The shifting landscape of construction insurance: Beyond the guaranteed cost model

By

Phillip Lane

and Kama Offenberger

Last Updated May 8, 2026

By

Phillip Lane

and Kama Offenberger

Risk management is difficult for many construction companies to navigate, but many participate in a guaranteed cost insurance plan.

They sign up with a national or regional carrier, pay a set rate, and typically have a deductible. These general liability policies cover anything the company becomes liable for, including property damage, bodily injury, personal injury, and advertising injury. 

The traditional insurance model is facing significant pressure due to rising premiums and an increasingly litigious environment — but construction companies can pursue other options. Taking a new approach can help construction firms mitigate their risk while also allowing them to recoup premium dollars. 

Why the traditional model isn't always enough

The guaranteed cost model is familiar, but it also has substantial drawbacks. Looking more closely at those limitations shows why so many contractors are employing new risk management strategies. 

Lack of control

One of the biggest disadvantages of traditional programs is that contractors have no say in how their claims are settled. The moment you purchase the policy, you give up your rights and the insurance company handles every element of the claim.

This often leads to the insurance company paying out small nuisance claims — even if you aren’t at fault. 

Negative loss history and rising costs

While a single small claim may not seem like a problem, repeated incidents can have a negative effect on your loss history. If you have multiple losses, you not only have to pay the deductible for each claim, but you also end up with higher deductibles and premiums because the underwriter views you as a greater risk. 

The consequences of risk transfer

In a traditional insurance model, general contractors (GCs) often shift their liability to subcontractors. While transferring risk protects the GC, the outcome is much less positive for the subcontractors. The cost of one or more claims could cause them to go out of business, or, as a preventive measure, they might incorporate exclusions into their policies that make GCs more vulnerable. 

Exploring alternative insurance options for contractors

The disadvantages of a guaranteed cost insurance model have driven some contractors to look for a different approach. If you have enough premium and a good enough loss history, you can explore a loss-sensitive program. 

Self-insured retention (SIR)

Self-insured retention (SIR) is similar to a deductible, but it gives contractors more control over their claims.

In some cases, carriers will allow you to choose your own third-party administrator (TPA) to handle your claims up to a certain limit, generally $50,000 or $100,000. 

Taking on more of the risk can help lower your premium because losses under the limit won’t show up on your loss history. That means you can go to the market with a clean slate and get better rates from potential carriers. 

Captive insurance

Another new way of thinking about risk management is the captive insurance model.

A large, individual construction company can operate as a single-cell captive, covering general liability, auto, and workers’ compensation coverage. On the other hand, smaller, like-minded organizations can connect to form a group captive, essentially acting together as their own insurance company. 

When companies join a captive, they can participate in a dividend type structure for all lines of insurance. If your group has few claims for the year, you can recoup a portion of your premium. 

Under this structure, every company within the captive has aligned interests and a shared goal of reducing claims. Captive insurance also comes with a number of tax benefits, which a certified public accountant (CPA) can explain in more detail. 

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Expanding your risk management strategy

Along with participating in income-sensitive insurance programs, these steps can strengthen your risk management:  

1. Remember professional liability.

   General liability is standard, but professional liability has become increasingly important for contractors over the past decade. Many professionals have begun purchasing this type of coverage because they can be drawn into lawsuits over design or code compliance issues, which are typically excluded from general liability policies. 

2. Pay attention to the fine print.

   Vetting contracts rather than relying exclusively on the certificate of insurance (COI) is critical. A good insurance agent or construction attorney can help you understand the nuances, potential coverage gaps — and your true exposure. 

3. Put technology to work.

   Take advantage of platforms which can help you track and verify your subcontractors’ insurance. They use artificial intelligence (AI) to review policies to confirm they have the necessary endorsements and don’t have harmful exclusions. 

The road to a better insurance program

Risk management can be intimidating, but you don’t have to be a large company to pursue an alternative model or plan to join a captive. The change won’t happen overnight, but you can start by building a foundation of strong risk management practices that could eventually turn your insurance program into a profit center. 

You can also use a risk survey to assess and improve your internal policies and procedures. 

Looking more closely at four key areas — pre-hire, post-offer, pre-claim, and post-claim — allows you to develop a risk score that identifies weaknesses and prioritizes improvements for mitigating claims. 

Finally, put together a team of professionals, including an insurance advisor, attorney, and CPA, to guide you on this journey. Contractors who are proactive have the power to turn their risk management into a competitive advantage. 

Written by

Phillip Lane

Managing Partner | Insurance Office of America

Phillip Lane is a Managing Partner at Insurance Office of America. He joined the firm in October 2018 as a commercial lines producer and is passionate about introducing innovative risk management practices to companies that are willing to invest in their ability to reduce costs by controlling measurable risks. Phillip began his risk management career in 2003, working as a certified child protective investigator with the Florida Department of Children & Families (DCF). Prior to joining IOA, he was a producer at J.W. Edens Insurance in Indialantic, Florida, where he led the commercial lines department in new commercial insurance business development and retention for well over a decade. His clients included industry leaders in contracting, manufacturing, banking, technology, and professional services. Phillip earned his bachelor’s degree from the University of Central Florida. He holds the commercial lines coverage specialist (CLCS) and certified builders insurance agent (CBIA) designation. He currently serves as the treasurer for both the Space Coast Licensed Roofers Association (SCLRA) and the Treasure Coast Roofing & Sheet Metal Association (TCRSA) and has done so since 2015. He also has served on the board of directors for the Florida Roofing & Sheet Metal Contractors Association (FRSA) and the Florida Roofing & Sheet Metal Contractors Credit Union (FRSA CU) since 2015.

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Kama Offenberger

Contributing Writer | Procore Technologies

Kama Offenberger is a freelance content writer who contributes to Procore. Kama has over a decade of freelance editing and writing as well as 15 years of experience teaching writing and literature at the college level.

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