NBIS Contracts Program to Build Upon

From mold to construction defects, contractors and those who insure them can run into a mound of claims when building.

One company who has stepped in to construct a program for contractors is Nevada-based National Builders Insurance Services.

NBIS (www.nbins.com) is the agency-manager for Builders & Contractors Insurance Company, RRG (BCIC) which is quota share reinsured by Southwestern Casualty Insurance Company, which NBIS owns 100 percent of.

NBIS president Peter Foley, who has more than 25 years of insurance industry experience, pointed out that last summer, the Westcap Group asked for his assistance in forming a new program utilizing a Risk Retention Group structure. NBIS received its Certificate of Authority from the Nevada Department of Insurance in February, and has put together a specialist company to focus exclusively on the contracting sector, utilizing underwriting, claims, systems and administration from a predecessor insurance program that ran successfully for over four years.

Risk Retention Groups, which are liability insurance companies owned by their members, were formed originally under a federal statute in 1981 then subsequently modified five years later under the Liability Risk Retention Act. Since that time, more than 140 RRG’s have been set up. Currently, there are more than 75 RRG’s in operation, and out of the total number of approximately 140, a very small percentage have been forced to involuntarily liquidate.

According to Foley, Nevada was chosen as the place for business due to a number of reasons, including its pro-business attitude, liability problems facing the contracting sector, an accessible state insurance department with a positive approach, and an attractive tax structure.

“We set it up as an underwriting manager, operating basically as the insurance company while sharing in the risk with the insurance company,” Foley said. “A lot of the problems facing contractors came out of California in the Montrose Case and subsequent cases, now permeating throughout the Western states. In a paradox, California, because it has had problems longer than other states, is more receptive to what we’re doing.

“In Texas, one of the biggest publicized problems of course is the mold. You also have the defects, so there is a market for us in Texas. All the states we’ve chosen are ones showing financial growth. I think as we gain penetration in Texas, it can be one of our key contributing states.”

In California and the surrounding states, Foley notes there are many challenges, but there are also some good things to come out of them for NBIS.

“On the good side, we do have some awareness out there, also, there is an agency force that has seen the problems having been right in the middle of them, so they are generally much more receptive in working with us. On the negative side, California is so huge and is a moving target for so many issues. I look at California as a good opportunity despite its challenges for us. In Arizona, the defect issue has been a problem. You have so much growth in Arizona, especially the Phoenix area. In Oregon, Washington and Colorado, those states have historically not had the problems the others have. But they’re now also facing the issues.”

The way NBIS is structured, to have direct access to the program, you have to be an investor. “Currently, we have nine investor producers agencies—two are retailers, five are wholesalers, and two are underwriting managers,” Foley commented. “Of the nine, eight are in California. Non-investor producers go through either one of our wholesalers or underwriting managers.”

NBIS manages BCIC for a management fee that covers the company expenses. “We quote a premium and in addition to the premium, we charge a 10 percent subscription fee which goes to buying common shares in BCIC,” Foley said.

“We only write general liability, which we use to our advantage as our focus,” Foley continued. “Our policy was developed post-Montrose and has gone through several revisions. It has a Montrose exclusion. We will cover construction defects, but we’re not going to pick up those defects that occurred on prior projects that we didn’t write or collect a premium prior to our time of writing. It is a true general liability policy. Our major exclusions are we exclude pollution, mold, the other toxic—exposures; action over; and subsidence.”

Among the issues confronting NBIS is as a new company, they cannot, like any other new business, get a rating for up to five years. “For S&P’s, Fitch, Moody’s, we’re too small,” Foley said. “However, Demotech, which is accepted by HUD, Freddie Mac and Fannie Mae, will look at smaller, regional, newer companies. We’re in discussions with them currently.”

As for plans for possible expansion, Foley noted, “We’ll look on a case-by-case basis at each state. We’re not going to compete with the rated carriers that’s suicide. Even when we quote against a rated carrier, we tell the agent and insured, if you’re getting a decent quote and you’re satisfied with that, you should go with that carrier.”

With the current state of the market, Foley said the greatest challenge for the company is just creating more awareness of what they do and overcoming not being able to get a rating.

“We don’t see an awful lot of competition for the niche we’ve fit into,” Foley commented. “We are continuing to raise capital. One advantage to the risk retention structure is that it is a self-creating capital through the 10 percent subscription fee pain for by the insured to buy common stock. Our goal is very simple to manage for success and be here in 10 years.”

Topics California Carriers Texas Contractors