Construction Industry Update: Subcontractor Default Insurance
How the SDI Marketplace Has Expanded
You might have heard the term Subcontractor Default Insurance (SDI), but what exactly is it and how does it help general contractors? SDI is an alternative to surety bonds. It’s an agreement between the contractor and insurance company in the event a subcontractor’s contract is terminated by default.
The SDI insurer provides a high deductible insurance policy to reimburse the contractor for costs related to the default of the subcontractors or supplier. A well-managed SDI program can be a positive risk mitigation tool for general contractors that meet the criteria and commit to the process. It can also give general contractors more control and potential cost savings.
General contractors seeking SDI are finding the marketplace for insurance carrier options continuing to expand. This coverage 10 years ago had one option. Now, five insurers are actively pursuing this business and several more are taking steps to enter the market.
The increased competition is creating availability for smaller general contractors to qualify. The traditional minimum benchmark of $100 million in annual subcontractor cost enrollments is no longer valid. Now, contractors that can conceivably enroll $50 million or even slightly less on an annual basis can qualify.
The underwriting process is thorough and participating general contractors need to be culturally committed to SDI as a business practice for it to truly to be successful. The proper internal resources need to be made available and building SDI into the project sales process is key. For those companies that initiate SDI programs and embrace the product at all levels of the organization, the upside benefits are significant.
Reach out to a member of the ‘A’ Team for more information on Subcontractor Default Insurance.
- Are You a Candidate for Subcontractor Default Insurance?
- Crystal Ball Says: Your Future Is Full of Subcontractors
- Part 1: Protecting Your Company from Subcontractor and Supplier Liabilities
- Part 2: Three Steps to Creating and Maintaining a Risk Transfer Program
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