Wholesale insurance teams are up for a challenge, and they need to be. Rising rates, shrinking appetites, hurricanes, wildfires and increased demand mean those working in the excess and surplus (E&S) sector are facing a unique set of hurdles and a random mix of risks.
“As a wholesale broker, saying ‘no’ isn’t an option when a client approaches me for help on a placement,” said Katelynn Pankhurst, a broker at CRC Group who has been working in the business for three years specializing in commercial property, stock throughput and inland marine placements. “When all direct avenues have been exhausted, they’re relying on me to bring a solution to the table. I enjoy the challenge, and it requires me to consider all available options and think creatively to find a customized program for the insured.”
Carrier creativity can be the make-or-break, said Joey Shapiro, senior vice president, casualty, at Amwins. “We are constantly trying to find unique ways to address complex risks, and if the opportunity makes sense, you’ll see E&S carriers step outside of their comfort zone to provide solutions on classes of business that sometimes aren’t even within their appetite.”
Ariel Bach, property broker and vice president at CRC Insurance Services, takes “last resort” as a personal challenge.
“When all else fails for a risk, I take great satisfaction that I can provide a solution,” said Bach, who began her insurance career in 2012 and moved to E&S in 2017. “Using the flexibility of the E&S marketplace to find homes for difficult risks can be challenging, but being able to do so makes it that much more rewarding.”
More Business, Conservative Carriers, Higher Rates
Shapiro, who has worked in insurance for six years, said the biggest challenge in today’s market is the increased flow of business into the E&S channel. “Not only are we seeing significantly increased submission counts, but our carriers are understaffed, and each quarter is a new record for submission count for most underwriters,” Shapiro said. “There have been countless carriers that have been created since I started. In 2019/20, it started with an influx of new excess liability capacity, and now we are seeing new entrants on the primary liability side.”
With so many new entrants, Shapiro says it’s important to be cautious when placing business and to understand the financials and forms of newer MGAs and carriers.
Social inflation is driving more nuclear verdicts in problematic venues making it very tough to get insurance in places like New York, New Mexico, Pennsylvania, Chicago and California, said Joe Carlson, vice president/broker — healthcare, social services at Amwins, who began his career after college in 2013.
“Insurance carriers are being more conservative with their limits than ever before, and pricing is a lot higher in my industry segment,” said Carlson. “It is challenging to get a full $5 million in limits on any given account — historically, towers were built in $10 million limit chunks. Insurers are limiting capacity, so you have to balance market relationships and not be reliant on a handful of select carriers.”
Carlson said some of the biggest challenges in today’s marketplace are recreating the limit structure that insureds previously had for a reasonable cost, and with adequate limits and coverage for sexual abuse (and molestation liability coverage) and HNOA coverage (hired/non-owned auto).
“The legal environment and market availability for sexual abuse coverage is a minefield, and insurance carriers are experiencing significant losses on this line of coverage,” he noted. “Insurance carriers are often reducing their offerings, amending terms to be restrictive, and charging significant premiums to include the coverage. … The admitted marketplace wrote these risks on an occurrence form — for very cheap — for years, and now that has caught up to them from a claims perspective, which has led to dramatic marketplace changes.”
Even with new market entrants in various areas of the industry, overall the market continues to be challenging, said Justin Milhollan, vice president of casualty at Amwins Insurance Brokerage.
“Liquor liability and hospitality in general has really flipped on its head over the past two years,” said Milhollan, who has worked in wholesale for 11 years. “Whether admitted or non-admitted, carrier appetites are shrinking, and coverage forms are becoming more limited as losses continue to trend upwards in this space,” he said.
“Residential construction — especially new residential for multi-family — also has become increasingly difficult,” Milhollan added. “The marketplace is relatively slim on the primary and excess lines, making underwriter relationships more important than ever.”
CRC Group broker Julia Davis said that since she started her wholesale career seven years ago, the market has only become “harder” with steady rate increases on both the property and casualty sides. “A ton of churches and daycares are flooding the markets,” said Davis, who specializes in binding and small business. “These used to be almost exclusively admitted placements.”
For those working with clients in catastrophe-prone areas, the challenges are multiplied. CJ Nash, a broker with CRC Group New Orleans since 2019, said finding competitive markets for property accounts in Louisiana is his biggest challenge.
Property placements between $2.5 million and $10 million are hard to place because they fall in the gap between traditional binding/MGA business and open market brokerage appetites.
The submission count into the E&S property marketplace has been growing exponentially year over year, especially with the hard market over the last few years, said Andrew Grieco, executive vice president of property at RT Specialty. “We have been seeing all types of risks across all different geographic regions — the types of accounts include habitational portfolios, builder’s risk, manufacturing, warehouse/distribution, hospitality, energy, healthcare, and more,” said Grieco, who joined the insurance industry in 2015. “A lot of our risks are locations in heavy CAT areas, inclusive of severe convective, coastal windstorm, earthquake, flood and wildfire.” He added that throughout the hardening market, he’s viewed many admitted carriers “broadening their definitions of what constitutes a higher CAT exposure.” The property market is stabilizing, but E&S brokers continue to see “a wide variety of risks on our desk.”
Kevin Hahn, senior vice president at Jencap Specialty Insurance Services, is seeing the most significant rate hikes in the habitational real estate space, specifically in New York. “Carriers are exiting the space, which has the market continuing to harden,” said Hahn, who has been in insurance since 2011 and wholesale since 2020, specializing in construction and real estate. In today’s market, his insureds are paying 10 to 50 times more for the same coverage, Hahn said.
A lot of carriers are cutting capacity down to $5 to $10 million from $15 to $25 million and increasing minimums, added Tim Collado, vice president of casualty at Amwins Brokerage of Texas Inc. Collado has been in the industry since 2012 and specializes in energy, construction and habitational. “Primary on habitational has also changed a significant amount in the last couple of years,” Collado said. “Due to a couple of key markets exiting the space altogether, it is much harder to find a clean form with a low retention.”
Managing Expectations
Admitted markets pulling out of certain sectors or geographical regions has led to an influx of business in the E&S space, and carriers are taking a hard look at items such as valuation, update information and protections, CRC Group’s Pankhurst said. Managing insureds’ expectations when moving from the admitted to non-admitted market has been imperative.
“In addition, with numerous carriers exiting the California marketplace, State Farm, for example, we’re starting to see risks we typically wouldn’t, such as commercial housing and high-valued homes,” she said. “The wildfire exposure limits the direct options available, and the economic feasibility and coverage restrictions have been a challenge for insureds.”
Pankhurst added that “aside from the normal CAT-driven or distressed/unique risks, we’ve started seeing a large uptick in religious and educational institutions in convective [storm]-prone areas.”
Bach, who specializes in property, said finding affordable coverage for California clients, especially in the E&S sphere, is her biggest challenge. The increase in wildfires and the standard markets’ caps on pricing increases (due to statutory regulations) has led to many standard markets non-renewing accounts. She has seen surging prices, reduced capacity, and even changes in the definition of “wildfire” from multiple carriers.
“Many of our new clients are those who were previously covered by the standard markets who could no longer entertain a risk due to unfavorable characteristics (properties aging out of underwriting guidelines or high loss frequency/severity) or pulling out of the sector entirely as they’ve found the class in question to be unprofitable,” Bach said.
“Entry into the E&S world is often met with shock at significantly increased pricing and reduction in capacity/coverage,” she said. “It can be quite challenging for us to properly educate our clients regarding the state of the marketplace while empathetically managing their expectations.”
A Shifting Market
A shifting market in 2024 with more stabilized pricing in some areas hasn’t meant a drop in business for the E&S sector, the young wholesale brokers interviewed for this report said.
“Over the course of 2024, we have seen a stabilizing market with the amount of new capacity in the markets,” Grieco said. “There were new entrants into the market, more capacity put behind MGAs, and higher growth goals for the London and domestic market,” he said. But while the market is stabilizing, the influx of submissions into the market has not slowed down.
CRC Group’s Nash said when he started, property rates were low and aggregate was plentiful. Now, it’s difficult to secure terms of risk under $10 million in value.
“When I started in the industry five years ago, this space was filled with many MGUs that were sadly underpriced and were hit very hard by the numerous CAT losses in the last few years,” he said. While today’s market has seen minimum premiums, deductibles and attachments at more appropriate levels for risk, the costs can be unaffordable for small businesses that aren’t flush with equity/financing, he added. “That may be turning the corner soon, but I fear it will be a race to the bottom of rate rather than an equilibrium.”
The liability space will likely continue to see rate increases for at least the next three to five years, predicts Shapiro, who specializes in hospitality and real estate.
“Cases that had been stalled in the courts due to COVID have started to trend and develop, and the issues that caused the hard market to begin are still very much present,” he said. “I anticipate carriers will continue to pull back on classes that are running hot, and excess carriers will maintain strict limit management in lead or low attaching business.”
Shapiro says as these trends push premiums higher and higher, insureds will continue to draw back on coverage and purchase less limit overall.
Talent will continue to be a concern for many in the E&S sector, as well. Nash predicts a lot of reshuffling on the carrier side. “Retailers and wholesalers have been reinventing and working hard to build systems, teams and companies that are able to surf the waves of a changing market,” he said. “Carriers are having difficulty retaining talent, securing their systems, and following the movement of the market’s needs.”
Brooke Leadbetter, senior vice president of property and inland marine at Amwins, said her team’s biggest challenge is staying on top of the rapidly changing marketplace with fluctuating capacity, appetites and emerging markets.
She said the market has changed drastically since she started seven years ago. “I started in an extremely soft market where we were providing large rate decreases on every renewal. The last couple of years have been extremely challenging, and now we are starting to see the market stabilize.”
Still, “weather patterns will continue to change, and we will continue to see more natural disasters year over year,” Leadbetter said. “However, I do believe that technology will continue to advance, and modeling will be able to predict outcomes more accurately.”
Barring no major CAT events this year, Pankhurst is optimistic that there will be continued stabilization in the property market.
“Carriers, both domestically and in London, have significant growth goals in 2024. This has created competition in the marketplace and has been a sign of positive trajectory in terms of rate and capacity,” she said.
Collado said the trends will depend on class of business and line of coverage.
“I do see the XS (excess) space continuing to harden,” he said. “Especially if there is an auto component to the underlying. I think this will only drive more and more business into the E&S space.”
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