Contractor Liability Insurance Cost Is Up 22%. Here’s What to Do About It

A general contractor doing $5 million a year is paying about $48,000 more in premiums than they were two years ago. That’s a 22% jump, and it lands on the same jobs, with the same crew, at roughly the same prices.

Compare that to tariffs. When a tariff hits, the cost gets passed through to the customer almost immediately. The contractor sends a change order, the client grumbles, and everyone moves on because the villain is on the news and easy to point at. Insurance goes up by a similar amount and it just gets absorbed. It disappears into overhead and shows up eleven months later as a year that felt busy and finished thin.

Why contractor liability insurance cost keeps climbing

Part of it is market-wide. Carriers move together. When the market hardens, every carrier raises at once and shopping around gets you the same number with a different logo on it. That happened during COVID and the effects are still working through renewals.

The part that catches people off guard is the compounding. A 12% increase one year, 15% the next, 20% after that. Each one feels survivable in isolation. Stacked against your original premium, three or four years of that is a completely different number than the one you built your pricing around.

Claims history matters less than most contractors assume. Johny’s company went into this year’s renewal with no claims, a clean record, and fifteen years with the same carrier. The increase came anyway, north of 20%.

The coverages that are quietly becoming mandatory

Two things are showing up on job requirements that weren’t there a few years ago.

Cyber liability is the first. Contractors read that as an office-worker problem, but the attack is boring and specific: someone compromises a supplier’s or a GC’s email, then sends invoices and bid invites from a real address you recognize. Johny’s seen it repeatedly from companies iPLUMB works with regularly. The email looks legitimate because it came from a legitimate account.

Pollution liability is the second, at least in Ontario. Plenty of builders now require it as part of the startup document package before you mobilize. A mechanical contractor who isn’t hauling fuel or chemicals to site reads that request and assumes it doesn’t apply to them. It applies anyway, because the requirement comes from the builder’s risk department, not from an assessment of your actual exposure.

Neither of these replaces existing coverage. They get added on top, which means the premium goes up before anyone talks about rate increases.

When loyalty to your broker starts costing you money

The instinct to stay put is correct most of the time. Insurance companies notice when you shop every single year, and some will stop quoting you altogether. Continuity has real value.

The problem is when continuity becomes the reason nobody checks the number. Johny stayed fifteen years with the same carrier, had a genuine relationship with his broker, and still got hit again this year. So he took it to market for the first time.

He came back with more coverage and roughly $20,000 in savings. His own broker asked for a copy of the competing policy so he could take it back to his underwriters, because he needed the ammunition to fight for his other clients’ renewals.

That’s the useful signal in the whole story. Your broker often wants you to shop, because your quote is the leverage he doesn’t otherwise have. The relationship survives the conversation. What doesn’t survive is a renewal that gets rubber-stamped for a decade because you were too busy in Q2 to look at it.

A reasonable rule: if you’ve been with the same carrier five or more years and every renewal has been an increase, take it to market once. Not annually. Once, so you know what the actual market rate is and whether the number you’ve been paying is real.

Why contractors absorb the increase instead of pricing it in

Here’s the honest reason, and it isn’t laziness.

A tariff is easy to pass through because it attaches to a specific job. Ten thousand dollars of material, a 50% hit, one line on one invoice. The math is visible and the customer can follow it.

A $20,000 insurance increase attaches to nothing. It’s an annual number that has to be spread across every job you’ll run for the next twelve months, and you don’t know yet how many jobs that will be. So it sits in overhead and nobody assigns it anywhere.

But it does have to go somewhere. If you run 100 jobs a year, $20,000 is $200 a job. If your average job is $15,000, that’s slightly over 1% on the price. Nobody loses a bid over 1%. Contractors lose the year over the accumulation of a dozen 1% increases that never got priced.

The fix is not clever. It’s knowing your annual overhead, dividing it across your realistic job volume, and carrying that number in your quotes as a fixed markup you review once a year. Most contractors carrying an overhead percentage set it four or five years ago and haven’t touched it since. That’s the actual leak.

The squeeze that makes this worse

Costs going up isn’t the whole story. Requirements are going up at the same time.

Pollution insurance is a requirement that came with no corresponding increase in what the builder is willing to pay. Same for expanded safety documentation, more detailed daily logs, faster turnaround on submittals. The expectation set keeps expanding while the price expectation stays where it was in 2021.

That gap is landing on the bottom line, and it explains something Johny mentioned that’s worth sitting with: in the last twelve months he’s seen more shops close than at any point he can remember. Those weren’t companies that couldn’t do the work. They were companies whose margins got compressed from both directions until there was nothing left to compress.

Borrowing costs are part of the same picture. A homeowner who locked a mortgage at 1.7% and now faces 6% is a homeowner who either can’t afford the renovation or won’t pay current prices for it. Developers sitting on serviced land are sitting on it because the returns don’t justify starting. If rate cuts continue, some of that demand comes back. Until it does, the money in the market is tighter than it was and every client conversation reflects that.

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The AI answering service question

Related topic from the same episode, worth flagging because contractors are getting sold on this hard right now.

Roughly 65% of trades companies use the owner’s cell phone as the business number. That owner is fielding calls all day. Johny averages 60 calls between 6am and 4pm. Charlie takes his in the field with machines running behind him. An answering service makes obvious sense against that volume.

The failure case is your existing clients. When someone who calls you three times a week hits a robotic answering system every time, that’s a relationship cost that doesn’t show up on any dashboard. Johny’s own concrete sub has one, and Johny’s response is to hang up and text him instead. His sub’s answer was “just text me, I’ll call you back,” which means the system is now filtering out the people it should be letting through.

If you’re evaluating one, the question to ask the vendor is how it handles known numbers. Anything that treats a repeat client the same as a cold call is going to cost you more in goodwill than it saves you in time.