Personal Lines in Surplus Lines

The continuing trend of more personal lines business making its way into the E&S market is surprising, says John Jennings, CEO and one of the founding members of Jencap Group.

“I think that is probably the biggest surprise over the last four or five years,” Jennings told Insurance Journal. “That’s been dramatic as we’ve seen standard lines carriers that have pulled out of California just in the last two years. There is no place for that business to go, but the E&S market.”

State Farm General Insurance Co. announced at the end of May that it stopped accepting new policy applications for property/casualty insurance in California for reasons including increased risks from wildfires and inflation. The decision followed a similar move by Allstate Corp. last year. Farmers in early July announced it will limit new homeowners insurance policies in California.

Other large carriers that have reduced their appetite for writing California homeowners insurance include American International Group (AIG) and Chubb. Agents are reporting that businesses in higher-risk areas are paying increasingly more for property insurance, which is becoming harder to obtain. Liberty Mutual said in late July it will stop offering its businessowners policy on Oct. 1.

To deal with rising rates and lack of availability, more homeowners have turned to the California FAIR Plan, the state’s insurer of last resort for homeowners, or the surplus lines market. Reports from agents are that more property owners in the state have been forced to take lower limits being offered by the remaining carriers, or some are going uninsured.

The E&S market is even seeing some personal auto business enter the sector, according to Jeff McNatt, co-president of Amwins Brokerage.

“Auto [traditionally] has been standard market business so that’s new coming into the marketplace,” McNatt said. “It’s just a function of — can the E&S market react fast enough to solve these problems? We’ve found homes for those (problems) but it’s usually not at a price that’s everybody’s very happy about.”

While the E&S market is offering some relief, overall, the sector is struggling to meet the catastrophe-exposed capacity demands that exist in California and Florida today, says Hank Haldeman, president of Worldwide Programs at Amwins Group.

“In personal lines, there are fundamental issues arising out of cat exposures that are beyond the capability or capacity of the E&S channel to solve,” Haldeman told Insurance Journal. There’s too much exposure for the E&S market to be the primary driver in fixing market conditions in states like California and Florida, he said.

“The E&S industry does not have, and probably never will have, the capacity to jump in and fill the shoes of a State Farm, or a Farmers,” he said. “If you have a challenge with wildfire, you’ve got a challenge that is widespread and basically depends on the location of the risk. The same’s true for coastal property risk in Florida.”

Michael Garrison, head of wholesale at Navigators, a brand of The Hartford, agrees. “My honest answer is that I don’t know the answer” to if the E&S market can support the influx of new business entering the market from catastrophe exposed personal property.

“I don’t know how much business will flow in there,” Garrison said. “The admitted space is there for consistency — for filed rates and filed forms — and all the attention to the E&S space, I think creates challenges and is raising a lot of questions.” He believes the surplus lines market can and is responding to some extent, but probably cannot fill the gap for everything that is needed.

That isn’t the case for large commercial property risk, Haldeman noted.

“On the other hand, and not limiting it to cat exposures, but as the demand for coverage for complex, large exposures continues to grow in the commercial space, E&S is ideally poised to respond to that, and I think it’s able to garner most of the capacity that’s needed to help solve that problem.” There isn’t the differentiation within the personal lines sector that there is on the commercial lines side, he added.

Topics California Florida Excess Surplus