What Insurance do Sub-Contractors need?
From public liability to trade credit and tool insurance, commercial contractor insurance can, in theory, cover all risks. There is even cyber insurance to cover the risk of client data being stolen or your network taken hostage.
In this overview of contractor insurance, we look at some common types and what they cover, whether you’re a commercial carpentry contractor, plumber, electrician or any other type of tradie.
Public liability
Public liability is designed to protect you and your business from the financial risks associated with causing property damage or personal injury as a result of negligence.
Public liability insurance covers everything from the relatively trivial to the life-threatening, from accidentally breaking a vase to injuries from a collapsed scaffold. Typical cover is $5 million, but $10 million or $20 million are also options.
The insured amount depends on the type of work. If you’re working in busy shopping malls you might opt for $10 million rather than $5 million. Of course in many cases, your contract will stipulate a minimum public liability insurance amount.
WorkCover
If you’re an employer, you need to insure staff against workplace accidents. For example, WorkCover Queensland's accident insurance policy will cover the cost of a work-related injury, as set out in workers' compensation legislation.
WorkCover's Accident Insurance Policy insures you against all statutory and damages claim costs in the event of a work-related injury to your workers.
Builder’s warranty insurance
If you do residential work, you’ll need builder’s warranty insurance. This covers your client for loss of deposit, failure to start or finish a job and defective work on a completed job. It’s called different things across Australia, but the intent is the same. NSW calls it the Home Building Compensation Fund. Queensland offers Home Warranty Insurance through QBBC. In both states, it’s a legal requirement for projects above a threshold – $3,300 in Queensland, $20,000 in NSW.
As an example, the insurance premium for building a new residence in Queensland with an insurable value up to $800,000 is $9,568.40, according to the latest QBCC premium table (check for updates). But keep in mind that Home Warranty Insurance is only needed if you are a residential contractor.
Management liability insurance
Management liability insurance protects businesses and key staff members against the risks associated with running or managing a business. Breaches of legislation and compliance can happen despite the best of intentions. Management liability insurance can protect a business against:
· Wrongful acts by directors and managers.
· Dishonest acts by employees.
· Claims for wrongful dismissal or discrimination by past or present employees, customers or suppliers, including allegations of discrimination.
· Statutory fines and penalties.
· Tax audit costs.
Trade credit insurance
Debtors are a perennial problem for businesses, even if their inability to pay is beyond their control, as in present circumstances during COVID-19. Trade credit insurance keeps your business viable by covering losses if a debtor defaults on a payment or enters into insolvency.
You can take out trade credit insurance on a single repeat offender, a select few clients or your entire client base. If the debt is deemed unrecoverable, your insurer may pay up to 90% of the debt, depending on the policy.
With global concerns over debt accumulating due to COVID-19, there are calls by credit insurers for governments to back credit insurance. The sharp rise in insolvencies has caused credit insurers to threaten tightening or even removing trade credit availability if governments do not cover their risk.
Tool insurance
Tool theft is a lucrative trade, with stolen tools sold on second-hand sites or pawned. A tool insurance policy can cover your gear in the event of theft following forced entry. It can include damage or loss due to fire or a vehicle accident.
Vehicle insurance
It’s not exclusive to contractors, but vehicle insurance gets you back on the road faster if the ute’s stolen. You can combine it with trailer and tool insurance for a lower premium.
Cyber liability insurance
If your work PC, laptop or office server is hacked, stolen client details could include their bank accounts, home addresses, contact details and commercially confidential data. There’s a chance you could be locked out completely due to ransomware, bringing your business to a halt.
Cyber liability insurance protects your business against the legal costs and expenses related to cybercrime. It might cover data breaches, theft or loss of client information, business interruption costs and legal costs from civil action taken against you by a client.
Read the fine print, negotiate
If there was ever a time to read the fine print, it’s when you’re presented with an insurance policy. Insurance is a form of risk management, like wearing PPE. Many insurers have ‘Tradies insurance’ packages tailored to your trade. These might bundle up public liability, tool, vehicle and trailer insurance.
But everything is negotiable and the key is to ask questions. You need time to think about the policies you need, compare what insurance other tradies have and whether they think it represents value for money.
Don’t rush in and end up paying premiums for cyber liability insurance, for example, if you write everything down in a ledger. Get the insurance you need to cover your particular business risks.