Steps to Avoid Subcontractor Self-Insured Retention Losses

There is a way to avoid subcontractor self-Insured retention losses but first you need to learn the basics. When you already know what SIRs are, you can now follow the ways stated in the article on how to avoid such situation.

Having to pay for the SIRs of your subcontractor can be a headache so try to avoid it.

The Basics of SIR

Before you can start avoiding subcontractor self insured retention losses, you need to know what it is all about. There is no point in learning new knowledge if you’re not even familiar with SIR or Self Insured Retention. Basically, the self insured retention is part of the commercial liability policy. This is a specified amount on the policy that should be paid by a policy holder prior to the response to a claim by an insurance company. To cover a claim, the commercial liability policy is added to the self insured retention. The insurance company will only take part once the SIR is paid directly by the insured to the claimant. The reason why most insurance companies employ SIR is because they want to limit the overall premium since a lot of unstable companies usually use them to cut down expenses.

An Example

Suppose a certain company took a $500,000 SIR to lower the premium. Now, the insurer will no longer investigate the ability of such company to cover the self insured retention. If you hire that same company as a subcontractor and negligence was performed, you will shoulder the SIR if the subcontractor can’t pay for the said amount. There is a way to avoid this.

Before signing any contract with a sub consultant or subcontractor, make sure that you get insurance certificates from them. The subcontractor will only start working for you once the necessary papers have been submitted. A contractor will usually have coverage for general liability for personal injuries, defective work, and property damage. Engineers and designers need coverage for professional liability. Depending on the size of your business, you can get limits ranging from $250,000 to $5 million. You need to have an established procedure to review all the policies, SIRs, and deductibles. It’s not a good idea to hire subcontractors who have more than $50,000 SIRs. If you can’t avoid hiring such subcontractor, make sure that you evaluate the ability of such subcontractor to meet financial obligations. The assets and cash of the subcontractor should be more than the amount of the SIR. You may issue a requirement to eliminate or reduce the SIR. You can also ask for a bond to guarantee the payment of potential losses when there is a claim in the future. Don’t forget to secure copies of the financial statements of the subcontractor at least annually to monitor if the company is financially healthy.


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