The insurance crisis facing the construction industry has been well-documented and shows no signs of slowing down. Many companies are dealing with the reality of extremely high rates for general liability coverage.
All might not be lost, however. Just last month, the Association of the Wall and Ceiling Industries International (AWCI) incorporated its own insurance company to provide coverage for its contractor, supplier, and distributor members. The AWCI Insurance Co. (AIC) is a captive company, meaning it is owned and controlled by the companies it insures. The company offers a full-service plan, but according to Steve Etkin, executive vice president of AWCI, the "driving force" behind AIC's formation was problems related to exterior insulation and finish systems, or EIFS.
The synthetic stucco systems have been blamed for damage done to houses by water trapped in walls, which has spurred costly litigation. As a result, insurance companies have increased their premiums for companies that do this type of work, or, in some cases, have flat out refused coverage on EIFS installations.
According to the AIC Web site, the capital for starting the company was provided by AWCI and five EIFS manufacturers. Because of regulations pertaining to captive insurance companies, only AWCI members are eligible for coverage.
Ann Hickman, senior research analyst at the International Risk Management Institute, says that to her knowledge, AIC is the first company of its kind specifically for EIFS installers. However, other self-insurance programs do exist for contractors (such as the workers' compensation fund run in 13 states by the Associated General Contractors of America), and captive insurance companies have been established in other industries.
Hickman says that captive companies like AIC "can be a very effective method of addressing the insurance crisis," but she stresses that they're only part of the solution. Speaking specifically of the EIFS industry, Hickman says that "the lawsuits aren't going to go away. It's important to educate the insurance industry on how to appropriately underwrite and price the coverage and to identify contractors with the training and skills to perform the work correctly."