Are a general contractor's liability insurance premiums based on what they pay sub-contractors?

Answer 1

Contractors General Liability InsurancePremium for a general contractor can be based on one or a combination of two things, either your gross receipts and or your payroll and cost of subcontractors. Each company has it's own rating methodology so it depends on which market is quoting for you.

As far as the distinction for subcontractors costs, i.e. materials vs labor, I have always had my clients rated off of their subcontractors labor payroll. If your subcontractors do not have there own liability insurance this will be picked up at your year end audit and you will pay a significantly higher premium for them than you would have had they carried their own insurance.

Various CGL premium rating methodsThe insurance company that I've had experience with charges for both: 1) payroll of employees, and 1) Total Cost of sub-contracted work, if any.

But keep in mind that the "rate" charged per $1,000 of either the employee payroll or Sub-Contracted Total Cost is vastly different.

For example, suppose you are a General Contractor with employed carpenters. Your rate per $1,000 of payroll may be $39.45, but your rate for the Total Cost of sub-contractors is only $0.58 per $1,000.

There may be differences, but I think that industry wide employees are based on Payroll and sub-contracted work is based on Total Cost, BUT this assumes that you've done a proper job of documenting that the subs are truly sub-contractors, e.g. certificates of insurance for both General Liability and Workers' Compensation. Because lacking documentation will result in the Total Cost of sub-contracted work to be picked up and charged for as employees. Thus an unexpected large audit billing for the prior term insurance policy.