In our corporate and individual histories, we have never seen a more difficult homebuilders’ market. We want to share our views with our community.
We began in 2011, in the aftermath of the 2007 economic crisis. Cove has relied upon its collective experience, great insurance partners, the right homebuilders and retail brokers to constantly adapt to changing environments. We all recall the early 2000 market where the scourge of litigation chased many carriers away from the sector. Radical changes to legislation and insurance forms were enacted and we gradually increased capacity for homebuilders.
Fast forward to today. Prior to the escalation of Covid-19, we witnessed significant hardening of the general liability insurance market with several markets pulling out of US residential construction altogether, leaving very few carriers in this space. While the full economic impact of Covid-19 has not been realized, signs of increased instability in other insurance providers and challenges from labor and supply chain disruptions are evident. These factors, along with the reality of increasing claims, demand that we think about and create alternative solutions for our residential partners.
When we look at our nine-year history of our for-sale program, we see the classic ‘80/20’ rule. ’80’ percent of our insureds have done a great job of risk management, claims management, quality control and great warranty service. These builders embraced the mechanics of the policy form, investing in customer care and actual repairs when required rather than pursuing costly litigation. The other ‘20′ percent, for a variety of reasons, have not done so well and are no longer with our program. Yet, our experience with all our builders successful or not, informs our market performance and our strategy moving forward.
We have taken a deep look at how we might evolve our approach to underwriting while maintaining our ethos of becoming even better insurance partners with our builders and brokers.
We are pleased to say that over the last 9 years, a small percent of our construction defect cases have gone into litigation. We strongly believe in this proactive approach where the homebuilder uses the form as intended and, as a result, they are in greater control over their risk experience. For these builders, the combined warranty/liability form will likely be their product of choice. We have seen, however, that many reputable builders are not interested in the broader warranty/liability form as they choose to self-insure more of their own risk or they have implemented alternative risk financing in lieu of procuring traditional liability insurance. After reviewing the results of our current portfolio specifically, where the product has worked and not worked, our conclusion is that one product does not meet the needs of the homebuilding community. Our goal is to provide a more nuanced range of coverage features to builders who otherwise qualify as “Cove Builders.” In other words, we are giving more choices to builders who meet our existing underwriting standards but who may choose to procure less coverage than our standard traditional form.
These options require Cove’s experienced risk analysis, a very experienced retail broker and a builder willing to commit to an active partnership with its carrier earlier in the process than ever. Today’s insurance and economic environment requires a more integrated and proactive approach, including all stakeholders. This deeper engagement taking place much earlier in the renewal process will enable us to deliver a specific, tailored solution for the client (rather than one size fits all approach).
These coverage features vary from our traditional warranty/whole home cost of risk approach to higher retentions/use of captives, less coverage for defense costs; all the way to very limited comp ops coverage while retaining current bodily injury coverage. Simply stated, we will offer options with less risk transfer to insurers, allowing builders to purchase liability coverage with alternative terms, limits and self-insured retentions. Cove has always customized it’s polices based upon a series of risk appetite questions. This new initiative broadens the number of options based upon a realistic analysis of the risks and risk mitigation efforts each builder can comfortably commit to our insurance partners. We reaffirm our commitment to understand and know our clients and provide high level underwriting analysis to each of our qualified builders.
We are at a critical juncture right now as we seek to secure long term insurance partners for residential construction. This requires that, collectively, we work to achieve the best possible balance of risk transfer, risk management protocols and sufficient premium to profitably cover losses. Cove remains dedicated to finding solutions where interests are aligned between all of the parties involved. We are concerned about the insurance market and how we can deliver quality and profitable business to our insurance partners. Contact us to find out how we may best align our risk appetite with your business needs.