The Value of Risk Retention Warranties
Risk Retention Group (RRG) vs. Property & Casualty (P&C) Insurer
This comparison has been an issue for many builders considering joining a new home warranty program or switching their current carrier. Residential Warranty Company, LLC (RWC) has backed its warranties with a Risk Retention Group (RRG) since 1990. It is our philosophy that warranties insured with a stable RRG will provide our builders and their homeowners with secure and reliable coverage for the entire warranty term.
This philosophy and game plan has been designed and refined based on experience in dealing with both sides of the issue. For years, RWC backed its warranties with P&C coverage. We discovered, first hand, the downside of this type of arrangement. P&C coverage can be extremely volatile both in terms of rates and continuity.
When using a P&C carrier, a warranty company’s rate structure is vulnerable to rate increases derived from losses in totally unrelated industries. For example, the country has seen more than its fair share of both natural disasters and environmental catastrophes. Consider the losses caused by Hurricanes Katrina, Rita, Harvey, and Maria. If a P&C company suffers huge losses in even one of these events, the company’s rating may drop and it may be compelled to raise its insurance rates across all its lines of coverage. The end result is that a builder’s warranty rate goes up even though the warranty company’s loss ratio may be extremely low.
With an RRG, only one type of risk is insured – in this case, that means new home warranties and general liability insurance issued by RWC for our member builders exclusively. Consequently, our rates are based solely on our own loss ratio. If we continue to keep control of claims and continue to stringently screen members for quality, RWC will be able to maintain a sound and economically competitive rate structure. Oil tankers running aground and Category 4/5 Hurricanes will have no effect on the cost of a new home warranty or the strength of the insurance company!
RWC also discovered that P&C carriers are quick to drop blocks of business for a variety of reasons: too little premium generated, changes in corporate strategy, etc. If a P&C insurer chooses not to renew its master policy, the warranty company is left scrambling for a replacement. During RWC’s infancy, we found ourselves in this position all too frequently.
RRG’s are not fly-by-night organizations that are easily formed. Not only are they subject to insurance laws in their own domiciliary state, but they must also fulfill certain criteria before offering insurance in any other state. For example, each RRG must submit a copy of its plan of operation to the insurance commissioner of each state in which it intends to do business. It must also submit a copy of its annual financial statement to each state. Formation involves licensing, ownership and membership requirements. Failure to adhere to the strict mandates can subject groups to claims of unauthorized insurance activity.
We feel our members deserve an insurance structure that is committed to our program for the long haul. Additionally, we want backing that is financially strong enough so that our members can be certain it will be there in 5 years, 10 years and beyond. In terms of stability, security, economy and good old common sense, the move to an RRG was the most obvious and intelligent choice for RWC and our members.
RWC has spent over 35 years building its reputation on superior customer service, competitive rates, effective dispute resolution and clearly defined warranty coverage. Being “builder oriented” is not a marketing gimmick for us but simply the way we do business every day. We concentrate on warranties and general liability for our members exclusively as our sole lines of business.
Consider the value of RRG-backed warranties and GL insurance. If you value stability of coverage and control over rates for long-term protection, you truly only have one good choice…an RWC home warranty and a GL insurance policy backed with one of the strongest insurance plans in the industry*.
*Western Pacific Mutual Insurance Company, a Risk Retention Group has been rated “A- (Excellent)” by A.M. Best since 2001. The RWC Insurance Advantage is insured by carriers rated at least “A- (Excellent)” by A.M. Best.