Insurers Pick Their Spots
"You're going to have to pick your spots," warned John O'Brien, chief operating officer of AIG Environmental, summing up the thinking of residential contractors' liability insurers in the wake of Hurricane Katrina.
"You're going to have to be careful who you choose to insure" in the Gulf, he added.
Peter Foley, CEO of ProBuilders Specialty Insurance, understands. His firm announced it will lower premiums for contractors involved in rebuilding–cutting 10 percent for all work directly related to rebuilding, and shaving 10 percent off rates for entire portfolios for contractors who show that more than 50 percent of their business is allocated to rebuilding efforts.
"What we're saying is we're not going out and gouging, but we're going to underwrite," he added, noting that a strong regulatory framework will be needed to make sure inexperienced contractors don't "slap up shoddy houses," leaving problems.
"We'll work with the construction industry [and] insurance departments [so] we're not all looking at some massive tort action years from now. That's my nightmare," he said, noting that underwriters will ask about licensing, as well as familiarity with regional building codes and climatic changes, before writing policies.
AIG's Mr. O'Brien added: "This is such an unprecedented event. There could be legislation that retroactively affects underwriting decisions. We're talking about generations of issues that might come up…with regard to cleanup [and] the release of toxins and pollutants." He warned that "those who were involved in any way, shape or form" could become potential litigants.
Underwriters are "putting sublimits on everything," rather than exclusions, he noted, so they can't be retroactively forced to afford coverage to policy limits.
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