(Written by Jack Milarch – NMHBA EVP/CEO – Originally published in the September 2011 Housing Journal)
Builders Trust – Our Own Unique and Successful Workers’ Compensation Solution
Builders Trust will be 25 years old next year and we are stronger than ever before. Astute observers may have noticed that the full name of Builders Trust of New Mexico includes the phrase “Affiliated With New Mexico Home Builders Association”. Builders Trust was created and founded in 1987 by myself and a few forward thinking and creative leaders of our state association to solve the problem of on-again off-again availability of reasonably priced workers’ compensation coverage for New Mexico contractors. Occasionally we get a comment from someone wondering if Builders Trust is a “regular insurance company”. I always welcome the chance to address that!
The answer is “NO” – it isn’t a regular insurance company, and I am proud that it isn’t. I would like to share a few details of that and explain why that answer is important to me as well as to our Builders Trust Owner-Participants.
The technical part of the answer to that question isn’t as interesting as the practical answer, but let’s start there anyway. Builders Trust functions under New Mexico’s Group Self Insurance Act as a self insured fund and we are specifically not an “insurance company”, according to state law. Group funds, such as Builders Trust, require a sponsoring association, and for us that is New Mexico Home Builders Association. All participants in such a group fund must be members of the sponsoring association, which answers another common question: “Do I have to join the association to get Builders Trust?” Participation in a New Mexico group fund is an exclusive benefit of association membership.
Even though Builders Trust is sponsored by the state HBA, it is owned by those that participate in the fund. It is not owned by public shareholders or some international conglomerate or even by the sponsoring association. In many ways group funds are a throwback to the early days of insurance when several ship owners agreed to collectively cover the loss of any one ship. Together those ship owners could absorb such a loss but individually they couldn’t, so they pooled their liability. That was the start of “group self insurance.” The relationship of our Owner-Participants to Builders Trust is essentially the same as that original insurance model.
An additional benefit of our group self insurance venture is that services are carefully tailored to the type of businesses being served by our association. Builders Trust caters specifically to construction contracting businesses in New Mexico. Does that really make a difference? Absolutely “YES”. And to keep it that way our fund’s governing Trustees are New Mexico contractors who understand both workers’ compensation and contracting.
Builders Trust is not required to obtain an outside “rating” from an organization such as A.M. Best, which is typically required for “regular insurance companies”. I firmly believe that is better for the Owner-Participants as it lets us concentrate on keeping our customers happy instead of keeping an outside rating agency happy. Unfortunately such beneficial independence is becoming a rare privilege in our country! Group funds can also return unneeded premium back to those who contributed the money to the fund. Builders Trust has successfully returned over $23.3 million to the Owner-Participant since our beginning. The fund Owner-Participants continue to post good results – we can foresee future premium refunds of as much as $9.3 million! That would be a return of about 11% of all collected premium since our fund’s beginning in 1987.
Those are some of the ways Builders Trust is different from a “regular insurance company”. How are we the same? All carriers of workers compensation risk must offer the same benefits for injured workers. There is no exception and our state law spells out those benefits in detail. Also, each group must get an actuarial opinion and audited financial statement regarding the financial soundness of the group annually, and this must be submitted for review and approval by the state’s regulators.
Builders Trust will be 25 years old next year and stronger than ever. Is Builders Trust a “regular insurance company?” No – and I believe our Owner-Participants can see the difference. I hope that never changes!