Formed as a self-insurer, company comes full circle
to specialize in hard-to-place risks
By Phil Zinkewicz
Henry W. Nozko, Jr., serves as president of United Coastal Insurance Company, a subsidiary of ACMAT Corp., a construction company founded in 1950.
Forcing customers to become competitors--a fatuous notion but one that periodically happens in the insurance industry. In the 1970s, the insurance industry began to pull away from certain lines of coverage such as product liability, and that market withdrawal led to the formation of captive insurance companies. When the market softened in the early 1980s, insurance buyers returned to the traditional insurance marketplace, but they kept their captives in place "just in case." Then, in the mid-1980s, when premiums began to skyrocket and insurers were withdrawing from many lines of business, the captive movement really took hold.
In order to receive tax deductions for the premiums companies were paying into their self-insurance vehicles, captives had to write third-party business and--voilá!--insurers had their previous customers as new competitors.
There are other examples of this type of situation. Factory Mutual was born out of insurers' retrenchment from the manufacturing industry in the early part of the last century. The doctors' mutuals came out of insurers moving away from malpractice.
A similar scenario resulted in the creation of the New Britain, Connecticut-based United Coastal Insurance Co., a subsidiary of a construction company called ACMAT Corp. ACMAT was founded in 1950 by its current chairman, Henry W. Nozko, Sr. For about 25 years ACMAT was in the building trade business, but in the mid-'70s the company moved into environmental remediation, particularly building asbestos removal.
"At first, environmental remediation was incidental to ACMAT's total operations," says Henry W. Nozko, Jr., president of United Coastal. "At first, our insurer didn't take much notice of the exposure. But by the mid-'80s, environmental remediation had grown to about 60% to 70% of our business. When the hard market of 1984-1985 hit, we were notified by our insurer that they would not renew our coverage."
Almost overnight, insurance, which had not been a problem for ACMAT, became a major concern, according to Nozko. The company immediately filed a lawsuit against its insurance company and a settlement was reached: the insurer would extend coverage to give ACMAT time to obtain new coverage. "The insurer was uncomfortable with our environmental exposure, and cutting us off the way they did made headlines," says Nozko. "We were on the front page of the Wall Street Journal twice in ten days because what our insurer did to us was indicative of what was happening in the entire property and casualty insurance marketplace."
But even the settlement that was reached left ACMAT with difficulties. The company was able to obtain insurance coverage from Great American Insurance Co. for a premium that exceeded the policy limits. Company leaders did not find that satisfactory.
"My father and I felt that the insurance industry was over-reacting to environmental exposures, so we formed our own insurance company, United Coastal, to insure ourselves," says Nozko. "We then realized that there were other contractors out there that were having the same problems we were in terms of obtaining insurance coverage. In 1986, along with two other partners, we went from state to state to get our excess and surplus lines licenses and today we're licensed in every state except Maine, New Hampshire and Vermont."
ACMAT and United Coastal are based in New Britain, Connecticut. ACMAT'founder, Henry W. Nozko, Sr., serves as chairman. Originally in the building trade business, ACMAT moved into environmental remediation in the mid-'70s and formed United Coastal Insurance in the '80s.
Nozko says that the company did experience losses, but nowhere near to the extent that the insurance industry perceived they would be. The company was profitable--in fact so profitable that by 1993, United Coastal and its success caught the attention of two other insurance companies--Reliance and AIG.
"They started competing with us very aggressively, both in terms of pricing and in terms of coverage conditions," says Nozko. "Between the two companies, they took away about 90% of our environmental business. We knew the business and we felt they were underpricing the product severely and offering coverages that were too broad, so rather than compete, we decided to let the business walk out the door."
At the time, United Coastal was doing other types of environmental business such as Superfund cleanup and hazardous waste site cleanup, so they decided to "live on the crumbs" until the market turned once more, says Nozko. Revenues in the company decreased 90% between 1993 and 1999, from
$26 million to $4 million, according to the United Coastal president. "We flattened out at $4 million in 2000," he says.
"Either you're in the insurance business or you're not; and remaining in the business requires sound underwriting judgment, proper pricing and a recognition that even volatile risks can have segments of their business that are insurable."
--Henry W. Nozko, Jr.
"But now that the market has started to change, we believe there are opportunities for us once more. It's not a hard market yet, but we believe it will be and that some sanity will return to the business," Nozko predicts. Meanwhile, United Coastal is looking at small specialty niches, following the game plan they instituted when they began writing environmental remediation coverage. Professional liability for architects and engineers, and lawyers liability are two such areas, according to Nozko. The company is also selling product liability to a few small, specialty gun manufacturers, but even here United Coastal has carved the niche even narrower.
"There are practically no insurance companies out there that will provide insurance for gun manufacturers," says Nozko. "They're all afraid of the class action suits that the industry faces. Our policy provides product liability insurance, not social liability insurance. We make it clear that coverage does not apply to any class action settlements or judgments. Also, we have an exclusion in the contract for liability arising from criminal activity. We can't provide the solution to social problems, but we certainly can provide coverage for a gun not used to kill somebody or commit a holdup. Other insurers just write off entire industries in this way."
United Coastal is taking a similar approach toward providing insurance for the tobacco industry. "We're not talking about the major manufacturers because they self-insure anyway. But there are many smaller tobacco manufacturers and retailers in this country with no coverage because insurers are fearful of class action suits," Nozko explains. "We can provide product liability, including medical coverage; but we make it clear that we do not cover class action suits or prior acts, in other words, lawsuits that came about before warning labels were put on cigarette packages. We offer current coverage for current risks on a claims-made basis."
Another area that United Coastal has moved into is secondary aviation. "We provide coverage for people who make airplane instruments and components, and for people who do maintenance. This is another segment of the insurance-buying public that is having difficulty obtaining coverage," he says. "But, again, we are very specific in what we offer. Other insurers insist on packaging coverages. They try to put a size nine shoe into a size six shoe box. We don't work that way. Every policy we write is manuscripted, handcrafted."
Now that the market is hardening, Nozko predicts good times for United Coastal. He says that with the new products the firm is offering and with the return to reasonable pricing in the industry, the firm's
$4 million in revenues will very likely return to the $26 million mark and even surpass it.
"We never believed, as others have been saying, that the soft market was 'here to stay.' And that's why we let the business go out the door back in 1993," Nozko continues. "We believe that the insurance industry creates its own problems, such as when insurers just withdraw from entire markets the way they did in 1984 to 1985. When that happens, we go in and find out what it is they shouldn't be walking away from and that philosophy has worked for us."
But what will happen when the expected hard market turns soft again sometime in the future? Would United Coastal once again let business walk out the door?
"We would do it all over again," says Nozko. "Either you're in the insurance business or you're not; and remaining in the business requires sound underwriting judgment, proper pricing and a recognition that even volatile risks can have segments of their business that are insurable." *
For more information:
United Coastal Insurance Co.
Phone: (860) 223-5000