Building a construction business

The artisan market is filled with small trade contractors with a couple hundred thousand dollars in receipts and relatively small premiums. Yet that has not stopped NationsBuilders Insurance Services from wanting to service the segment.

Peter H. Foley, president and CEO of the company, says the construction market is attractive because it’s such a strong component of the nation’s economy. “It’s a challenging area, an interesting area, and we’re at an interesting point in our own development as we continue to grow,” he said. Furthermore, a small contractor just handling a few thousand dollars could eventually turn into a $2 million to $3 million customer.

Good opportunity to build business

NBIS believes the construction market is attractive because of home building and remodeling trends in the U.S., and that the market is under-served. His company covers the entire construction market spectrum from residential to heavy construction.

“Home construction is up 5 percent, although it changes month to month,” Foley said. “You can’t ignore the sheer size of the construction and residential sector. It’s a market that at times owes the contractor a better service than the industry has provided. I’m seeing some good improvement and some specialty carriers providing that level of service, and I’m optimistic.”

For example, Foley said carriers have various size limitations, so there are points in an artisan’s life in which he or she will need to slide into other programs. Also, some markets also will not take on new contractors doing business. NBIS looks at those areas as opportunities.

“[New business] is often an area that’s under-served; lots of people shy away from it,” Foley said. NBIS will look at an artisan’s background to determine whether the person has the appropriate skills, whether the person has worked with someone else and wants to branch out on his or her own, etc.

Construction challenges

The construction market is not without challenges, however. One challenge is that insurance providers are constantly changing. “There are new entrants from other RRGs and traditional companies coming into this marketplace,” Foley said.

Another area of concern is market growth will be shunted. “You hear comments that there’s a housing bubble, and it appears as if there’s going to be some adjustment in the number of homes being built,” Foley said. “There are well-reported issues with home building. Is it overbuilt? Is there still a lot of demand? That’s a fundamental challenge.” Nevertheless, Foley said he does not see the market “falling apart.”

Regulations, litigation and customer expectations also create challenges in underwriting. “Expectations have been driven onto the home buyer that the house be perfect,” Foley said, “but that doesn’t happen. Perfect houses are not built.”

With a home being the largest single purchase a person will make, there are very astute lawyers that try to take advantage of the system, Foley added. “There are new interpretations of contracts, so you have to stay on top of that,” he said. “You don’t want to get unpleasantly surprised by an adverse judgment or massive tort.”

Litigation can be further complicated when there is a housing boom. “In states like California, there’s been such a high growth in home building, bad homes are being built. “Ideally you don’t want to write insurance on those contractors,” he said. But poorly built homes can lead to construction defect litigation and high awards in legal cases.

To prevent problems, NBIS has a shock loss team that goes out immediately to a site whenever a claim is filed. “The team takes pictures and gets an idea of what has occurred, instead of taking three to four days to get out a site when the loss that occurred might no longer be visible,” Foley said. “We get our team out there as soon as possible to see exactly what has occurred and who is liable.”

Despite the challenges, NBIS believes basic “blocking and tackling” — evaluating and responding to the day-to-day challenges and opportunities — can ensure a company’s success.

“If you look at California and contiguous states, there are a large number of artisans,” Foley said. “They do have losses and do cause problems. But at same time, if you spread your risk and balance your book of business, you can do well. You want to look at what are the needs, what are the requirements, what are the gaps.”

NBIS also will not get out of the business when business gets tough, Foley says. “NBIS is going to live and die in how well we do in the construction sector,” Foley said. “Our basic philosophy is we want to provide solutions in construction sector whether it’s a one-person artisan or tract home builder.”

NBIS began as a risk retention group in 2002 and is still operating as one, but the company also is in the process of creating its own surplus lines insurer to give customers choices, Foley said. The company underwrites business in more than 30 states, targeting service artisan contractors, mid-sized contractors and large contractors, but not large nationals. The focus primarily is on general liability, but Foley said NBIS plans to introduce other products to address builders’ risk in the future. The company operates from Atlanta, Chicago and Palm Desert, Calif., and was recently recognized by Entrepreneur magazine as No. 5 on its “12th Annual Hot 100 Companies” listing.

Topics Contractors Construction