Builders risk online

Rough Notes, May 2003 by Strazewski, Len

TECHNOLOGY

Zurich offers Internet delivery and automated underwriting for quick turnaround

Fueled by low mortgage interest rates and wild consumer demand, new residential and small commercial construction is exploding around the country. In 2002, the U.S. Census Bureau recorded nearly 1.9 million new housing construction starts and projected $168.5 billion for existing home improvements and repairs this year.

This trend translates into big business for agents and brokers that specialize in builders risk and construction trades insurance, but it is also a huge challenge, says Don Bourdeau, principal and branch manager of Al Bourdeau Insurance Services, Inc., in Farmington Hills, Michigan.

The more than 80-year-old independent insurance agency with six offices and 125 employees services about 300 builders and home remodelers, Bourdeau says, and always has demand for builders risk and associated coverages. And when the builders, contractors and developers need the coverage to begin construction, they need it fast, he says.

"It's not unusual for us to get a call from a builder who is literally waiting to begin construction immediately, pending acquisition of insurance," he says. "They want-and need-the coverage as fast as we can provide it."

And the agency can quote, bind and issue a policy faster than it ever could before, Bourdeau says, sometimes in as little as five to 10 minutes while the client is still on the telephone call that initiated the request. The Al Bourdeau agency, a Zurich North America Small Business contracted agent, writes most of its builders risk coverage through a proprietary online underwriting system that automates quotation, binding and policy issuance for most risks under $10 million in value.

The Builders Risk Plan from Zurich Insurance Services, Inc., in Jacksonville, Florida was originally established in 1977 as part of an insurance program for residential and small commercial construction. It was designed to expedite and simplify agent access to a coverage that is particularly time sensitive, explains Robert J. Castranova, president and chief operating officer of Zurich Insurance Services. Today, the product has expanded to cover not only single-- family dwellings but also commercial risks up to $25 million in value.

The course of construction plan and available endorsements offer broader coverage than a homeowners policy with a course of construction endorsement and includes coverage for:

* Theft of materials from the moment they are delivered to the job site

* Materials in transit and at temporary locations

* Materials installed or to be installed

* Contents in a model home

* Vacant and unoccupied completed dwellings

* Home purchasers under contract - allows the home owner to occupy a dwelling up to 90 days pending closing while the builders collect rent

* Losses due to ordinance or laws

* Inadvertent errors and omissions for reporting form policies

* A $10,000 reward program to deter theft and arson

"Builders need the coverage as quickly as possible to begin projects as soon as their contracts and financing are in order," Castranova says. "Every day lost in waiting for coverage affects their profitability and their ability to develop additional projects. Agents have to be sensitive to that need and realize that the ability to respond quickly gives them a competitive edge. They need a way to quote the coverage and deliver the policy as fast as possible.

"The economies of scale are such that an agent also needs to work as efficiently as possible to maximize the profitability from what may be hundreds of individual policies and accounts," he says.

In 1997, Zurich introduced Internet delivery of the Builders Risk Plan and other coverages to Zurich Small Business agents, allowing direct access to an automated underwriting system that incorporated the latest in expert systems. The system can quote from an underwriting questionnaire as fast as agents can enter and transmit the information, notes Alan Ferguson, senior vice president for the Builders Risk Plan. Agents also have online and voice telephone access to underwriters to ask questions about the coverage or answer questions related to underwriting.

The online service was a powerful innovation for agents, Ferguson says. "The process is very simple and very fast and provides agents with a pointof-sale tool that allows them to quote a risk and complete the coverage process through download of the individual policy."

Although computers can't make underwriting decisions for every risk, Castranova says that 99% of submissions to the program are processed automatically over the Internet in under 10 minutes-a dramatic improvement over paperbased submissions and underwriting. "This is the way that agents want to interact with their insurer," Castranova says, "by entering underwriting information only once in a computer system that maintains the information and manages the complete coverage process."

Agent Bourdeau agrees. "Considering the demand, I don't know how we could have handled the business in the traditional way. In the old days, we would have had to fill out an ACORD form application, mail or fax it to the underwriting office, diary the policy for issuance, issue a binder, and then wait sometimes a month or more for the policy. Then, finally, invoice the client," he says.