2020 will see continued disruption in umbrella and excess marketplace as insurers deal with nuclear verdicts driven by social inflation, auto losses, California wildfires, opioids, #MeToo, and a host of other claims. In addition to the pricing challenges, capacity is becoming increasingly difficult to find and terms and conditions are becoming more restrictive. In 2020, insureds should expect the double-digit rate increases from incumbent carriers to continue while limit management and attachment point will continue to be an underwriting focus.
2019 saw several lead $25M layers cut back to lead $10M layers with pricing remaining close to the expiring $25M premium. With so many carriers looking to move out of lead excess positions, and those that will consider leads wanting to limit capacity to $5M, it should not be a surprise to the market if the expiring lead $10M becomes the pricing for the lead $5M in 2020. This will in turn put pricing pressure on the rest of the excess liability tower.
Limit and attachment management has been creating challenges, as there are far fewer carriers willing to quote lead layers and most are limiting their lead capacity to $5M at the moment. Several carriers who had been offering $25M of capacity in excess layers are now limiting capacity to $10M or $15M even at higher attachment points (excess of $50M). Some of the changes are treaty-driven while others are driven by underwriting guidelines, which is key knowledge when working to get an exception or pushing for a more favorable outcome.
The reduction in capacity and need to have more carriers on an account has led to increased pricing challenges due to carriers’ minimum premiums to come onto an account and a slower drop off in the price per mil. 2020 will see more carriers move away from $1,000 per mil minimums with several former capacity markets pushing minimum policy premiums to $50,000.
This leads me to what I believe to be the biggest thorns in our sides through this market evolution: service, turnaround, and timing. Because of all the above, the submission flow excess underwriters are seeing is multiples of prior years, with underwriters receiving far more phone calls and follow ups to actually price accounts vs simply having a submission in hand. It takes far more time and effort to work through the marketplace, making it challenging to manage expectations with buyers.
We have also noticed an increasing trend of retail agents looking to the E&S marketplace for improved pricing. The E&S marketplace is evolving to an opportunistic marketplace and one of needed capacity in lieu of cheap capacity. Pair all of this with reduced capacity, lower desk authority levels, and slower response times on referrals and we get a consistently unfavorable experience and inconsistent results.
In order to be as effective as possible in this environment, brokers should be communicating early, frequently, and transparently with buyers as the one constant is the inconsistency and unpredictability of the market. Over the past year we’ve watched brokers struggle to adapt and change their mindset from one where quotes and coverage are easy to secure and price wins deals to one where quotes are challenging to secure, coverage is more restrictive, and the best priced deals are usually the ones lacking significant coverages.
We as an industry need to pull ourselves away from price and back to coverage and structure in order to deliver the optimal deal. We all understand the importance of it, but focusing solely on price tends to eliminate other viable solutions that are far better alternatives in the long run.