Blowing the Roof Off Workers Comp

July 12th, 2005 by

If you were to guess where you would find the most demand for roofing services, you might start with Florida. After all, the state was hit by four hurricanes last year and has already suffered from Hurricane Dennis this year. Big winds blow off the roof, right? So you might assume that Florida is great place to be a roofer. Think again.
According to a recent article in the Insurance Journal, fully 60% of the roofers working in Florida fail to carry workers comp insurance for their employees. Since the four hurricanes blasted Florida last year, the cost of replacing a roof there has doubled. But if you follow the money, you won’t find a lot of it going into workers comp premiums or into the hands of roofing workers. The state recognizes the problem, but with only 71 inspectors and over half a million job sites, the odds favor the uninsured contractors. (By the way, the comments attached to this article are well worth reading.)
Across the country, roofing remains one of the highest cost classifications for workers comp. In most states, the manual rates run between $38 and $50 per hundred dollars of payroll for comp coverage — compared to about $15 per hundred for a carpenter. It’s not hard to see where the high rates come from. The working conditions are always difficult. It’s usually either too hot or too cold. There is a lot of lifting and climbing. You are always working at dangerous heights, often perched at precarious angles. The fall protection is minimal. When roofers get hurt, the injuries tend to be serious. When you combine these high risk factors with the serious premium avoidance prevalent in Florida (and other states), you have a recipe for major underfunding of the exposure. As is too often the case, the good guys end up paying the price: not only are insured contractors at a disadvantage in the bidding process (their costs are higher), they end up subsidizing the uninsured contractors through the higher rates they pay for workers comp.
The only fair solution is to make sure that every contractor carries insurance for his or her employees. For readers who track the Insider’s coverage of related issues, we’ve been here before: in the conundrum of “independent contractors” versus employees. Once again, it’s a matter of who pays the benefits, who pays the premiums and who is able to avoid paying for insurance.
Moral Dilemmas
We can only speculate why so many roofers are uninsured in Florida. Let’s assume that insurance adjusters include a fair wage and full insurance when calculating the cost of repairing a damaged roof (admittedly, this may prove to be a dubious assumption!). The insurer cuts the homeowner a check for the work. It’s then up to the homeowner to find someone to fix the roof. With such great demand due to the widespread damage, it may not be easy to find anyone willing to take on the job, let alone more than one bidder. Again, assume the homeowner is able to find two potential contractors. The one with a fully insured workforce provides a bid that is 35% higher than the uninsured contractor. Even if the higher bid is within the insurance company reimbursement, the homeowner will be sorely tempted to go with the lower (uninsured) bidder and pocket the difference.
As is often the case, the incentives for doing the right thing may be misaligned. The contractor who insures his workers faces substantially higher costs of doing business. On the other hand, the uninsured contractor has a nice margin to play with. As one contractor quoted in the article states, his workers didn’t need insurance because they are all illegal aliens anyway! The buck spins around in the eye of the hurricane and the losers, ultimately, are the hard-pressed, underpaid workers who struggle to fix the damage that nature — and man — have wrought.