Knowledge Corner

Have you wondered why your construction company is paying $X for your insurance premium while another firm is paying $Y? An insurance premium is the amount you pay your insurer for your insurance policy. An insurance company will use a variety of factors to determine how much to charge their insureds for their premiums. Let’s take a look at a few basic factors that affect your insurance premium.

Type of coverage

The type of insurance coverage purchased will affect your premium. The breadth of types of coverages is vast. For example, Auto Liability, Builders’ Risk, Pollution Legal Liability, Workers’ Compensation are all insurance coverages. However, the premium you pay for each one will differ. This is because they each cover a different type of risk.

Class Codes

There are many different types of trades in the construction industry. Workers’ Compensation class codes, are three-four digit numerical codes that are assigned by the National Council on Compensation Insurance (NCCI) based on the type of work your firm engages in. Insurance underwriters will consider the level of risk associated with these class codes when determining premiums. Roofers, Iron Workers, and Crane Operators are three of the most dangerous jobs in the construction industry. As a result, construction firms in those class codes will be charged more premium than other contractors, like Electricians or Plumbers. Since not all states use the standard NCCI system, it’s best to research your own state’s laws on Workers’ Compensation.

Exposures

Insurance companies use exposure as the basic unit to help determine the rates for each specific class of business. Underwriters typically use 4 types of exposures when determining premiums:

• Written exposure refers to the assets that are included on an insurance policy, generated during a specific time period.
• Earned Exposure is the portion of the written exposures for which coverage has already occurred as of a certain point of time.
• Unearned Exposure represents the portion of Written Exposure that has not yet occurred. 
• In-Force Exposure is the number of units that are exposed to loss at a specific time across all policies.

A review all types of exposures will help insurance companies to determine if they have taken on too much risk or if they have room to take on more.

Would you like to learn more about how insurance companies determine premiums? Reach out to TSIB to understand what factors are affecting how much you pay for your premium.

TSIB’s Risk Consultants are currently servicing the following locations:

East Coast: New York City, NY; Bergen County, NJ; Fairfield County, CT; Philadelphia, PA

Texas: Austin, San Antonio, Houston, Dallas

California: Orange County, Los Angeles County, Riverside County, San Bernardino County, San Diego County

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