There have been countless articles of late on the firming market, including here at RPS, as we see a seismic shift in the market and how it’s impacting the insurance distribution system and insureds. We take a look at the Umbrella/Excess insurance market with Adam J. Mazan, CRIS, RPS Area President – Pacific Region, and explain how retail agents can manage client expectations as they see rates increase and capacity diminishing.
The acceleration of the firm casualty market began in the fourth-quarter of 2019 and is continuing this quarter. “Carriers are reducing their Excess capacity, increasing attachment points, and raising rates while restricting underwriter guidelines as a result of years of significant, severe losses, increased combined ratios, and plaintiff-friendly juries rendering larger awards,” explains Mazan.
“Insurers are looking to manage their portfolios in the face of severe losses and multi-million-dollar judgments. Insurers who had willingly deployed $15 million or $25 million of Excess capacity at a high attachment point are now doing to sparingly and, when they do, they are not offering it at $1,000 or even $1,500 per mil pricing based on the increased probability of having a limits loss in this layer,” says Mazan.
Liability losses driving nuclear verdicts and impacting the Excess market are found in the transportation segment as a result of catastrophic vehicular accidents; the agriculture sector and leafy-green food-contamination issues; the hospitality industry hit by liquor liability, assault and battery, and active shooter losses; and educational institutions with the threat of traumatic brain injuries and abuse and molestation exposures; among others.
Carriers Lowering Their Risk
In 2018, a $100 million Excess tower would include four or five carriers in the placement with the lead carrier writing $25 million. By the end of 2019 and going forward, on the same account you now have six to eight carriers on the placement with capacity deployed in the lead Excess position shrinking. In fact, many carriers are now offering only $5 million in the lead position.
When asked how this impacts an insured, Mazan explains that each time one introduces a carrier with new capacity on an account, there’s between a 30% to 50% surcharge based on the expiring pricing.
“In many instances, carriers that were once deploying $10 million in the lead position on an account are now reducing their capacity to $5 million – while leaving the premium unchanged. If you had a carrier, for example, with a $10 million lead at a cost of $100,000 in 2019, today the carrier most likely would look to decrease its lead capacity to $5 million at the same premium. You would have to replace the $5 million, which would result in another $40,000 to $50,000 in premium.”
Having more carriers on the placement also makes it more complicated for buyers to understand, depending on how knowledgeable they are about the insurance industry. In addition, it takes more time in today’s market to put together the Excess tower on an account.
“Each deal needs to be restructured in lieu of working with the incumbent carrier on the renewal pricing based on the same tower structure,” said Mazan. “You are introducing new carriers, reaching out to additional markets to get the most competitive terms and pricing to structure the placement. If, in 2018, early 2019, it took two days to structure a $100 million tower, it is now taking several weeks, resulting in many more pain points for agents and their insureds.
“Due to the all changes and disruption in the Excess market, underwriters are flooded with submissions and don’t have the bandwidth to keep up with them. Underwriting management is also getting more involved, particularly on higher hazard accounts, further delaying the submission process.”
Mazan also points out that, in this firm market, insureds looking to increase their Excess limits as a result of the large verdicts being awarded are unable to do so in some cases because of shrinking carrier capacity.
How Retail Agents Should Address the Disruptive, Changing Excess Market
Mazan recommends getting ahead of renewals as early as possible. “Touch base with incumbent carriers to get an idea of what their expectation is for a specific renewal. If you reach out to your carriers 120-150 days prior to the renewal, however, be aware that the expectation shared at that time might not be what’s delivered 30 days before the renewal due to the constant evolution of the marketplace. But it’s best to begin the process so you can prepare your clients for changes on their accounts.
“Additionally, make sure you get underwriting information to your markets as early as possible. While most carriers have guidelines in terms of rate, capacity and attachment points, they can’t make a decision or commitment without the account’s underwriting data.”
Communicating with clients is also key. “Don’t be afraid to deliver bad news. Back in July/August, agents were struggling to discuss the market shift, as it was the first time in 15 years that the Casualty line has been disrupted. Since November/December, there hasn’t been as much push back with brokers, as they understand where the market is and are trying to get ahead of it.
“Understanding the factors driving the market and constantly communicating these factors with your insureds to manage expectations while conveying the plan of attack to obtain the optimal renewal is paramount. RPS is here to help our retailers navigate the market and encourage sending submissions early.”