Why is it that insurance for equipment and vehicles is so expensive? Is there anything you can do to lower those costs? How about things like vehicle ratings, how does that play in your premium? Stephen is answering those questions and more on this week’s episode.
Topics we cover in this episode include:
- Should your vehicle be on your personal policy?
- Costs for a commercial policy vs. a personal policy
- What goes into rating a vheicle and how can you get lower premiums?
- Having good drivers can lower your insurance rates
- How insurance companies use telematics
- Equipment insurance
- Is it cheaper to insure rented or owned equipment?
- Vehicles, equipment and loss control
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Wade Carpenter, CPA, CGMA | CarpenterCPAs.com
Stephen Brown, Bonding Expert | SuretyAnswers.com
[00:00:06] Wade Carpenter: Why is it that insurance for equipment and vehicles is so darn expensive? Is there anything you can do about it? How about things like vehicle ratings? How does that play in your premium? Stephen is going to enlighten us today. So come on in and let’s talk about it.
This is the Contractor Success Forum. And if you’re new here, I’m Wade Carpenter with Carpenter Company CPAs. With me, my co host, Stephen Brown with McDaniel Whitley Bonding and Insurance.
Stephen, I know many people have the cost of insurance on their minds with prices going up. So, what’s going on?
[00:00:36] Stephen Brown: Well, Wade, that’s why we’re talking about this today, because it’s hard to budget what your insurance costs are going to be. You can say, well, it’s going to go up X percent a year, 10 percent, 20 percent. But that percent depends on what kind of claims you’ve had and what kind of internal controls you have that affect your insurance pricing.
So, the main thing that’s really hitting your insurance dollar as a contractor is vehicle insurance. Your commercial fleet of vehicles. Especially if you’re a contractor that does a lot of hauling and other type of work. You have heavy trucks, you’re moving a lot of equipment around.
What are the elements that make those premiums so high? That’s what I wanted to discuss.
Should your vehicle be on your personal policy?
[00:01:19] Wade Carpenter: Okay, I know this is one of the things that I get calls all the time about, should I buy this vehicle in the company name versus the personal name? And, I talked to him about the insurance price and as well as, are you actually covered? And that’s a question I’d love for you to help me answer for the listeners, is, what do you need to know about commercial insurance versus putting it on your personal auto policy?
[00:01:45] Stephen Brown: Well, the interesting thing about a personal auto policy is most of them exclude a business use of your vehicle. So you say, well, if I have a wreck, I’ll pretend like I wasn’t using it for business. Really? So you were traveling from the grocery store when you left that job site? It’s not anything that works.
First claim you have, they’re going to cancel all of your coverage. So you want to ask your agent if you’re insuring your vehicle through your personal policy, that’s your homeowners and your personal vehicles, family member vehicles, do they include business use? And they’ll say no or we need to rate it up for that.
But here’s another thing, with commercial insurance, you’re required to carry million dollar limits on your commercial vehicles for a whole lot of your owners. And that’s the minimum now, a million dollars combined single limit on any one vehicle. And–
[00:02:44] Wade Carpenter: Tennessee or is that like across the country or?
[00:02:47] Stephen Brown: It’s across the country. It’s the minimum of what you should have.
And then you have an umbrella policy, which picks up over and above that. Well, here’s the thing, that million dollars worth of coverage, it’s not the limit that’s so high. It’s just getting the coverage. So even if you got 250, 000 coverage, the million is not that much more.
It’s going to be high, whatever the amount is. Because the way the insurance companies think about it, Wade, is they want to get a cost per vehicle. Whatever that is. And I think I mentioned once before, I could used to insure a Ford F 150 pickup truck for $700 a year with a big fleet of them. And that was with a million dollars comp and collision coverage and uninsured motorist coverage and everything else.
All the bells and whistles. And that same pickup truck now is 2, And then you’re looking at a truck that’s heavier than a pickup, and based on the weight and its use, that could go up to six, eight, ten thousand dollars a year premium for operating that one vehicle.
[00:03:52] Wade Carpenter: Can you come back to one thing you were saying at first?
If somebody is using their personal vehicle, for business use, and you said, you get in an accident and they find out, they’re going to cancel the policy. I understand that. Would you be covered?
[00:04:06] Stephen Brown: No.
[00:04:07] Wade Carpenter: No. See, that’s one of the things that I tell people is, you really should talk to your insurance agent.
I can give you what it can do for you for tax purposes, but sometimes the insurance part can override your concerns about, the tax deductibility and all this stuff.
Costs for a commercial policy vs. a personal policy
[00:04:22] Wade Carpenter: But you know, how do the costs compare for a commercial policy versus a personal policy?
[00:04:29] Stephen Brown: It’s usually a commercial policy is two to three times higher per year.
[00:04:35] Wade Carpenter: Yeah.
[00:04:36] Stephen Brown: But then again, it’s covering a lot more risk. Someone gets hurt and the first thing the attorneys are gonna find out is, is it a personal vehicle or a commercial vehicle? And if it’s your personal vehicle, and you were using for your business, then they’re going after your business as well. They’re going after your business assets. So if you don’t have insurance they’re going to take your business assets and then you’ll be out of business.
[00:04:59] Wade Carpenter: That’s where I was, just my next thought was, so they can see their personal insurance policy, but, can they not also go after the business if they find that was a business use?
[00:05:12] Stephen Brown: Yeah, absolutely. They can and they do, always.
You watch TV anytime during the day between 5 a. m. and, well, it’s 24 hours a day. It’s non-stop commercials for the attorneys. And they know that on commercial exposure, there’s more assets that they can go after. So, they’re going to name you.
And then another thing, Wade, is when you have this happen, you want to just turn it into your insurance carrier. Things happen. You want to insure it, and you want to move on. You don’t have time to handle that, and you’re not an attorney.
So, that’s what you’re paying for. You’re paying for that protection. They’re representing you. When you or one of your employees does something dumb in a vehicle, that’s–
[00:05:54] Wade Carpenter: Well, dumb or not, things happen, obviously.
[00:05:57] Stephen Brown: Yeah, but things where you get the ticket for, and you’re at fault.
So you’re right, things happen, dumb or not. A lot of times I’ll see accidents that are, literally could go one way or the other. And in that case, you want to make sure your insurance carrier is fighting for you to keep that claim down.
So, what happens when a claim occurs, Wade, is the insurance company sets up a reserve to pay those claims. And based on the insurance, they set up an amount of reserve. And their goal is to try to close that case out for that reserve.
So, what does that mean? Well, insurance companies spread the risk of your vehicles all over the country. So, that’s how they diversify the risk. Some parts of the country are more litigious. Some of them are more dangerous to drive in. Some of them have worse roads, worse other drivers that you have to look out for.
So, a good driver of your commercial vehicle, and you know this, they have to be part detective. Not only making sure everything on their rig is secure and safe, before they go from point A to point B, but also just constantly monitoring the risk out there as you’re driving. And the more experienced you are as a driver, the more things you’ve seen, the more things you’re aware of.
What goes into rating a vheicle and how can you get lower premiums?
[00:07:13] Stephen Brown: But if you want to drive the cost of insurance down, training and loss control can really bring those premiums down.
[00:07:21] Wade Carpenter: Well, that’s where I think I was about to go to, but you may have sort of alluded to a lot of these already, but what goes into rating a vehicle? What are the things that an owner of a construction business should think about on who’s driving their vehicles and anything they can do to knock down premiums?
[00:07:39] Stephen Brown: First thing is newer vehicles are more expensive from a liability standpoint than older ones. You say why? It’s just a fact. Also, the cost new of that vehicle is determined in commercial insurance price.
Also, how far you drive that vehicle on an average basis. Zero to 50 miles, 50 to 150 miles, or longer range.
Vehicles are rated commercially or service related. So, service related is I have a plumbing business and I’m driving from, from location to location to do the servicing.
And a lot of companies want to put it under commercial, which means that they’re taking bigger loads longer distances. And that’s going to drive your liability insurance up, which is going to make your overall premium higher. So, letting your agent know exactly what your vehicles are used for, a good construction agent knows that.
A lot of carriers will just say, well, because we have to get the rate on these vehicles, we’re going to classify them as commercial, even though they’re service. So, you have to fight for that. Also, the classification of each vehicle and how it’s rated goes into the agenda.
Also, I have underwriters that say, I’m going to get X amount per axle or per wheel. The weight of the vehicle has a lot to do with it. There’s lightweight, like a pickup, medium weight, like a box truck, and then there’s heavyweight, and then there’s extra heavyweight. So, extra heavyweight vehicle is going to be your bigger trucks, your max, your freight liners, they’re going to be hauling the big equipment, and that’s where the most premium’s involved.
Having good drivers can lower your insurance rates
[00:09:16] Stephen Brown: So what you can do about it is, I hear everybody say, I can’t get good drivers. It’s impossible. The drivers now are getting X amount an hour. I can’t afford that. But either you’re training them within the drivers you have that are accepting the pay you give them, or you’re gonna pay more for a better driver.
So you just got to provide more oversight. Does that make sense?
[00:09:40] Wade Carpenter: Absolutely, and I guess I’ll think about I know they’ve had these, what do they call them, telematics, as well as does it matter whether you have, three vehicles versus five, or is there such fleet vehicles? Does that make, how does that play into it?
[00:09:55] Stephen Brown: A fleet, traditionally, was five or more vehicles, but now it’s really ten or more vehicles. So, remember, the more vehicles you have, the more premiums coming into the insurance company, so, the better rates you can get. And that is only if you have a good driver’s list and you run all the MVRs, which your agent can help you with that, and when they look at the MVRs, they look at the age.
If you want to get your son and daughter on your company vehicle policy, when they turn 16, those days are over. But that used to be one of the benefits, is that my company will just take care of this. But they look at the age of the drivers apparently they want to know if the driver’s male, 25 or under, are they married?
They drive better if they’re married and they’re under 25 because all the research says that a male driver’s brain isn’t fully functioning for the different things you need to take in as a driver. Women drivers can be younger and widely accepted. You might have 18 or 19 year old driver, or 21 and under they’re going to look really heavily at that. You can’t have a lot of those. You might, well, they’re a really good employee, I really need him to drive this, I really need him to do this, it’s part of his job description. Well, you can get a few of those under if you have a big fleet. But not many.
So, see, the age is important. Because, you know, with experience comes a good track record. And that’s measured by your MVR. MV R, they look at class A and Class B violations. Class A are your DUIs, high speed tickets, going 80 in a 40 type of stuff, that, that makes them crazy. And DWIs assault. At fault accidents, those are the main things.
Type B are generally two speeding tickets or less that are reasonable, that aren’t 30 miles over the speed limit. So your agent can help you interview your drivers. Also, your drivers that drive the vehicles have to have a commercial driver license, and there’s a little more involved in underwriting that. So, that’s number one.
How insurance companies use telematics
[00:12:08] Stephen Brown: Number two, like you mentioned, the telematics. Tracking your vehicles. Cell phone usage in a vehicle is everything. And a lot of employers have to track that through telematics.
[00:12:19] Wade Carpenter: Can you explain briefly what telematics are?
[00:12:22] Stephen Brown: Well, it’s cameras on your dashboard and it’s tracking location that can tell you as the owner or your fleet manager of your company where that vehicle is at any given time. And I have customers with big monitors on their wall and you’ll go in and you’ll be talking to them like, hold on a second. Where are you? No, I’m looking at you right now.
No. You’re not–
[00:12:46] Wade Carpenter: You’re not, Why are you going 85?
[00:12:47] Stephen Brown: Yeah, yeah, or he’ll send someone else, go find them, get that truck, bring it back here, and tell them they’re fired.
So, there’s a lot of stress involved in that, but I’m just telling you that the telematics are the key. Most importantly, the dash cams, Wade. When you’re in a gray area in a wreck, and that dash cam shows that you weren’t necessarily at fault, even if you got the ticket, that’s worth its weight in gold.
[00:13:13] Wade Carpenter: Yeah.
[00:13:14] Stephen Brown: So anyway, these are what drives your vehicle prices. And how to get them down. Your MVRs, your loss control.
[00:13:22] Stephen Brown: And then on equipment insurance, we were talking about that, Wade. The equipment cost, if you rent it, you have rented or leased equipment coverage that you can purchase. And the premium of that is based on the highest dollar amount of equipment you’re going to rent.
Like, If you’re not renting equipment over half a million dollars, that’s the limit that will be on your policy. And the premium is based on how much you spend on renting equipment during the policy period. So, that is a whole lot less than buying the insurance from a rental company. A lot more cost effective.
Then when you own the equipment, you schedule your equipment on the policy. So you have the year, make, model, serial number, type of equipment with the attachments. And then you put a value on that. And the rate is anywhere from a dollar per hundred dollars of value, Uh, like a hundred thousand dollar piece of equipment will cost you a thousand dollars a year to insure. But the more equipment you have, that rate comes down to anywhere from sixty cents to a dollar. So the more equipment you have, it, it comes down.
[00:14:27] Wade Carpenter: I was hoping you were going to talk about the equipment.
Is it cheaper to insure rented or owned equipment?
[00:14:30] Wade Carpenter: A lot of my heavy equipment guys, the dollars of the big yellow Iron can add up very quickly, and that’s one of the things they always ask me about, as well is, is it actually cheaper to insure equipment that they own versus, you already sort of answered the question about if you lease the equipment and pay the insurance at the leasing agent. Is it cheaper to insure your own equipment or insure equipment that’s rented or how would you answer that?
[00:15:01] Stephen Brown: You just need to know what the costs are. When you’re renting equipment, the reason the insurance companies charge for the expenditure for the whole year of rented and leased equipment and then they put a maximum value on it is because when you rent equipment, you’ll have it for a shorter period of time.
When you own the equipment, you insure it for the whole policy period. And so that’s going to be higher. But all in all, the rates are about the same. But the rental companies are going to say, well, just sign this insurance waiver and you have nothing to worry about. Well, it’s the same if you get it through your policy, Rent and Leased Equipment, but it’s a lot less expensive.
So, that’s what you need to do. We have hundreds and hundreds of rental equipment companies that have insurance certificates from our contractors showing that they have rented and leased equipment coverage.
And another thing, Wade, is, the value you put on your equipment. When you buy it new, you know what the value is, right? But right now, a lot of contractors, because equipment is harder to work on, it’s more computerized, they want to buy the older stuff that they can fix themselves.
And so a lot of my contractors are putting a lot of money into older equipment to keep it running. Good older equipment. So, recently I had a customer that put $750,000 into a piece of equipment that before they put that amount of money in was worth $250,000. So, they completely rebuilt it. So, remember, as you go over your equipment list with your agent each year, make sure you’re letting them know this is the current market value.
I’ve had claims where like a bulldozer was vandalized, and it was an older bulldozer. But I could show the adjuster, look, this is what they did in the last year. These are the engine hours. This is the condition of it, here’s a photo of it, and you have to make that claims adjustor find something else in the marketplace for the amount they’re offering you.
They’re gonna try to depreciate it, so it’s your job to communicate with your agent what that equipment’s worth to you, and what it’ll cost to replace.
[00:17:06] Wade Carpenter: I’d like to spend a little time talking about loss control and some of that stuff, but any other thoughts on equipment?
Vehicles, equipment and loss control
[00:17:12] Stephen Brown: Well, that, that kind of ties into your loss control equipment question. And it’s just the most important things I have to say about lot loss control is when you’re getting in and out of a piece of equipment or in and out of a vehicle, you have to have three points of contact, just like climbing a ladder, three points of contact.
We have stickers that go literally on both sides of the door as the doors open and then above the handle and then down to the step. Just reminding you.
But three points of contact. The most interesting thing is, and we were talking about this earlier, 10 percent more people are injured getting in and out of a vehicle than in collisions.
[00:17:53] Wade Carpenter: So you told me that, I was amazed, it’s like that doesn’t make sense to me, but I guess I could understand that.
[00:17:59] Stephen Brown: Yeah, and where you park the vehicle. Is there mud? Is there ice? Is there a pothole? Are you out at a customer’s job site where the ground’s not even. There’s busted up concrete or asphalt that you could trip over. So, here’s the thing that I wanted people to know about that, Wade, is they say that if you jump or fall four feet and you weigh 200 pounds, that’s 1,200 pounds of stress that’s going on your body. And that takes its toll.
You can’t do what you’re doing when you get older when that’s wearing your joints out. So, it’s another reason to have three points of contact. Always. Don’t be in a hurry. Even if you’re young, you don’t need to be jumping off the back of a bed. You’re going to jump up there and secure some equipment and then jump back down.
It’s going to take a toll on you. It doesn’t matter what kind of boots you’re wearing or what kind of shape you’re in. It’s going to wear your body out. And so that’s a huge part of loss control. And then also, safety comes from you, the owner. You’ve got to demonstrate it at all times.
You’ve got to live what you’re preaching, and you’ve got to be serious about it. And that’s really not hard to do. It’s just implementing it. Just like accounting systems you put in place, you put loss control systems in place. And a good agent can help you do that.
And, as a result, you’ll be paying less for your premiums. You’ll have less claims. Remember, claims affect the cost that you’re paying. So, every single insurance company out there has tons of toolbox talks, safety videos, information, statistics to help you get a good fleet safety program in place for your company.
Hey, I gotta tell you a funny story. One of my coworkers had a loss control guy visit. And they were going out to a job site and he hopped in the pickup truck and he was looking for the seatbelt. And the loss control guy goes, I can’t find the seatbelt. Contractor said, oh, we cut those out. They were a pain in the ass.
So, anyway, I thought you’d enjoy that. But thanks for listening. Insurance is something to really help you manage and make more money.
[00:20:08] Wade Carpenter: Well, I know it can be a huge cost for contractors and I appreciate all the information and advice you gave for our listeners today.
Well, I guess we’ll go ahead and wrap this up. Thank you all for listening to the Contractor Success Forum. Check out our show notes at ContractorSuccessForum.com or or the Carpenter CPA’s YouTube channel for more information. Consider subscribing and follow us every week as we post a new episode and we will look forward to seeing you on the next show.