Committed to contractors
Bituminous brings underwriting savvy and risk control expertise to specialty contractor niches
By Elisabeth Boone, CPCU
Among the industries that are truly at the heart of the American economy, one of the most important is contractors. From infrastructure like roads, bridges, and tunnels to commercial and residential construction, from utilities to land improvement, contractors are the engine that drives the train of commerce.
Contracting is a tough business—and so is arranging insurance and implementing effective risk management for specialized contractor classes.
Bringing both underwriting and risk management expertise to the contractor “table” is Bituminous Insurance Companies of Rock Island, Illinois. Established in 1917 as a reciprocal exchange to provide workers compensation insurance to the coal mining industry, Bituminous gradually expanded its product offerings and evolved into a commercial lines generalist.
In 1985 Bituminous became part of the Old Republic International Group, which holds an A+ Best’s rating, and in 2006 was named to the list of Ward’s Top 50 Insurers for the third consecutive year. Licensed in 48 states, Bituminous concentrates its marketing efforts in 37 states. It is not active in New England or in California and Nevada.
Since the mid-1980s, Bituminous has moved from being a generalist to focusing on several carefully selected specialty niches. The company’s construction programs include programs for general contractors and building trades contractors, transportation construction contractors, utility construction contractors, land improvement contractors (grading and excavating), and water well drilling and structural moving contractors. Today this business generates some 55% of the insurer’s total premium volume.
Bituminous Insurance was profiled in the June 2000 issue of Rough Notes (“Insuring the ‘Real World’ of American Business”) and since that time has almost doubled its premium volume, finishing 2006 with net written premium of close to $430.7 million and a combined ratio of 96.2.
That growth, comments Bituminous President Greg Ator, was achieved with virtually no change in employee count. “A lot of our growth comes from the fact that we have emphasized larger accounts than we did in the past, and our oil and gas program has surged because of conditions in that market,” he says. “As a result, we have a lot more dollars attached to each of our policies. We’re not targeting mega accounts, but our average account size has probably doubled since 2000, from about $50,000 to $100,000.”
Since 2000, Ator says, “We’ve had significant growth in the Rocky Mountain states.” This growth, he explains, has been fueled not only by the strong demand for oil and gas contractors but also by increased construction activity overall. “We also have expanded our construction program in north Florida, because it’s a strong growth area.”
Construction market trends
“Capacity is abundant in the construction arena, and it’s increasing,” Ator points out. “Some carriers have broadened their appetite to include construction; some carriers have broadened their appetite to include more classes. We’ve also seen a rise in the use of owner-controlled insurance programs (OCIPs), primarily because of a willingness to use OCIPs on smaller projects,” Ator observes.
“Another thing we see in terms of capacity is an increasing use of captive insurers in the construction arena,” he continues. “These are typically rent-a-captive structures for a customer that’s not big enough to self-insure but wants to have some skin in the game.
“Each of these trends has added capacity, with the result that price competition is strong although we haven’t seen what I would call a great broadening of competition on terms and conditions. There’s great availability of coverage for contractors, even for residential homebuilders, which have been hard to find a market for.
“Although we don’t write residential homebuilders, we do write a lot of ancillary contractors who work for those builders,” Ator says. “Examples are street and road, concrete flatwork, and water and sewer contractors. So the downturn in homebuilding affects us because it cuts down on the infrastructure work for contractors that we do write.
“Another trend that is affecting us, and it varies by state, is uncertainty about government spending on infrastructure,” Ator remarks. “Our country needs a lot of money spent on bridges and roads, as we saw with the bridge collapse in Minnesota last summer. In some states the funding isn’t there, and the federal highway bill was tied up for quite a while, so that affects contractors who target government projects. We insure a lot of those contractors.”
Ator identifies a third key trend in the construction market. “After the recession of 2000 to 2002, which followed the dot-com boom and 9/11, there was a lot of pent-up demand for commercial construction,” he observes. “That has played out over the last three or four years, and some of the air has gone out of that bubble, so we’re not seeing the same backlog of commercial construction projects that we saw two or three years ago.”
Adds Mark Jorgenson, executive vice president: “There’s a significant oversupply of office space, and both private and public construction are slowing, although not as precipitously as residential construction. There’s going to be a battle between the federal and state governments over funding for infrastructure.”
Underwriting focus
To gain insight into the Bituminous underwriting philosophy and strategy on contractor programs, we spoke with Dave Dupont, senior vice president of underwriting, and with underwriting vice presidents, Chris Kruse, who is responsible for the builders program, and Jon Jeschke, who manages the utility contractors program.
Dupont, a 22-year veteran of Bituminous, assumed his current position in April 2007. He brings a wealth of field management experience to his home office post, having served for the previous 11 years as a branch manager in Oklahoma City and Kansas City.
Looking at the various contractor niche markets that Bituminous pursues, Dupont agrees with Greg Ator that competition is on the rise. In response, he says, “We try to remain consistent in our niches, and we’re expanding our territory geographically. As long as we can get a premium that matches our exposure, we believe we’ll do fine through this soft cycle. It still comes down to having a good product along with good customer service in order to be successful in our various niche markets.”
At the branch level, Bituminous is involved in trade groups including the Associated General Contractors (AGC) and Associated Builders & Contractors (ABC). “We have endorsements from some organizations, and we’ve implemented a safety group dividend plan, which reduces insurance costs and helps the associations attract more members,” Dupont explains. “Our risk control specialists attend state association meetings and share information that can help members improve safety and control costs.”
Says Kruse: “I participate in AGC’s risk management committee and for the last couple of years have been going to their national convention. We also attend the national conventions of several other contractor trade groups, both to learn and to meet firsthand with the customers in our programs, and also to help members get to know Bituminous better,” Kruse says. “It also gives us a chance to get a look at what our competitors are doing in the market.”
In terms of underwriting risks in the builders program, Kruse says, “We like to write a contractor who has good on-site supervision, rigid contractual control, and values the high-quality underwriting, claims, risk control, and premium audit services provided by our experienced staff.” The company serves most types of commercial building construction, with the exception of roofing and high-rise contractors.
The utility program “consists primarily of water and sewer contractors, cable and conduit contractors, and gas main and power line contractors,” Jon Jeschke explains. “We prefer to deal with owner-managers, where the owners of the contracting company go out into the field and supervise day-to-day operations at job sites and basically get their hands dirty. We believe these contractors are more responsive to suggestions we may have in terms of safety and risk improvement.”
Risk control is key
“In all of our programs, we pride ourselves on being an underwriting company,” Jeschke asserts. “We try to base our pricing on the individual risk characteristics of each account, so our risk control function begins with a risk assessment in which we look at the contractor’s safety practices and compare them to best practices for that particular industry,” he says. “We’re able to build our knowledge base of best practices by working in our selected niches day after day. We gain a great deal of expertise by keeping that focused underwriting appetite.
“If an account is above average based on our risk assessment,” Jeschke continues, “we can offer better pricing than would be the norm in that class. Likewise, if our assessment shows that an account is average or even below average, we can offer a price on that account, knowing that we have our work cut out for us in the second step of the risk control function, which is: How do we take that account and its risk characteristics from where it is today and put it on a risk improvement program?”
The Bituminous risk control unit is headed by industry veteran Bill Eby, who joined Bituminous as a vice president in 1994 after serving in various loss control positions with Continental Insurance and Royal Insurance for more than 20 years.
“In the risk control department, we have 48 people in the field plus three home office supervisors,” Eby explains. “Our field personnel provide the principal point of risk control service delivery. About two-thirds of the risk control staff’s efforts are devoted to servicing accounts, and about one third to conducting underwriting surveys on both prospective accounts and newly written accounts.
“The underwriting survey is designed to gather information about the current or potential policyholder’s business, and how they manage their business to control their exposures for the coverages that we’re considering providing,” Eby says. “In the case of workers comp, for example, we want to know how well those exposures are controlled at the work site with respect to factors like fall prevention and materials handling. The underwriter uses the survey information to price the risk appropriately and provide coverage that matches the exposures.
“We also use the underwriting survey to set the stage for our ongoing service to the account,” Eby says. “It’s a preliminary evaluation of the client’s safety needs, and it also helps us determine what kinds of risk control-related services might be of interest to the insured.”
For example, “They may be interested in training assistance, or assistance in evaluating the effective-ness of their safety management practices. What we’re looking for is a match between what we perceive the risk control needs of an account might be and what the insured is interested in working on,” Eby says. “At the end of the day, it’s the policyholder’s management that is going to ensure that things are done, so we try to provide guidance through management.”
A look ahead
Like other insurers, Bituminous is prepared to ride out the current cycle until the pace of construction activity begins to pick up. The company anticipates that infrastructure funding should loosen up in the next few years, providing opportunities in that arena. In the meantime, the company is pursuing initiatives on several fronts.
“We plan to continue our geographic expansion in the West,” Greg Ator says. “We are now doing business in Washington State and Oregon, and we may consider moving into Arizona.”
Pointing to another new initiative, Ator says, “We are in the process of developing an agency portal so that agents and ultimately customers will be able to use our Web site to access loss data and other information and, at some point, transact business with us. We’ll be rolling that out in mid-2008, and eventually we’ll make a lot of data available through the portal.”
Also scheduled to come online this year is a new billing system for agents and customers that, Ator says, “dovetails with the agency portal, so users can find out what’s been paid, what’s due, and so on. Again, our goal is to provide more rich data to facilitate doing business.
“We’re in a challenging, competitive market, so we’re going to focus on strengthening our agency and customer relationships even further,” Ator says. “We believe they’re good now, but we’re going to make sure they’re even better as we go forward.”
For more information:
Bituminous Insurance Companies
Web site: www.bituminousinsurance.com