The builder is describing something real. Owner-builder exemptions exist in most states, and in many of them the exemption is written around building for your own use, not for resale. A common form of it limits how many permits you can pull in a period and requires that you not sell the home for some stretch of time after completion, often a year. Contractor licensing rules and the exact wording of the exemption differ by state, and a few states hand licensing down to the county or city, so the only answer that's worth anything is the one from your state licensing board plus an attorney who does construction work locally.
What trips people up is that pulling the permit and being licensed are two separate questions. Even where you can legally pull an owner-builder permit, your construction lender may still require a licensed general contractor with a signed contract and a bonded history before funding, because their collateral is a house that has to get finished.
On insurance, you need builder's risk, sometimes called course of construction coverage. It insures the structure and the materials on site while it's going up, and it typically converts or ends at completion, at which point you need a vacant dwelling or unoccupied policy until closing. Your homeowners agent looked blank because homeowners policies don't cover a building nobody lives in.
You also want general liability of your own, and certificates of insurance from every sub showing their own liability and workers comp. If an uninsured sub's helper gets hurt on your lot, the question of who's the employer gets answered by somebody other than you.
