Are you thinking about purchasing a construction company? Whether it’s a plumbing, HVAC, or electrical company, there are several critical factors to keep in mind. Most people overlook one essential aspect – the insurance. From attorneys to accountants, this crucial component often gets ignored, but it can significantly impact your decision and the long-term viability of the company.
Introduction: Why Insurance Matters in Acquisitions
Hi, I’m Matt Rogers with Contractors Risk Solutions based in Los Angeles, California. I specialize in helping construction companies manage their risk and secure appropriate insurance coverage. If you’re thinking about buying a construction-related business, one of the most important things you need to look into is the insurance side of the company. In this post, I’ll explain why understanding the insurance situation is crucial and how it can reveal a company’s overall health and risk profile.
Understanding the Insurance Legacy You Inherit
When you acquire a construction company, you’re not just taking on their contracts and assets – you also inherit their insurance rates. This includes workers’ compensation, general liability, and auto insurance. If the company has a history of frequent claims, insuring it may become difficult or more expensive for you as the new owner. The key here is that you won’t be able to simply “switch out” these insurance policies right away; instead, you’ll have to work with what’s already in place, including any past issues they may have encountered.
Request the Loss Runs Report: Your First Step
To get a clear picture of the company’s insurance health, ask for the loss runs report for all their insurance policies. This report details their claim history, and it’s especially insightful for workers’ compensation. It’s a straightforward request, but it can sometimes raise questions with the company’s current insurance broker, as these deals are often kept quiet. Regardless, reviewing this document is crucial to determining whether the company has a clean track record or if you’ll be walking into a situation fraught with claims and risk.
Analyzing Workers’ Compensation Claims
In my experience, I can usually tell how well a company is run just by looking at their workers’ compensation claims. The loss runs report provides insight into how the company handles injuries, manages safety, and treats its employees. For example, if there are numerous fraudulent claims, this could indicate deeper cultural or procedural problems within the company. On the other hand, a company with low claims and solid safety protocols is more likely to be a well-managed and viable business.
Why This Information Is Crucial for Your Decision
The loss runs report can tell you a lot about whether the company is a good fit for you. It will give you insights into the company’s procedures for employee safety, whether they are likely to continue having numerous claims, and if their insurance is affordable. You don’t want to discover after the purchase that the reason they sold was because insurance claims made the company uninsurable.
By understanding their claim history and insurance standing, you can better assess if the company is financially healthy and viable or if it will become a costly burden.
Final Thoughts
If you’re considering buying a construction company, I strongly recommend requesting the loss runs report to review their claim history. This overlooked aspect of the acquisition process is critical for ensuring the company is a good investment and that you can afford its ongoing insurance costs.
If you need more information or have questions about this topic, feel free to contact me at Contractors Risk Solutions. Thanks for reading, and be sure to check out my YouTube videos for more insights. Take care!
