One of the most significant annual budget line items for an HVACR firm is the cost associated with insuring business. Insurance is a critical component to accomplishing two of these primary goals: protecting a business’s health and assuring the well-being of your employees. Designing proper coverage and having a complete awareness of the direct costs associated with each of these objectives can go a long way toward improving a company’s bottom line. In my years as a consultant and HVAC company executive, I have uncovered many areas of hidden insurance costs that can be reduced, and sometimes eliminated, if managed properly. It’s equally, and potentially even more important for you as a manager or owner to have a clear understanding of the gaps or exclusions in your insurance program so you are aware of and prepared for any potential uncovered claims as a result of these exclusions. 

Hidden Costs

Rating Errors — Insurance companies frequently make rating errors in policies. I have often found errors based on the insurance company’s use of incorrect classification codes chosen to rate and charge premiums. Big savings can also be realized in areas that are in plain sight, but many policy holders neglect to scrutinize such as the location of where your company vehicles are stored and/or driven. No business is identical to the next, yet insurance carriers often use a cookie-cutter approach to our industry and, as a result, apply unnecessary charges to your program.

Claims — Insurance companies charge premiums based on the loss or claim experience incurred by their customers. Is there a process in place to review current and past claim experiences for accuracy? Keep in mind, insurance companies are charging clients based on this experience and if there are older inaccurate claims on file, which there often are, they are inflating the cost.

Third-party Information — In addition to claim experience, there are other factors that contribute to costs. Consider workers’ compensation, for instance. Carriers use a rating element called an experience modification (mod) factor that is produced by the National Council on Compensation Insurance (NCCI). NCCI receives its data from insurance carriers in order to calculate an individual’s experience mod factor. It has been my experience that many of these factors have been calculated incorrectly due to poor information being passed on to the NCCI. The mods can be corrected and refunds allocated to the company, if errors are found.

Gaps in Coverage

Environmental/Pollution — Most companies assume the purchase of a comprehensive insurance program will afford comprehensive coverage, but this is extremely misleading. Claims associated with the release of pollutants or claims generated by mold are typically excluded from general liability policies.

Contractors’ Professional Liability — What contractor hasn’t gone to a job site and made a slight variation to the design of a project in order to accommodate the installation of equipment?

Cyber Liability — Not a day goes by without a news report from some retailer that has had its security system breached. Firms that use credit cards, the Internet, online banking, etc., all face the same exposure, which is not covered under a standard policy.

Employment Liability — Claims arising from workplace issues, such as harassment, discrimination, wrongful termination, etc., are prevalent. While, in many cases, these claims can be considered nuisance or without merit, defense costs can still be significant. Standard insurance programs do not address these exposures.

I have only highlighted a few items in an effort to increase awareness for HVACR contractors in an area that is so important, but usually under-scrutinized. A careful A-to-Z analysis of your insurance program can provide huge returns and protect your firm’s overall health. Reducing hidden costs and managing them properly and then reallocating some of that expense to uninsured exposures will provide a great, long-lasting benefit to your company and will save you money.

My HVAC consulting company, HVAC Growth Strategies, has partnered with some of the best insurance brokers in the industry. If you would like a comprehensive and free evaluation of your current insurance program to see where you might be overspending and/or under-covered, please email me at Remember, my advice to readers of The NEWS is always free!

Publication date: 1/12/2015

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