How to Deal with the Realities of Umbrella Insurance for Subcontractors

By Jason McElrath, President of MP Specialty Insurance, which serves the heavy lift and heavy transport industries in all 50 states. He has served on SEAA’s board of directors since 2022. He currently serves as Chairman of the Finance and Membership committees.

The steel erection industry is no stranger to risk. Yet, in recent years, risk management in the form of umbrella insurance has taken on an entirely new level of financial strain for subcontractors. The cost to secure high-limit coverage is climbing sharply, and the market forces driving this increase show no signs of abating.

For steel erectors, understanding the drivers of these increases, recognizing the difference in how companies of different sizes approach coverage, and taking strategic steps to mitigate costs are essential to staying competitive in an increasingly demanding contracting environment.

The Rising Cost & Why It’s Here to Stay

An umbrella (or excess) policy sits over multiple lines of insurance, most commonly, general liability, auto liability, and employers’ liability. It adds an extra layer of protection above the primary policy limits. Historically, most primary commercial liability policies carried a $1 million per-occurrence limit. Umbrella carriers priced the next million and beyond at a steep discount, on the assumption that they were insuring catastrophic, low-frequency events.

That pricing model is rapidly eroding. Over the last five years, the “working layer” for claims in many high-hazard trades has shifted from $1 million to $2 million, and there are three factors fueling this shift.

• Inflation in Claims Costs – The cost to repair damaged property, replace equipment, and provide medical care has risen dramatically. A loss that once settled for under a million can now easily exceed that figure simply due to higher material and labor costs.

• Litigation Funding – Personal injury attorneys increasingly secure venture capital funding to prolong litigation, giving them the resources to push cases deeper and further. This increases the likelihood of settlements at higher values.

• Fear of “Nuclear Verdicts” – Juries awarding multi-million-dollar sums have made carriers wary of taking cases to trial. Settlements are higher and more frequent, even for mid-range claims.

As a result, excess and umbrella carriers are no longer pricing the second million of coverage as “cheap add-on protection.” Because they’re being pulled into everyday claims activity, rates are increasing by 30, 40, even 50 percent in a single year. In addition, each layer of a liability “tower” is priced relative to the layer below, so cost increases compound as limits rise.

The pressure to buy higher limits isn’t going away. This isn’t a blip in the market, it’s the new reality.

Different Approaches to Coverage

Company size plays a significant role in how umbrella coverage decisions are made. For smaller erectors, typically those with annual revenues under $5 million, coverage limits are often dictated by contractual requirements. If a general contractor (GC) requires $5 million in liability coverage for a project, a smaller erector might purchase the additional coverage only for that specific job.

This “buy-as-needed” approach keeps immediate costs down, but it can create financial inefficiencies. Here’s how.

• Purchasing mid-term, outside the annual renewal period, costs more.

• Minimum premiums for umbrella policies make short-term purchases disproportionately expensive.

• Lack of pre-planning can limit bidding opportunities.

Larger erectors, with revenues exceeding $5 million, view umbrella coverage differently. Their decisions are often based on asset protection, not just contractual compliance. With more capital and equipment at risk, they maintain higher limits year-round, regardless of contracts. For smaller companies in growth mode, this creates a challenge. Without higher limits in place, they may have to pass on lucrative work. The opportunity cost of not having the umbrella is real. If you walk away from jobs because you can’t meet the insurance requirement, you’re limiting your growth potential.

The most extreme insurance demands come from GCs reacting to large-scale losses. For example, after a major incident, a GC might require $25 million in coverage from every subcontractor on a project, regardless of trade. While this may ease over time, they reflect a broader trend: GCs passing risk downstream to subcontractors.

This places subcontractors in high-hazard trades under intensified pressure to increase liability limits to stay in the bidding game.

Practical Strategies to Manage Costs

While there’s no magic fix for the rising cost of umbrella insurance, there are strategies steel erection contractors can use to lessen the financial impact.

1. Plan at Renewal, Not Mid-Term

The annual policy renewal period is the most cost-effective time to make coverage changes. By anticipating the coming year’s projects, contractors can secure the necessary limits in advance and spread costs across all jobs over 12 months.

2. Consolidate Coverage with One Carrier

In some cases, paying slightly more for the primary $1 million in coverage from a single carrier that can also provide multiple layers of umbrella coverage may reduce the total spend. Bundled vertical arrangements can be more cost-effective than layering policies from multiple carriers.

3. Seek Carriers Offering $2 Million Primary Limits

A small but growing number of carriers now offer $2 million per-occurrence limits on general liability and auto liability policies. Purchasing a higher primary limit can reduce the need to buy the “gap” layer from $1 million to $2 million. While less than 10% of carriers currently offer this, it is likely to become more common.

Sticker shock often comes from looking at the umbrella premium in isolation. Instead, calculate the premium as a percentage of total revenue. A $25,000 premium on $5 million in revenue is just 0.5%. Adjusting bid prices by 1–2% may be enough to fully offset the additional cost without hurting competitiveness.

5. Evaluate Lost Opportunity Costs

Contractors should ask themselves a few key questions. What projects are we declining due to insufficient coverage? And What additional revenue could we earn if we maintained higher limits year-round?

With a big-picture mindset when evaluating the numbers turns the decision from a “cost problem” into a return-on-investment calculation.

6. Engage in Year-Round Broker Conversations

A good broker will understand both the market and the contractor’s business strategy. Regular check-ins (not just at renewal) can uncover new carrier options, identify coverage gaps, and prepare for future bid requirements.

Shifting the Mindset

The biggest shift contractors must make is recognizing that rising umbrella insurance costs are here to stay. Tort reform could help curb extreme verdicts, but inflation in medical and property repair costs, and the broader acceptance of multi-million-dollar settlements, will keep upward pressure on premiums.

The takeaway is clear: adapt early, plan strategically, and incorporate insurance realities into business growth plans. The cost of coverage should no longer be a reactive purchase. Making it a proactive business decision positively impacts competitiveness and profitability.

Umbrella vs. Excess What’s the Difference?

Umbrella coverage is multi-line protection, providing a wider net. Excess coverage is single-line increase, vertical build. Both are tools to meet contractual requirements or protect assets, but they function differently in scope and flexibility.

Umbrella Coverage is a liability policy that sits over two or more lines of coverage, such as general liability (GL), auto liability, and employers’ liability. The purpose of it is to provide broad, higher-limit protection across multiple types of liability. “Umbrella” refers to the fact that it spans across more than one line of coverage.

Example: A contractor carries $1 million per occurrence on both GL and auto policies. The umbrella attaches above that $1 million, providing, for example, an additional $4 million in coverage across both lines.

Excess Coverage is a liability policy that sits over one specific line of coverage, such as GL only or auto only. It’s used to “stack” higher limits vertically for that one coverage type. “Excess” is more targeted; it does not automatically provide cross-coverage for other liability policies.

Example: A contractor’s GL policy has a $1 million limit, but a project requires $3 million. An excess policy is purchased to add $2 million more, covering only GL, not auto or other lines.