What sets a contractor's insurance cost, and why this page has no figures

Before any rate is applied, the work has to be sorted into a category. Texas publishes the arithmetic on its workers compensation rate guide: employers "are assigned one or more classifications based on the type of business," each employee's payroll "is then assigned to the appropriate classification," and "the total payroll for each classification is then multiplied by the company's rate for that classification (rate per $100 payroll) to determine premium" (Texas Department of Insurance, workers compensation rate guide). That is Texas describing Texas, not a national rule, and TDI names NCCI as the filer of the loss costs behind it. But the shape is what matters here: category first, exposure second, rate third.

The exposure is what the rate multiplies. IRMI defines payroll as "the premium basis used to calculate premium in workers compensation insurance and, for some classifications, in general liability insurance" (IRMI, payroll). For general liability the basis varies by classification, and no ISO, bureau, or department-of-insurance source publishes them all, so the lists that circulate do not appear here. The verified statement is IRMI's own parenthetical in the audit definition above: payroll, sales, or vehicle count. Ask an agent which one your class uses and what counts inside it, because "receipts" and "payroll" both have definitions in the manual that are narrower than the words sound.

Classification is not a formality for trades where the physical hazard is the whole story. New York's rating board gives tree work its own code, 0106, "Tree Pruning, Repairing or Trimming, All Operations to Completion & Drivers," and roofing its own, 5545 (NYCIRB, class 0106). A crew that trims trees and also does removals, or roofs and also frames, can sit in more than one, and which payroll lands in which is a live question at audit rather than a settled one at binding. The trades where this bites hardest have their own pages: roofing, tree service, and the rest of the set on the trades index.

Class and payroll produce a manual premium, which is what the average employer in that class would pay. The experience modifier moves it toward what your record says you are. IRMI defines it as "a factor developed by measuring the difference between the insured's actual past experience and the expected or actual experience of the class" (IRMI, experience modifier), applied as a credit or a debit. Average experience for the class is 1.0 and pays the manual premium; a worse record produces a factor above 1.00 and a better one below. Texas names the same step: "an experience rating modifier that reflects the employer's past loss history may be applied to the premium."

Two practical notes that follow from the definition rather than from anyone's rate filing. The modifier is measured against your class, so it compares you to contractors doing your work rather than to business generally, which is why a classification error and a modifier problem can look identical on a renewal. And it is built from claims history, meaning frequency of small claims can matter as much as one large one. Neither of those is advice about whether to report a claim, which is a question for the agent and the policy's own conditions.

Limits and how the aggregate is shared. A per-occurrence limit and a general aggregate are two different promises, and a policy that applies its aggregate per policy rather than per project is a different instrument on a contractor with several jobs running. Products and completed operations draws on its own aggregate, which matters because the contractor's characteristic claim arrives after the work is finished: completed operations, in IRMI's phrase, is work "completed as called for in a contract" or "put to its intended use" (IRMI, completed operations). A shower pan that leaks a year later is priced in that limit, not the premises one.

Deductibles and retentions. Whether the number applies per claim or per occurrence, and whether defense costs erode the limit, changes what the premium buys rather than what it costs.

The trigger. An occurrence policy "covers claims that arise out of damage or injury that took place during the policy period, regardless of when claims are made," and IRMI notes that most general liability is written this way. A claims-made policy is "triggered when a claim is made against the insured during the policy period, regardless of when the wrongful act that gave rise to the claim took place," subject to a retroactive date, which "eliminates coverage for claims produced by wrongful acts that took place prior to a specified date, even if the claim is first made during the policy period" (IRMI, occurrence policy; claims-made policy; retroactive date). Professional liability is usually claims-made, and contractors pollution liability is written either way, which is exactly the kind of line item where two quotes stop being comparable. Both have pages here: professional liability and contractors pollution liability.

Who is behind the paper. An admitted insurer "is licensed to do business in the state or country in which the insured exposure is located"; a nonadmitted insurer is "an insurer that is allowed to sell insurance in a state without holding a license in that state," typically where the admitted market will not write the risk; and surplus lines are "coverage lines that need not be filed with state insurance departments as a condition of being able to offer coverage" (IRMI, admitted insurer, nonadmitted insurer, surplus lines insurance). The next section is what that costs you that the quote does not show.

The NAIC describes surplus lines as "a unique segment of the property & casualty industry consisting of non-admitted specialized insurers covering risks not available within the admitted market," regulated differently: "it is the surplus lines transaction that is regulated." On the consumer side the NAIC is blunt about the trade: "a consumer protection within the admitted market, but not available to the surplus lines market, is the protections of a state guaranty fund" (NAIC, Surplus Lines). Those funds are financed by admitted insurers and step in when an admitted insurer becomes insolvent.

A state says it in its own words. TDI: "Guaranty associations help pay policy claims if an insurance company fails or becomes insolvent," Texas has three, the property and casualty association covers lines including workers compensation, and "surplus lines insurance companies and multiple employer welfare arrangements don't have guaranty associations." TDI adds that a policy from a company outside a guaranty association has to say so, and that claim payments carry dollar limits varying by line, with no dollar limit on workers compensation benefits (TDI, If my insurance company fails). That is Texas. Every state's association has its own statute, covered lines, and caps, so check your own department.

There is a second consequence that almost nothing written about admitted versus surplus lines mentions, and for licensed trades it can matter more than the guaranty fund. Where a state conditions a trade license on insurance, it also has to say whose paper it will accept, and two Texas rules do not answer the same way. For air conditioning and refrigeration contractors, 16 TAC 75.40 requires that the insurer be authorized to sell liability insurance in Texas under the Insurance Code. For electrical contractors, 16 TAC 73.40(e) accepts an admitted company, an eligible surplus lines carrier under Insurance Code Chapter 981, or another insurer rated B+ or higher by A.M. Best (16 TAC 75.40, 16 TAC 73.40). Texas's private security statute contemplates either route as well, naming both a countersigned admitted policy and a surplus lines certificate obtained through a resident Texas surplus lines agent (Occupations Code 1702.124(a)). Three rules in one state, disagreeing, is not a national pattern. It is the argument for reading your own rule before a quote turns out to be unusable for the license. See Texas HVAC, Texas electrician, and security guard insurance for what each rule requires.

• What classification is my work in, and what payroll or receipts figure was the quote built on?
• Is this policy auditable, and what records will the auditor want at the end of the term?
• Is my experience modifier applied here, and against which class?
• Per-occurrence limit, general aggregate, products and completed operations aggregate: what are all three, and does the aggregate apply per project?
• Occurrence or claims-made, and if claims-made, what is the retroactive date?
• Admitted or surplus lines, and does my license rule accept the answer?
• What is excluded by endorsement that a certificate would never show?

None of those questions is answerable from a price. All of them are answerable from a quote and a form, which is why the request to an agent is for both. The document a client will ask you for once the policy is bound is a separate subject, covered in the certificate of insurance guide. Which policies belong on the list at all is in what insurance a contractor needs, and the coverages themselves are laid out across the coverage section, including workers compensation and general liability.