Shockproofing Your Business: Smart Risk Management Strategies for Electrical Contracting Businesses

For an electrical contracting business, successfully completing a project requires more than technical expertise in today's competitive marketplace. Regulatory compliance, a challenging labor market and hurdles across the global supply chain have introduced bottlenecks that could limit small businesses' access to resources, capital and critical materials.

On the other hand, the demand for electrical services is growing. According to a report by Global Market Insights, the US electrical services market is expected to reach $290 billion by 2034.¹

Amidst these challenges and growing opportunities, electrical contractors must rethink strategies to safeguard operations. Whether managing a small team or scaling larger projects, you must consider these two questions:

• How can you better anticipate risks and be prepared for future challenges?
• How can you integrate strategic risk capabilities throughout the value chain?

What are the key risks for electrical contractors?

1. Workplace safety risks

• Equipment and workplace hazards: Electrocution from faulty wiring and falls from heights during installations are among the most common concerns for workers. Unexpected equipment failure can cause accidents and injuries, resulting in operational disruptions and financial loss.
• Exposure to hazardous materials: Workers who don't take proper safety measures can be exposed to poisonous gases and chemicals. For example, working with air conditioners and refrigerants can be dangerous and even potentially fatal, as these commonly contain toxic acids in their coils, which can lead to severe skin injuries.
• Third-party liability: On-site electrical services can damage a client's or public property and could lead to injuries. If not protected by adequate insurance, these incidents can result in expensive lawsuits, medical claims or repair bills.

2. Environmental risks

• Seasonal climates: Managing the workforce to meet seasonal and weather variables can be daunting for electrical service businesses, as hiring temporary workers incurs additional costs. Working in extreme conditions can disrupt the workload, impacting cash flow and resource management. Workers can also encounter fatigue, dehydration, exposure and other health issues.
• Extreme weather: Severe weather events, such as hurricanes and tornadoes, can delay or damage electrical projects. Natural disasters also cause massive damage to projects, resulting in rework and repairs. Contractors also incur increased costs due to additional labor and materials needed to complete the work.

3. Financial risks

• Financial fluctuations: Electrical businesses are highly sensitive to economic cycles. During an economic downturn, demand for new projects can drop. On the flip side, sudden growth can strain labor and material availability, driving up project costs. Small companies with limited budgets may particularly struggle to meet rapid demand and risk losing work.
• Supply chain disruptions: Transportation issues, trade restrictions and natural disasters disrupt the supply chain and affect international and regional markets. Delays in product supply and inflated material prices can interrupt projects carried out by the electrical contractors, damage reputations and increase operational costs.
• Inaccurate forecasts and unexpected project changes: These risks may arise due to changes in the scope of work, material and labor cost fluctuations and unforeseen site conditions. Failure to manage these risks can lead to delays, cancellations or regulatory fines.

4. Legal risks

• Non-compliance with local, state or federal regulations: The legal and regulatory landscape in the US is evolving, shaped by new executive orders, potential tariffs and shifts in enforcement.² Following the guidelines set by the National Electrical Code (NEC) is essential for those working in electrical services. Failure to meet safety regulations, equipment installation codes or environmental laws can lead to penalties, project shutdowns and license loss.
• Disputes over contract and/or payment: Ambiguous contract terms, disputed variations or change orders and delays in project milestones can lead to legal issues. Additionally, inadequate documentation or incomplete payment certifications can exacerbate these disputes, resulting in financial difficulties for contractors and strained relationships with clients or subcontractors.
• Defect claims: Deviations in contractual commitments, such as incorrect installation and faulty wiring, can lead to defect claims. Construction defects can result in minor issues, major electrical failures, risks of electrocution or fire hazards, often leading to costly legal disputes.

5. Other risks

• Overextension: Working on too many projects simultaneously can cause overextension, potentially leading to significant operational and financial strain. Overextension can also result in project delays or compromised output. Consequently, there's the added risk of loss of reputation and trust.
• Skilled labor shortages: Electrical service work carries inherent risks, from working on hazardous job sites to performing labor-intensive duties, making it challenging to recruit a qualified workforce. Additionally, small businesses often don't have a substantial budget to invest in training programs to attract and retain the best talent.

How can electrical service providers mitigate these risks effectively?

Assess workplace safety

Jobsite safety is critical to reducing costs and maintaining operational efficiency. As the global labor shortage in this industry intensifies, increasing workplace safety and ensuring equipment is fit for purpose are more important than ever for contractors. As well as being the right thing to do for the workforce, increased safety leads to more profitability, as accidents may cause downtime and reduce productivity.

Comply with regulatory laws

Compliance with regulations is crucial for electrical companies to minimize workplace accidents, enhance overall safety and secure their licenses. The US has a varied set of federal, state and local regulations governing electrical businesses' operations, safety standards and licensing requirements.³

Federal regulatory laws affecting electrical contractors include:

• OSHA regulations, which ensure workplace safety
• NEC standards for safe installations and other safety measures
• The Fair Labor Standards Act (FLSA) for wage and hour laws, including minimum wage, overtime pay and recordkeeping.
• Internal Revenue Service (IRS) tax laws and worker classifications

At the state level, most states have licensing boards that enforce electrical codes, issue licenses and manage disciplinary actions. Contractors also must have state-issued permits for electrical work in commercial and residential areas. Additionally, most states mandate workers' compensation insurance to cover workplace injuries. Most US states require a combination of practical work experience, completion of an apprenticeship program and a business and law examination to issue a license. Electrical contractors in all states generally must be bonded and insured before starting any contracting work. Those looking to hire workers will also need workers' compensation insurance and general liability insurance. These requirements differ significantly across states.⁴

Alabama

• Licensing authority: Alabama Electrical Contractors Board
• License types: Journeyman, electrical contractor
• Required work experience: 4 years
• Examination: Journeyman, electrical contractor
• Insurance type: Advise general liability and workers' compensation

California

• Licensing authority: Electrical Contractors' State Licensing Board
• License types: Apprentice electrician, residential electrician, general electrician
• Required work experience: Category-specific training curriculum
• Examination: Law/business test and an electrical contractor test.
• Insurance type: $12,500 bond; additional $7,500 bond and workers' compensation if hiring employees

Colorado

• Licensing authority: State Board of Electrical Examiners and various local jurisdictions
• License types: Registered licenses limited to specific jurisdictions; certified licenses that allow working anywhere in the state as an electrical contractor
• Required work experience: No statewide electrician licensing requirements; category-specific work experience and training program
• Examination: Journeyman and master electrician certification exam
• Insurance type: Certified electrical contractors are required to hold general liability, property damage and workers' compensation insurance

Florida

• Licensing authority: State Board of Electrical Examiners and various local jurisdictions.
• License types: Certified and registered. Registered licenses are limited to specific jurisdictions; certified licenses allow working anywhere in the state as an electrical contractor.
• Required work experience: No statewide electrician licensing requirements. Each category has its designated work experience and training program.
• Examination: Journeyman and master electrician certification exam
• Insurance type: Certified electrical contractors are required to hold general liability, property damage and workers' compensation insurance.

New York City

• Licensing authority: New York City Department of Buildings. No statewide regulations — vary by jurisdiction.
• License types: Local-level licenses — journeymen and contractors
• Required work experience: 5 years of supervised electrical work experience
• Examination: Written closed-book exam on NEC and New York City electrical code; practical field skills exam (conduit, starters, lighting)
• Insurance type: General liability, disability, workers' compensation

Texas

• Licensing authority: Texas Department of Licensing and Regulations
• License types: Apprentice, journeyman, master electrician, contractor
• Required work experience: Category-specific work experience; for electrical contractor license, must employ a licensed master electrician
• Examination: Must pass required exams
• Insurance type: Business liability, workers' compensation

Washington

• Licensing authority: Washington Department of Labor and Industries
• License types: Journeyman electrician, master electrician, electrical administrator, electrical contractor, specialty electrician contractor
• Required work experience: 8,000 hours of on-the-job work experience and 96 hours of classroom training to become a journeyman electrician
• Examination: No exam for electrical contractor's license; contractors must hold a valid master electrician or electrical administrator license
• Insurance type: $4,000 in an electrical contractor's surety bond and workers' compensation

Some US states recognize electrical licenses from other states, allowing contractors to provide their services.

• Alabama — Reciprocity with Arkansas, Louisiana and Georgia
• Nebraska — Reciprocity with Alaska, Colorado and Texas
• Arizona, Louisiana and Mississippi accept the National Association of State Contractors Licensing Agencies (NASCLA) accredited electrical examination.

As the country has a varied regulatory landscape, it's important for electrical contractors to regularly check with state licensing boards and local jurisdictions for updates. Keeping records of licenses, permits and insurance will help avoid penalties and maintain the license.

Protect your business with Gallagher

The risks electrical contractors encounter depend on multiple unique factors, including location, availability of resources and management style. As risks become more diverse, electrical contractors —especially those with limited budgets and resources — need a comprehensive understanding of risk management practices.

Understanding risks helps you manage them better, navigate complex environments and ensure resilience. Partnering with our electrical contractor risk management specialists will help you to navigate the specific challenges of your business, secure tailored insurance protection and build resilience.

Connect with Gallagher small business insurance advisor to confidently manage compliance, ensure jobsite safety and safeguard your business.

Sources

²Joel, Johnston. "Legal, Regulatory Risks Bring Uncertainty for the Energy Sector," Power, 19 Mar 2025.

³"Electrical Licensing: State-by-State Requirements," Huckleberry, accessed 23 Apr 2025.

⁴"State-by-State Electrician License and Certification Requirements," Electrician Classes, accessed 23 Apr 2025.