surety side and you're having that conversation with the underwriter, what does the conversation look like? Are you focusing on where they're trying to grow so you can set the path up for what the next year or two is going to look like? Is it just their immediate cash flow? Are they doing projections as well? Then you're sharing some of those projections. What does that look like for a contractor that's trying to grow in that space, but they're not sure how to get there? Because I would say as an insurance industry as a whole, brokers and stuff, a lot of times know the policies, but I feel like a lot of people don't understand surety well in our industry. And as we're talking, it's a critical piece for significant growth for these contractors.
Caleb Hazel:
Yeah, I think it's both. I mean, it's planning and it's where do you sit currently? Because if you get yourself overextended and you have too many projects going at once and a ball gets dropped on one of them, that can affect your surety, that can affect your relationship with general contractors and with municipalities that you're working with. So the surety underwriter is, and we work with some really, really cool people on the surety side that are fantastic and experienced, and they're looking at it with a long-term perspective on, "Hey, what does your job scheduling look like? Where does this job fit into your current work in progress schedule? How many guys are going to be on that one? How many on that one? Do you feel confident that we're going to deliver on time on target?"
And so in a lot of ways it's a cool mechanism for just supporting contractors in their future planning and making sure that they're going to be financially resilient over time. And that for me is what I hope that my clients start to learn through the surety process is not just, well, I need this performance bond so I can do this job. Your surety relationship is a support to your long-term financial resiliency. And if your surety underwriter is happy with you, that means you're probably doing things right and you've got yourself in a really good position.
Dan Vander Kooi:
And if you're constantly setting yourself up right for that and you're in a good position, that then allows your broker to negotiate on your behalf to try to even get more competitive on those rates and things like that, right?
Caleb Hazel:
And I do get to see financial statements from contractors that I work with for the surety, and every single time, the most profitable contractors that I work with are also my surety underwriters favorite clients because it just gets you to that next level of planning and project selection and all that stuff.
Dan Vander Kooi:
Caleb, anything else that people out there should know, or contractors out there should know just about the market today or things going on? I'll give you the floor here to wrap it up.
Caleb Hazel:
Oh, man, what else should they know?
Dan Vander Kooi:
I mean, there's a lot that goes into it, right?
Caleb Hazel:
There's so much.
Dan Vander Kooi:
And so I know trust is at the base of every deal when you have a good broker on your behalf, but-
Caleb Hazel:
Yeah, if I'm trying to tie a bow on it, I suppose, yeah, the whole construction industry is still a people business. And I would say in commercial insurance, it's still that as well. We've seen the attempted commoditization of insurance, and I think in personal lines we see a lot more automation coming quicker, but with insurance and with construction, at the end of the day, the people that you work with make all the difference. The relationships with suppliers, with vendors that a contractor works with can make a massive difference in the profitability and success of a project. Same principle applies when you're working with your insurance broker, with your CFO. Having the right people on your team is how you get the best outcomes. And I think that's universal to business, but in an industry that used to be all handshakes and your word has to mean something-
Dan Vander Kooi:
Hey, look at that. That's my saying right there.
Caleb Hazel:
I stole it from you.
In an industry that was based on handshakes and is now being replaced by 45 page contracts, and your firstborn child is signed away in this thing. It's fun for me to look and see that people do still make a difference and that we can achieve really good outcomes across the board when we have those relationships.
Dan Vander Kooi:
Well over the last three years, I've just seen what you've been able to do for our team, for our clients and our community, and just really appreciate all your hard work. It's cool to be able to see you come here, come to work and train up some of our younger guys, but it's also to see cool and involvement you have in the community and what you're doing with the foster care system, with Skookum and with Lynden School District and just other things. And so thanks for all you do because we all come to work to support our families, to try to serve people well, and you do a great job with that. So we just appreciate you and constantly trying to educate people.
And so anyway, thanks for being on and taking time and out of your extremely busy schedule and I'll let you go-
Caleb Hazel:
Appreciate it.
Dan Vander Kooi:
Go to your meetings now for the rest of the day.
Caleb Hazel:
Thank you, Dan.
Dan Vander Kooi:
All right, thanks guys. Have a great week.
Have a Question About Insurance?
