Erik Gabrielson, Web editor for HousingZone.com, interviews Mike Hopson of Zurich N.A. Construction about how his firm does business with America's big home builders. As the vice president of residential risks for Zurich, Hopson studies and develops products for large builders. He has more than 20 years of experience in the insurance industry.

Gabrielson: What types of builders do you insure?

Hopson: Those with $100 million in revenue and above.

Gabrielson: Do you insure builders who do all types of construction, such as single-family and attached housing?

Hopson: We're primarily interested in the folks doing single-family, detached housing. We do write some attached. We have, as of today, 33 folks that would be above the $100 million mark. We have builders from New Jersey to Hawaii, but we do have a predominance in the Western states.

Gabrielson: What types of policies do you offer?

Hopson: In the liability area we write a unique policy called the Home Builders Protective Policy. It differs in a couple of key areas, the first being that for damage-to-your-work issues, coverage is triggered by close of escrow. So unless the home builder sells the house, abandons it or gives it away, then the policy form attaches to that house, and we stay with that house as long as the home builder can be held legally liable for it. So it's not really based upon a claim made during the policy period. Coverage can be triggered seven, eight, nine years after the policy is written. But it only covers those houses that were sold during the year.

The second thing we do a little different is we incorporated a section into the policy that picks up damage-to-work more as a first-party coverage underneath a limited warranty document. ( Listen. )

Gabrielson: Do your policies often have exclusions for mold?

Hopson: We do have an exclusion for bodily injury and personal injury for mold, but not property damage.

Gabrielson: What's involved with your underwriting program for builders?

Hopson: We're pretty easy to get along with. You have to have a face-to-face meeting with the underwriter. We pre-engineer our risk and do our risk assessment, which is quite extensive. Usually the lead time for this is 90 days plus. We're a little unconventional in our underwriting in that we're not looking at the applications as much as what are the overall operations and culture of the builder. ( Listen. )

Gabrielson: How important is it for a builder to have an internal quality assurance program or to use a third-party QA consultant?

Hopson: They ought to have some type of internal quality process, and the use of an outside inspection company to help them document that is certainly a good thing. Without the knowledge that they're building consistently a quality product, odds are that your customer service costs are going to be too high.

Gabrielson: You said there was a face-to-face meeting between your company and the builder. How does that occur? Do you go to the builder?

Hopson: Yes. We normally go to the builder's office. We sit across the table from them. We go through the questions that we need answered about what they build, how they built it, about their customer service obligations, how they evaluate their subcontractors, what type of due-diligence process they do in buying land and then deciding what type of foundation system to put up. They take us from cradle to grave in that process.

After we go through that, we tell the builder a little bit about our policy form, the uniqueness of it. We answer questions on how it works, try to make them understand that this is not your typical policy. Coverage is broader than an ISO or CGL [Insurance Services Office or Commercial General Liability] policy form. We actually let the home builder make a claims decision underneath the warranty section of it.

Gabrielson: You said that there's a lead time of 90 days. Once you have that face-to-face meeting, how long does it typically take for you to make a decision that you've got a quality-oriented builder and that you will indeed write him a policy?

Hopson: We do the underwriting meeting first and get the risk engineering done. If the risk engineering takes place in a fairly short period of time, we can produce a quote in a reasonable length of time after risk engineering is back from the builder. We usually have a discussion about that - what it means, again going back through the coverage differences, what the requirements of the builder are, the types of things he would have to change, what we will do, what we won't do, what our commitment is to them, what we expect back from them to us. If this is something that they like and have the right attitude about, then we push right ahead. ( Listen. )

Gabrielson: How will the "notice and right to cure" laws that were recently passed in California, Arizona and Washington affect the insurance market in those states? Will Zurich be more willing to write policies in states that have these laws?

Hopson: At this time it has not impacted our willingness to write or not write in those states.

Gabrielson: What do you think the residential insurance market will look like in 2003 and beyond?

Hopson: You're looking at a continuing hard market for home builders and subcontractors working for home builders, at least for the next two years.

Gabrielson: So you think that after two years the market will begin to soften?

Hopson: I can't guarantee it at that time. It will be as hard as it is now, possibly harder, for the next two years.

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