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Grabbing the Bull by the Horns

In September and October
2002, a two-part Contractor

Review article in this magazine canvassed contractors on
the subject of EIFS insurance.
One Arizonan stated at
the time, “If EIFS manufacturers
want to stay in business,
they need to start selfinsuring
the contractors.”
What he did not know was
that that is exactly what the
EIFS manufacturers were
working on already, in liaison
with Steve Etkin, executive
vice president of the Association
of the Wall and Ceiling
Industries—International.


The result is the AWCI
Insurance Company (AIC), a
Bermuda-based company
established to provide general
liability insurance for
AWCI contractor and supplier members, even those
working on EIFS (with the
exception of residential
wood-framed substrate construction).



The idea for the program
came about, according to
Mike Boyd, TEIFS’ designated
representative to the
AIC board of directors, “during
an AWCI meeting when
my brother, who is currently
the immediate past-president
of AWCI, myself and a couple
of others started kicking
the notion around. We gave
the outline to Steve Etkin
and he took it from there,
working many, many hours
despite having numerous
doors slammed in his face.
He persevered and kept at it
until he finally put the program together.”
And he did so with the assistance of
five major EIFS manufacturers—
Dryvit, Parex, Senergy, Sto and
TEIFS—who provided significant
funding to establish AIC.



Eric Berge, CEO of Parex, “knew it was
hard for manufacturers to obtain insurance
we have had to fight very hard to
have decent insurance, and we knew it
was even worse for contractors with less
influence over the insurance companies.
The [insurance companies] don’t seem
to care too much about losing business
because they had so much captive business
anyway. Parex’s insurer doubled our
premium and when we told them we
would go elsewhere, they told us to go
ahead. Believe me, we paid a lot of premium!
Insurers are more interested in
price increases than expanding market
share. So, we realized insurance would
not be available if we did not do something
ourselves. AIC won’t change the
insurance market completely for contractors,
but at least it will provide insurance
to a few contractors and symbolically
provide hope to the whole
profession.


Adds Mike Boyd, “It was necessary to
show the buying public and the contractors
who are our customers, that
TEIFS believes enough in the product
to put our money where our mouth is
and help form this insurance company
when other insurers were reluctant to
insure any EIFS.”


That was the general reason given by all
the participating manufacturing CEOs
for their involvement. Peter Balint,
CEO of Dryvit, explains that “a couple
of years ago, when the insurance ‘crisis’
became apparent, there was much discussion
about the potential of EIMA
(EIFS Industry Members Association)
or AWCI setting up an insurance company,
Steve Etkin had mentioned that
AWCI had had an insurance program
with another company that was
dropped, so there was no viable insurance
available for the AWCI membership.
So, he asked if we would be interested
in participating. In any industry
association, there are leaders and there
are followers. We only have about eight
manufacturing members in EIMA, representing
about 85 percent of the marketplace
in terms of products. The ones
that are not participating in AIC are the
smaller companies that really just feed
on the periphery of the industry. All the
major players got behind AIC.”


Short-Circuited Thinking Process


How come manufacturers were moving
into the insurance business? Because, as
Mark Nabity (of Grayhawk, LLC in
Lexington, Ky.), president of the newly
formed AIC, explains, insurance companies
were finding it difficult to behave
logically. “When the issues of woodframe
homes clad with EIFS in Wilmington,
N.C., came to light seven years
ago, the insurance industry knee-jerked
without analyzing the real problem.
They decided ‘This stuff is no good, we
need to strip it off and put another
cladding on.’ Yet on most of those
homes, only 5 to 6 percent of the wall
surface area was affected.



“The insurance industries ended up
paying huge settlements to strip off and
replace EIFS cladding. They ran up
some huge loss tabs that made the product
look bad. Then they looked at those
numbers and made ill-informed decisions—
not understanding that in many
cases, the problem wasn’t the EIFS but
the adjacent construction and the coordination
of various materials as they
came together. The same problems, in
the end, were proven to have occurred
with wood siding, brick veneer and vinyl
siding. The real problem was poor construction
practices that weren’t isolated
to EIFS. But the misinformation lives
on, with EIFS being a bad acronym in
the insurance industry. They really don’t
know why, but they do know ‘we don’t
want to insure it.”’



Adds Berge, “It has proven impossible to
make the big insurance companies think
in terms of market segments. For them,
EIFS and stucco are about the same. I’ve
been talking to insurers for a while but
they don’t hear the message. When you
try to tell the classical insurance company
‘You should insure the commercial
contractors, these ones in particular have
a good record, there is no EIFS litigation
there,’ the insurers don’t even want to
understand.”



While this is not new news to anyone
working EIFS, it does bear repeating to
highlight the real progress that AIC represents.
Nabity, explains how bad things
had become, and what made him decide
to take the helm at AIC even though he
was already busy running Grayhawk,
LLC, his own contracting company.
“This insurance issue is real important to
me. My own company had struggled
with general liability coverage because we
do EIFS. Effective July 1, 2003, we saw
premium increases in excess of 400 percent
to maintain our coverage. So, it was
not only becoming difficult to find and
write the coverage, but also to pay for it.



“EIFS insurance has become a huge
problem across this country. For the past
three or four years I have been hearing
from smaller contractors that they just
can’t obtain coverage at all, putting a lot
of folks in real hardship. Contractors are
exposing themselves to an extreme
amount of liability going bareback without
any insurance. I am a believer in the
EIFS product, and I don’t think it’s going
to go away. So, I decided to step up and
do something about it. I have also always
found one of the best ways to learn about
an issue is to dive into it. While I don’t
have an insurance background, I have
learned a whole lot about it in the past
six months, and I plan to learn a whole
lot more as we move forward with it.”



Raising the Bar


Nabity goes on to describe the program
(see www.awci-insurance.bm for full
details) as one that “provides general liability
coverage to companies that meet
the prerequisites established by AIC:
principally AWCI membership and
completion of AWCI’s EIF Smart training
program (www.awci.org/eifsregistry.
htm) for those applying for EIFS
coverage.”



There is one other key proviso: Only
contractors who have a certificate from
a sponsoring EIFS manufacturer are eligible
to receive insurance from AIC.
This requirement was put in place
because the sponsoring EIFS manufacturers
provided most of the necessary
capital to form AIC. They also are quality
driven, set high standards for their
applicators, and they stepped up to the
plate when someone was needed to solve
an important problem to the industry.



“The qualifications became necessary
because if we were to move into the
insurance business and supply coverage
the rest of the [insurance] industry does
not want to supply, then we had to have
high underwriting standards. We needed to ensure those participating in this captive plan were highly qualified, the
losses the general insurance industry has
experienced in the past few years.”



Bill Kasik, Senergy’s CEO, agrees, stating
that “the bigger the industry became,
the more difficult it was to keep everybody
properly trained and updated on
techniques, details and code requirements. That makes the training an
important part of the AIC program.



How difficult is it to meet these standards?
Continues Nabity, “If a company is not used to setting a high standard
internally and it wants to apply for AIC
coverage, it will have to pull itself up a
little bit. The EIFS Smart program
requires a certain percentage of a contractor’s
work force to pass a written
examination to qualify as an EIFS applicator. If they are already knowledgeable
in the industry, they can attend a two day
seminar and take the test. So a company
can send a number of people to a
two-day seminar to qualify for the AIC
program. They can also use the selfstudy
video workbook series and do the
training at their place of business. It
would probably take a little bit longer to
complete, say 30 days for anyone who is
motivated. Once the required percentage
of the work force is certified, it’s simply
a matter of a little paperwork and
submitting it to AWCI.



“We intend to maintain these underwriting
standards. As the insurance market
is very limited for those who do not
meet these standards, these contractors
might be looking at excess and surplus
lines carriers. The price of doing business
with these traditional insurers is
very, very steep and it is hard to recoup
the costs of having this kind of insurance.
So if I had a company that installed
EIFS in particular and couldn’t
obtain AIC coverage straight away, I’d be
highly motivated to complete the EIFS
mart training.










AIC Q&A



Why did AWCI sponsor the development of a captive insurance company?

The mission of AWCI is to provide services and undertake activities that enhance the members’ ability to operate a successful business.
AWCI has, in the past, organized programs with insurance carriers to provide member access to competitive rates. Within the last few years, these partnerships have included CNA, Northland and St. Paul insurance
companies. In each of these programs, AWCI had a passive role, and the programs closely followed the turmoil in the primary insurance markets. The AWCI board of directors decided that sponsoring a captive insurance program would give AWCI—and other industry shareholders—more control and be better able to meet the needs of the members.



How is AWCI Insurance Company Ltd. (AIC) a benefit to AWCI members?

In order to be eligible for insurance from AIC, the contractor, supplier or distributor must be a member of AWCI. Considering the state of the insurance market right now, AIC might be the only alternative for some members to get insurance. At a minimum, an AIC quote will give the member a basis of comparison for other industry quotes.



What makes AIC different?

AIC was developed specifically for interior and/or exterior wall and ceiling contractors, suppliers and distributors. In addition, the program includes general liability coverage for most EIFS work, but excludes application over wood frame substrates in residential work.
AIC is owned by AWCI, Dryvit, Parex, Senergy (including Finestone and SonoWall), Sto and TEIFS. For more information about AIC, readers should go www.awci-insurance.bm.



What is the long-term goal for the AIC?

The long-term goal is to provide a stable source of insurance for the wall and ceiling industry at competitive rates. AIC will enhance it insurance product offerings as it grows in terms of the number of insured members and experience.




“We’ve been pursuing the idea of EIFS
certification programs for several years
now, and early on we identified the
number-one driver for individual certification
and the EIFS Smart program was
the insurance industry. If we could tie
insurance to having higher-level certifications,
our programs would take off—
and that’s what we expect to see with the
AIC program. Contractors who have
been sitting on the sidelines watching
and waiting for tangible motivation to
do this certification can provide a level
of protection and put dollars in their
pocket with AIC.”



As Boyd points out, “Now contractors
can show general liability insurance that
will allow them to bid EIFS projects and
work with a safety net—the knowledge
that if they do have a problem, they have
insurance. This insurance program raises
the bar on the type of contractor who
can install EIFS and the type of systems
to be installed in the workplace. Any
time you raise the bar, or raise the level
of quality, you’re helping the contractor
because those willing to climb the ladder
to wherever the bar happens to be,
will be a better contractor ultimately.
That, in turn, should result in more
work and hopefully more profit for
them down the road.”



Short of a sign from heaven, the signals
could not be any plainer that now is the
time to train applicators on EIFS.



Setting the Insurance Industry Straight



Looking ahead, Nabity states, “Right
now the only coverage we’re offering is
general liability. We’re not offering
workers’ compensation, auto or umbrella
coverage. But down the road, as this
first step takes off and proves successful,
we will look at expanding the level of
coverage.”



One reality the CEOs of the EIFS manufacturing
companies all agreed on was
that AIC would force the insurance
industry to come to its senses and provide
insurance for EIFS.



Says Sto CEO David Boivin, “I have
found in my travels that architects are
very supportive of EIF systems on commercial
buildings, because the systems
are very flexible, they have many design
possibilities. So I do not see the demand
for EIFS systems going away. Until the
insurance situation eases, which we
expect to be precipitated in part by the
existence of this program, AIC represents
a good alternative that will allow
contractors to work on commercial
EIFS projects.”



Boyd adds, “Insurance companies will
see that covering EIFS can be a financial
success, and so contractors will have
more options, instead of the corner they
have been boxed into recently. The
insurance companies were putting a
chokehold on growth with the way they
were conducting business. For our part,
we expect to keep our market place, the
work, and to see the product grow.”



Berge is convinced that “AIC will allow
insurance for a few dozen in the beginning,
and then a few hundred contractors
down the road, and later still, thousands.
AIC is not a panacea but a real
tool for those who can now insure themselves.
It also sends a strong message to
the market. By cleverly insuring the safe
commercial market, AIC highlights the
big difference between residential and
commercial so that in two or three years,
the traditional insurance companies will
wake up, see in AIC a marketing model
and come back with decent programs.”



Kasik, for his part, is equally upbeat:
“EIFS still comprises a major percentage
of the market share for all commercial
claddings, as we all know. There is still a
tremendous benefit to EIFS in terms of
cost-effectiveness, great insulation value,
great curb appeal and design versatility,
all of which add up to an opportunity to
grow the industry. We all have a great
opportunity in the marketplace to continue
to grow our businesses together.
By making sure that applicators do
things right and are participating in all
the industry initiatives like EIF Smart,
everybody will be better off. It’s all a
question of confidence: How confident
can one be in using EIFS on a building?
The more attention one pays to the
proper details in installing EIFS, the better
it will perform, and the more confidence
people will have in using it for all
types of applications.



“As confidence rises, insurance will be
thrown open to residential EIFS applicators
as well. Proper education of insurers,
mainly those in the risk management/
casualty end, is progressing so that
some will be primary insurance companies
willing to underwrite part liability
for applicators of EIFS in residential
construction within a three-to-five-year
time frame. AIC itself will help drive this
result. If you can apply EIFS right on a
commercial project, why not on a residential
basis? That’s why most of the
manufacturers became involved in
AIC—we have to start someplace, and
this is as good a place as any.



“The opportunities in residential construction
dwarf those of commercial
construction. After all, growth in residential
construction has been fueling the
economy single-handedly for the last
three years. So residential provides everybody
who is in the EIFS application business with an opportunity
to significantly grow businesses. As a manufacturer of EIFS,
therefore, our major goal is to have insurance available for all applicaters,
regardless of types of construction they are involved in, and
to have them trained properly to meet the demands of whatever
market segment they are interested in servicing-be it residential,
commercial, institutional or whatever.



Strive or Dive


Those who do not rise to the occasion will most likely sink. As
Berge puts it: “The AIC program will separate the good from the
bad among contractors. This is true also for EIFS manufacturers—
we’ve seen really crazy things out there and it is no wonder
that the only contributors to the program are those companies
who are serious about this business. This selection process is probably
one of the positive things to come out of this legal and insurance
crisis, because bad work damages everybody. Too many people
doing bad work affects the price, as they bid low for their bad
work. This results in a downward spiral. That’s the best part of this
crisis-those who will emerge are contractors and manufacturers
doing good work and selling quality materials and able to stand
behind their work.”


Exactly the same sentiment expressed by a concractor in Michigan
last fall, when he observed “This current shake-up will separate
the good from the bad. The insurance companies will say
eventually, ‘If you follow these steps, we will insure you if you are
licensed through AWCI training programs.’ Obviously, those who
… don’t know all the rules and regulations won’t be able to pass
the test.”


For all the serious players who stepped up to the plate to right a
wrong, AIC is really an industry success story and, in the words
of Nabity, “exactly what AWCI exists for. They identified an industry
problem, grabbed the bull by the horns and provided a solution
to the membership. That’s what AWCI and AIC are all
about.”



Issuing a call to arms, Balint adds, “For those contractors who really
want to be part of this industry in the future and who want to
continue to grow, it’s important to support organizations like
AWCI and the manufacturers who have sponsored the AIC program—
because we are in it for the long term.”



About the Author

Steven Ferry is a free-lance writer based in

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