Workers compensation insurance is essential for contractors, providing coverage for workplace injuries and ensuring compliance with state laws. However, insurance companies often hesitate to insure contractors who subcontract most of their work. This reluctance stems from several risk factors, compliance concerns, and fraud potential that can arise when a business primarily relies on subcontractors rather than direct employees.
In this article, we’ll explore why workers compensation carriers are cautious about insuring these types of businesses, the challenges contractors face when securing coverage, and how BGES Group, a leading specialist in workers compensation insurance, can help contractors navigate these issues.
The Risk Factors Insurance Companies Consider
Insurance companies assess risk based on factors like payroll, employee classifications, and claim history. When a contractor subcontracts most of their work, it introduces uncertainties that make insurers uneasy. Here are some key concerns:
1. Lack of Payroll for Premium Calculations
Workers compensation insurance premiums are typically based on payroll. When a contractor subs out most of the work, their payroll appears artificially low, making it difficult for insurers to assess the true level of risk. Since subcontractors aren’t covered under the contractor’s policy, insurers worry that claims could arise from unreported workers.
2. Misclassification of Workers
One of the biggest concerns for insurance companies is whether the subcontractors are truly independent or should be classified as employees. Many contractors misclassify workers to avoid paying payroll taxes and workers compensation premiums. If an insurance audit or government investigation determines that subcontractors should be classified as employees, the contractor could face significant penalties, back premiums, and potential fraud accusations.
3. Increased Exposure to Uninsured Subcontractors
A major issue arises when subcontractors do not carry their own workers compensation insurance. If an uninsured subcontractor gets injured on the job, they may file a claim against the general contractor’s policy. This increases claims frequency, driving up costs and making the contractor a high-risk policyholder in the eyes of insurers.
4. Potential for Claims Leakage
When contractors work with numerous subcontractors, claims can become complicated. If an injury occurs, there may be disputes about which company is responsible. This can lead to workers compensation claims being incorrectly filed under the general contractor’s policy, increasing their loss ratio and making them less attractive to insurers.
5. Fraud and Abuse Risks
The potential for fraudulent claims rises when a contractor frequently subs out work. Some contractors may try to hide payroll by running it through subcontractors who don’t have legitimate business structures. Others may attempt to manipulate coverage by falsely reporting the nature of their operations to secure lower premiums. These risks make insurers wary of providing coverage.
Why Contractors Struggle to Get Coverage
Given these risks, many contractors who heavily subcontract their work struggle to obtain affordable workers compensation insurance. Some face policy cancellations, non-renewals, or exorbitant premium increases after an audit reveals excessive subcontracting. Others are outright denied coverage when seeking a new policy.
In states like New Jersey and Connecticut, regulations surrounding subcontractor insurance coverage can be strict. Many contractors find themselves in a difficult position—needing coverage to stay compliant but struggling to meet insurance companies’ requirements.
How BGES Group Can Help
If you’re a contractor facing challenges obtaining or maintaining workers compensation insurance, BGES Group is here to help. As one of the Tri-State’s leading workers compensation specialists, they have extensive experience assisting contractors in securing coverage—even those with significant subcontractor exposure.
1. Expertise in Workers Compensation Insurance
BGES Group specializes in helping contractors find the right workers compensation policy to meet their needs. They work with insurance carriers that understand the unique challenges contractors face and can provide solutions tailored to your business model.
2. Assistance with Compliance and Risk Management
If your workers compensation policy has been flagged due to subcontracting concerns, BGES Group can help you develop a strategy to remain compliant. They assist contractors with:
• Ensuring subcontractors carry their own workers compensation coverage
• Understanding classification codes and proper payroll reporting
• Reducing risk through effective safety programs
3. Access to Multiple Insurance Markets
Many insurance brokers have limited access to carriers willing to insure high-subcontractor contractors. BGES Group has relationships with multiple insurance companies, allowing them to find policies that fit your specific needs—even if you’ve been previously declined.
4. Help with Audits and Disputes
If you’ve received an unfavorable audit result due to your subcontracting practices, BGES Group can help you navigate the process, dispute inaccurate findings, and negotiate with your insurance carrier to avoid unnecessary premium hikes.
5. Fast and Reliable Service
Time is money in the construction industry, and contractors can’t afford delays in obtaining coverage. BGES Group prioritizes quick, efficient service, helping you get insured so you can continue working without disruption.
Need Workers Compensation Insurance? Contact BGES Group Today!
If you’re a contractor struggling with workers compensation insurance due to subcontracting issues, BGES Group is your go-to resource. They specialize in securing coverage for contractors in New Jersey, Connecticut, and beyond, ensuring you get the protection you need at competitive rates.
Contact Information:
• Gary Wallach
• Phone: 914-806-5853
• Email: bgesgroup@gmail.com
• Website: www.bgesgroup.com
Don’t let insurance companies dictate your business’s future. Contact BGES Group today and get the coverage you need to stay compliant and protected!