The Cost of Flood, Wind, and Hail.

One builder says there’s one thing killing his business. But it’s not the economy. It’s the high cost of insuring a single home these days on the Gulf Coast.

story by Dan Oshinsky / photos by Dan Oshinsky
published August 5, 2010

There is a contract on Randy Bosarge’s desk and a phone at Randy Bosarge’s ear. The contract is for a home that Bosarge is building. It’ll cost $110,000 to build, and Bosarge thinks the home will eventually sell for $125,000.

But the voice coming through the phone is telling him something else. Insisting, really, and Bosarge is giving the voice the now hold on‘s and the wait, see here‘s, but the voice has the final word, because the voice speaks for the insurance company. The voice is telling him that this home — this $125,000 home — cannot be insured for anything less than $184,000.

Insurance costs on this home are eventually going to top $2,600 — per year, Bosarge says.[1]

“These guys are making a killing, and they’re killing our business,” says Bosarge, who runs Ocean Springs-based Superior Builders & Developers. “They are trying to drive an insurance nail in our business.”

Bosarge’s company builds new homes all across the Mississippi Gulf coast, and when he talks about a project that’s out-of-town, he really means out-of-state. Anything from state line to state line is his territory.

He’s also the regional VP for Region V — the six counties down in the heel of Mississippi — for the state’s Home Builder’s Association, and he says he’s watched the last five years as many builders shut down because they simply couldn’t make the books right. Scary thing when even home builders start wondering how they’re going to keep a roof over their heads.

“It’s a shame,” he says. “I’m having to do more for less to sell a house.”

“These guys are making a killing, and they’re killing our business. They are trying to drive an insurance nail in our business.”

Bosarge says he’s hanging around thanks to low overhead. His company is down to four employees. but he and his wife, Beth, are two of them.[2] His profits have dropped off 10 percent, he says, since Katrina. Upon sale, that $125,000 home might net him $3,000, or maybe less.

The amount of available work is also on the decline, he says. The people who’ll build or buy a new home are those with job stability, and the coast doesn’t support many long-term, stable jobs — or, all things considered, even short-term, part-time or unstable jobs.[3] Bosarge points to the classifieds section in the paper, where the ‘Help Wanted’ section barely covers a few column inches. He knows that to get his business moving again, he needs other businesses to start moving down to the coast. Doesn’t have to be a Fortune 500 company; anyone with a decent-sized workforce and a need for new housing will do.

Industry numbers are showing a slowdown in overall construction nationwide. In Biloxi and Gulfport, some 300 jobs — or about five percent of the construction workforce — have been lost since June 2010, according to an Associated General Contractors of America report released this week.[4]

But Bosarge also knows that volume won’t change one of the biggest issues on his hands: rising insurance costs. The words he’s hearing from insurance companies these days are “replacement value”: if Katrina 2.0 comes through tomorrow and wipes out your home, how much is it going to cost us to replace it? That’s how, Bosarge says, a $125,000 home gets insured for $184,000.

“They know they’ve got us,” he says. “I can’t build or sell this home without insurance.”

Those increased costs have made Bosarge’s job considerably tougher. He says he’s seen home closings where families — upon realizing how much they’ll be paying out to the insurance companies — simply walked away from their new home and decided to rent instead. The insurance costs — which include coverage for flood, wind and hail — were just too high.

Bosarge is also fighting off increased competition. More builders entered the market after seeing the federal government pump billions into the region. Before Katrina, a big project might have seen three or four bids. Now, that same job is getting bid on from 25 to 30 companies, some from all across the South.

“They’re following the recovery money,” he says. When one of these out-of-state low bidders wins the contract, he says he’ll often speak to the new home’s owner. We would’ve picked you if you’d just matched their bid, they’ll tell him. If I’d matched their rate, Bosarge always responds, I’d have been paying you to build your home.

Even workers within the industry are trying to bid low simply to make money. In recent months, Bosarge says, he’s contracted work from painters based as far away as Memphis. They’ve come to the coast desperate for any job, charging rates that make Bosarge wonder how they’re even breaking even.

Still, despite the economy and the housing market and the insurance costs, Bosarge says he’s confident that things will get better. His father, Jerry, was a builder on the coast for 30 years. He lived through Camille but frequently told his son, “The big one ain’t hit us yet.” So Bosarge says his father built his homes “stronger than they needed to be.” Those homes weren’t cheap, he says, but he’s heard from many families who survived Katrina because their homes had been built by his father. After the storm, they all seemed to think the investment had been worth it.

One family, he recalls, had a home right on the Gulf of Mexico. When Katrina came, it filled the brick house with 10 feet of water. But the roof held on, the walls stayed upright and even the shingles were left intact.

“I wasn’t worried about the dang house blowing down…,” Bosarge remembers the homeowner telling him afterward. “Your daddy told me [that] he built this house to withstand anything. And dang if he was right.” ❑