Procore Risk Advisors

🎓Monday Morning Knowledge🎓 One of the best ways to increase your chances of meeting your short/mid/& long term business goals is to have a risk management strategy built to support those goals. Insurance costs are always top five expenses on the Income Statement, and often top three. (Materials and Labor are usually 1&2) Here are the three most common strategies: 1- Growth: When Construction Companies are in growth mode, winning bids and competitive pricing is paramount. With this in mind, developing a Risk Management Strategy that leads to the lowest insurance costs is the easiest way to accomplish this. With the cost of materials and labor subject to market conditions, insurance cost is the best expense to target with value engineering. Two things to focus on here are incident/claim mitigation and insurance program structure. What I mean by Insurance Program Structure is potential small, medium, or large deductible programs, but could also incorporate using project specific placements and/or potential marketing efforts to see how competitive the current program is priced. 2- Maintain Revenue: Many Construction Firms get to an Annual Construction Volume that they are comfortable with. This is usually driven by employee counts that they feel efficient to manage or what their relationships will support from a sales standpoint, within a specific geo. If you are looking to maintain top line revenue, then every expense listed on your income statement is vital to control as they eat profit as the revenue heads down the statement. With the continued problem of Book Underwriting (the process of an Insurance Company saying, we need 4-8+% from every client we insure); being able to negotiate these increases at the account level is a major challenge. There are several ways to do this, DM me for how we do it at PRA. 3: Revenue Contraction: When backlog isn’t what you want it to be, this is a difficult scenario to navigate, on many fronts, but especially with insurance. Here’s why, a large component of insurance pricing is the thought process of “Funding for Losses” (the inderwriter is thinking, I need “X” amount of premium dollars to cover “Y” amount of expected losses) With premium being a derivative of Revenue on GL Pricing (per $1k of Rev), as Revenue goes down so does Premium. However, most underwriters still take “Funding for Losses” into account and the logical strategy is to raise rates to keep the premium dollars at a comfortable level and adequately fund loss potential. This could lead to a compounding effect as rates go up, bid spreads decrease and it becomes harder to win business and meet margin targets. What to do: Include your Brokerage Partner in your Business Strategy meetings. Your broker should be able to discuss variable strategies to support business goals and advise on the +/- of these scenarios. Please DM me with Questions #procoreriskadvisors #procore #constructioninsurance #insurance #riskmanagement

🎓Monday Morning Knowledge🎓 One of the largest changes to impact the Construction Insurance Industry in the past decade is the shift away from underwriting “Letters of Authority”. A Letter of Authority is a literal document, given to desk underwriters (now referred to as underwriters, for short), which outlines what decisions they can make without managerial approval. In years past, senior underwriters were granted autonomy to make decisions on single accounts; in some cases with clearance of $1M (premium)or more. In the past decade, this authority has erroded to almost $0, at the underwriter level, as most underwriting groups have shifted to a two or three tier (four on large loss sensitive deals) approval system. You may have heard the terms: Out for approval Over authority Managerial Approval Underwriting Approval (There are several iterations) All of these refer to the process of a desk underwriter having to get their pricing and coverage approved by a second, third, or fourth person prior to releasing a quote. 🚨A few of the many reasons this is meaningful: 1. As you get further up the managerial decision making tree, the decisions become more and more objective. The senior managers are looking at the data that supports the underwriter’s recommendations, so the information provided by the applicant and broker is extremely important if you want to get preferential outcomes. 2. Although relationships remain vital, the dynamic has changed since the days of wine/dine/bind are no longer as effective as they were when the person enjoying the wine and dine can’t make autonomous decisions. The relationships that move the needle today are ones of professionalism and trust. Underwriters in the construction space are held to an incredibly high standard and they want to know that their brokerage clients are interested in a partnership that takes their interests into account. Said another way, help them select winners. 3. Insurance Applicants need to partner with the right brokers to obtain the best insurance programs. Things such as knowledge of construction, not just construction insurance, (A good test for GC’s is to ask your broker what a leveling sheet is, for trades; what is a scope sheet) so they can represent you to the insurance companies in a way that will garner better outcomes. It’s surprising how few, self proclaimed construction brokerage experts (we’ve all heard “Subject Matter Experts”) know nothing about construction and fold when asked anything other than surface level questions. I know this was a long post and thank you for making it this far. Tells me you’re actually interested in educating yourself. I plan on doing these every Monday for a while to see if they get a positive response. Let me know what you think (ex. too long or not meaningful) DM me if you have additional questions and have a great Monday!!! #procoreriskadvisors #procore #pra #constructioninsurance #construction #insurance