Understanding the effects of subcontractors on your insurance premium

It’s important to note that the more substantial the proportion of your payroll allocated to subcontractors, the greater the impact on your business insurance premium. Here are the key reasons behind this impact:

• Vicarious liability: When you engage a subcontractor, it’s crucial to understand that you may be held vicariously liable for their actions. This means that if the subcontractor causes any harm or damage, you could be held responsible, especially if you have failed to adequately induct or supervise them. In case of a claim, the affected party may seek damages from all involved parties.
• Workers compensation: If a subcontractor sustains an injury at a worksite, they typically claim on their Workers Compensation insurance. Subsequently, workers compensation insurers have the statutory right to recoup some or all of these costs from your Public Liability policy. These claims tend to be more expensive due to the involvement of multiple parties and often materialise years after the incident, known as worker-to-worker claims.

Disclosure of subcontractors required for insurance coverage

Most insurers will not provide coverage for subcontractors unless their involvement has been disclosed to the insurer. If you do not provide the details of your subcontractors, including their occupation, there could be no cover for their actions, leaving you uninsured.

Worker-to-worker excess

Insurers typically refer to claims involving subcontractors as “worker-to-worker” claims. In most instances, the minimum excess is now $25,000 (and higher) if a subcontractor is injured on-site. While smaller business pack insurance policies may offer a lower excess, for all stand-alone liability policies, the minimum excess is $25,000. This can significantly affect businesses, especially if subcontractor details are not properly disclosed.

Reducing your risk exposure

To prioritise safety in your workplace and ensure adequate insurance coverage for work-related injuries, consider the following measures.

Training and induction

Ensure all workers are properly trained, licensed, and qualified, with appropriate medical assessments and thorough on-site induction.

Supervision and safety controls

Provide adequate supervision, instruction, and well-documented safety controls on-site, along with designated competent supervisors for each worker.

Communication on safety

Foster regular communication between employers and workers through safety talks or “toolbox talks.” Visit Safework NSW for helpful tips and information.

Contract and insurance review

Understand contractual responsibilities, including indemnity and insurance obligations, and ensure all contracts are properly executed, dated, and secured with Certificates of Currency.

Use of labor hire workers

Carefully select labor hire providers, limit their number and scrutinise terms and conditions.

Incident reporting

Identify and report near-misses and incidents promptly, conduct root-cause analysis, and share findings to prevent similar incidents in the future.

Achieving optimal claim outcomes

To optimise claim outcomes, follow these steps:

• Report and investigate incidents: Report and investigate all incidents promptly, retaining evidence such as contracts, invoices, SWMSs, and insurance details, along with witness statements, photos, and videos.
• Escalate legal correspondence: Seek guidance when facing legal correspondence, avoid admitting liability, making settlement offers, or responding to threats of legal action without assistance.

How to mitigate rising insurance costs

The first crucial step is to partner with a specialised business insurance broker who possesses an in-depth understanding of subcontractor usage and its liability implications.

At NewSure, we know that navigating the world of insurance can be complex and confusing. We empower thousands of Australian businesses to focus on what they do best, knowing they’re protected against any possible eventuality.

Talk to us or request a callback.

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