When a contractor asks for the cheapest general liability policy available, the premium is only one number a broker needs to compare. The right contractor liability insurance option also needs to reflect what the contractor does, how the account is rated, and which policy terms apply to those operations. A lower premium loses its appeal quickly if the contractor’s work does not fit the program or the policy lacks an endorsement required by a customer or general contractor.
So, how much does contractor liability insurance cost? There is no single answer. The contractor’s trade, business activity, subcontractor use, rating basis, and other underwriting information all contribute to the premium indication.
What Drives General Liability Premiums?
General liability pricing starts with the nature and extent of the exposure. An electrical contractor, janitorial contractor, and general remodeler perform different work and present different liability risks, so underwriters need an accurate description of the contractor’s operations when determining eligibility and pricing.
The amount of business activity also affects the premium calculation. For general liability, insurers may rate a contractor based on payroll, gross sales, square footage, or another applicable exposure measure, depending on the classification code assigned to the operation. The California Department of Insurance refers to those measures as rating exposures: The insurer applies a rate to the exposure to calculate the premium, with deductibles and other rating adjustments potentially affecting the final amount.
Commodore’s own contractor programs illustrate why brokers need to understand the rating basis before comparing prices. Our Capstone GL Program for small artisan contractors is priced on payroll, while the Keystone GL Program for small to midsized contractors is priced on net sales. A premium indication only makes sense in the context of the program and the exposure being rated.
Underwriters may also need information about the contractor’s scope of work, project types, subcontractor use, experience, and prior claims. Both Commodore programs accept new ventures, so a lack of years in business does not automatically rule out an account.
Why the Lowest Premium May Not Be the Best Comparison
Contractors may see two dollar amounts and assume the lower one represents the better deal. Brokers need enough information to determine whether they are comparing similar risks and policy terms in the first place.
Before requesting a premium indication, pin down the details that can affect both underwriting and pricing.
- Operations: What work does the contractor perform, and what percentage of the business comes from each type of work?
- Business activity: What payroll, sales, or other rating exposure applies to the program?
- Subcontractors: How much work is subcontracted, and what types of work do subcontractors perform?
- Project mix: Does the contractor handle service and repair work, remodeling, new construction, or a combination?
- Policy requirements: What limits, additional insured endorsements, and completed-operations provisions do current contracts require?
The answers help underwriters evaluate the account and help brokers determine whether competing premium indications represent comparable options. Limits, deductibles, endorsements, and eligibility requirements can all affect whether a policy fits the contractor’s operations and contractual obligations.
Accurate information also helps avoid one of the insurance mistakes new contractors can make: choosing a lower-priced policy without considering whether its terms match the work being performed. A lower premium is not an equal comparison if the policy or program does not fit the contractor’s operation.
The Broker’s Value Goes Beyond Price
A contractor may begin the conversation by asking, “How cheap can I get this?” The broker can turn the question into a better one: “What are we getting for the premium?”
That approach means comparing contractor general liability insurance based on eligibility, rating structure, policy terms, and the contractor’s current operations. It also means giving the underwriter enough information to produce a premium indication that reflects the account being placed.
Commodore Insurance Services offers general liability programs for eligible contractor classes, including service trade, artisan, remodeling, and general contractor risks. Brokers can use Commodore’s online rater to obtain premium indications for eligible accounts and evaluate the available program options.
Have a contractor account to place? Get in touch with us to discuss the risk and request a premium indication.
About Commodore
Commodore Insurance Services, Inc. (Commodore) is a California corporation that operates as a Managing General Agency and Program Manager. Since incorporating in 1990, Commodore has developed an expertise in the production and underwriting of insurance products for businesses across the West Coast. Our focus is on providing top-level insurance products to our clients while striving to make it easy to do business for our brokers. Try us and find out why we have continued to be successful for more than 27 years and are recognized as the trusted leader in small business insurance.
