In recent years, builders, trade contractors, and other design professionals have struggled with the availability and affordability of liability insurance. In some regions, rates have increased exponentially, while insurance carriers have dropped out of the market completely in others. There’s no way around the need for insurance. But for some companies, taking a proactive approach and accentuating the positive is helping ease the burden of rising costs.

Insurance carriers evaluate levels of perceived risk to determine coverage. One way to illustrate the reduced risk of insuring your company is by educating your agent about your risk management practices and providing a copy of your documented quality assurance plan. This demonstrates exactly how each aspect of the system operates, and how your company minimizes the risk of defect lawsuits and claims of poor workmanship and improperly installed products, materials, and equipment.

Zurich Services Corporation, one of the largest construction industry insurance brokers in the country, takes a firm stance when evaluating a company’s quality assurance practices. Mike McMichael, senior risk consultant for Zurich states, “Document everything. Particularly for smaller builders, documentation is one of the most important things that can be used down the road to demonstrate consistency, sophistication, responsibility, and a proactive approach to quality.” Insurance carriers look very closely at management practices to assess risk, and according to McMichael, a company’s quality assurance program, or lack therof, is a very telling indicator of how the business is managed.

When discussing your plan with insurance carriers, remember that quality control is not the same as quality assurance. Insurance carriers are looking for consistency, and quality control can be perceived as a reactive and inconsistent method for delivering results. To present a compelling argument for lower rates, consider the following talking points about your quality assurance system when heading to the negotiation table:

• Company standards are defined with comprehensive specs and reflected in scopes of work for all key trades
• Personnel understand and comply with applicable industry codes and regulations
• Qualified staff and trades are certified through training and ongoing evaluation
• Inspection procedures are defined and lead to an effective continuous improvement process to eliminate recurring errors
• Personnel re-inspects and documents the correction of all identified non-conformances with your quality system
• Integrated and effective jobsite safety program are used for all projects
• Each crew member follows product installation instructions
• Third-party inspections to verify results
• Documentation available to prove all of these points, records kept in an accessible and safe location for at least 10 years

There are strong indications that more widespread use by builders and trades of well-documented quality assurance programs that include regular training of jobsite personnel and a focus on continuous improvement can help to reduce costs. Objective, third-party verification of quality management practices is another compelling selling point for reduced premiums. So, if your company doesn’t have a fully-documented, systematic program for quality assurance in place, gaining ground will be difficult. To administer an effective plan, consider participating in a third-party certification program like NHQ.

For more information on leveraging your quality management system with your insurance agent, and a list of companies offering discounted CGL insurance to builders who meet specific criteria, contact Frank Alexander, NHQ Program director.

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