Inflation, natural disasters, and the pandemic all contribute to rising insurance costs for HVAC contractors. Insurance is an unavoidable expense, but there are steps business owners can take to reduce these costs.

The reasons for higher insurance costs are one HVAC contractors are familiar with from their own work. Materials and parts remain in short supply, driving up costs for repairs and replacement. The same holds true for labor. Then add to that large payouts from destructive events such as hurricanes and wildfires.

Many small business owners feel they pay more today yet receive less attention from their insurance providers. According to the J.D. Power 2021 U.S. Small Commercial Insurance Study, customer satisfaction saw a major decline. This marked the second consecutive year more small business owners said they were unhappy due to a lack of support and personalized attention.

“We see a real pattern of small business insurers missing the mark on soft skills, such as interaction with agents and proactive outreach — both being areas in which commercial insurers have historically thrived,” said Robert M. Lajdziak, senior consultant of insurance intelligence at J.D. Power. “There’s also a trend in which small commercial customers spend three times more effort interacting with their carrier on the website, on the phone, or with agents.”

The largest declines in the study are among customers who had workers’ comp coverage or commercial auto policies. The two years of declines were the first ever in the study’s history. Owners are especially unsatisfied with their interaction with their agents and providers.

Another survey of small business owners, this one by The Hanover Insurance Group Inc., found a similar pattern. More than 50% of the respondents to that survey who changed workers' compensation carriers did so because they were dissatisfied with claims handling.

Technology Helps Connect, Control Costs

Technology can help in this area. Next Insurance is an insurance startup that focuses on providing an enhanced digital experience for small business owners. John Dwight, Next’s general manager for the construction segment, said business owners can do everything from buy a policy to file a claim online. This gets the process moving faster and allows them to work on their own schedule.

Technology also helps with controlling costs, said Rob Chenoweth, associate vice president of small commercial national underwriting at Nationwide Mutual Insurance Co. For example, HVAC contractors can implement telematics into their auto fleets. Nationwide’s Vantage 360 system creates real-time feedback for drivers and reduce exposure for business owners. This increases worker safety, and brings a policy discount, Chenoweth said.

Next allows small business owners, such as HVAC contractors, to adjust their policies through the year depending on the demands of the work they are handling. For example, HVAC contractors may need more insurance if working on a large commercial job and less when doing residential work. Next can do this, Dwight said, because it acts as both an agent and a carrier, so it can tailor policies for clients.

The firm offers a pay-as-you-go plan for workers’ compensation for companies that have different employment levels at different times. This fits the needs of HVAC contractors who need more employees during the busy summer months. Under most traditional plans, owners end up paying at the end of the year following an audit of payroll records by the insurer.

New Exposure Arises

Even if insurance costs slow, HVAC contractors may find themselves paying more if they find they need new types of policies. A cybersecurity policy is a major example. Cybersecurity threats were once thought of as a problem for large businesses, Chenoweth said, but bad actors increasingly are attacking smaller businesses with less sophisticated defenses.

“With the risks for cyber threats and ransomware on the rise, we are seeing an influx of coverage requests from business owners to add cyber-recovery and ransomware protection to their policies,” he said. “The exposure will continue to increase, and each small business owner should look at their internal business practices for handling customer data and then consider the intersection of where cybersecurity will help provide added layers of coverage as a recovery mechanism in the event of a loss.”

In the end, it’s more important for HVAC contractors to have the right amount of protection rather than worry about costs. The Hanover survey found that 78% of small businesses engage in one or more activities that present a professional liability risk. That’s probably why 79% of small businesses agree that proper coverage is more important than price.

Owners need to take an active approach to managing their insurance policies. The Hanover survey found 42% of respondents indicated they have not reviewed their policies within the past 12 months. Going through the policies and working with an agent can both control costs and ensure adequate protection.