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Industrial Manufacturing and Processing Accounts Find a New Home in the E&S Market

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Because of the tightening property insurance market, many industrial manufacturing and processing accounts that were easily placed in the admitted market for as long as anyone can remember are now finding their way into the E&S market.

As some standard market insurers have decided to line-down or outright non-renew specific accounts or classes of business—especially food processing, plastics, molten metal and recycling—E&S underwriters are doing double-time finding creative risk transfer solutions for them, according to the 2021 U.S. Property Market Outlook.

The problem is, the typical E&S carrier doesn’t have a robust loss control department to assess these risks, unlike standard market carriers specializing in highly protected risks (HPR), according to Wes Robinson, National Property Brokerage President.  

They also don’t have rate structures and reinsurance arrangements in place for HPRs, which means their capacity is limited for these risks, requiring the use of several carriers to complete a placement, according to Christa Nadler, Executive Vice President.

“We’ve seen a lot of changes in appetite, available capacity and we’ve seen accounts that last year took only one or two carriers now needing four or five,” she said.

This is especially true of tougher manufacturing risks, including wood products, foundries, recyclers and food, where there have been significant losses, she noted.

Additionally, because many of these accounts have multinational exposures, many E&S carriers will decline to insure them, Robinson said.

For example, a food-related account that enjoyed $500 million in limits for a six-digit premium until its standard market insurer non-renewed it last year ended up paying a fivefold increase in rate for just $150 million in limits, even after being widely marketed, he said.

What can help these accounts is ensuring they comply with engineering/loss control, according to Robinson.

“For years, the industry has allowed recommendations to be deferred. But this year, carriers are not letting them slide any longer,” he said.

While there is capacity available in the E&S market for such risks, it comes with a hefty price tag.

Indeed, one manufacturing account that ignored their standard market insurers’ loss control recommendations for years ended up paying nearly three times as much for coverage in the E&S market when their carrier opted not to renew their contract for 2021, according to Nadler.

But industrial and processing businesses that can demonstrate they are emphasizing loss control will get better terms and pricing from E&S underwriters, the report notes.

“Those current with compliance and willingness to partner with the carriers are seeing noticeably better treatment in their placements,” said Robinson.

In all renewal discussions with clients, agents and brokers should clearly explain how any changes in the amount and types of risk they assume will affect their attractiveness to underwriters as well as the premium they will be charged.

Providing examples of potential claim scenarios may be especially useful in helping clients understand the financial impacts of coverage changes.

Ultimately, the firming property market provides an opportunity for agents and brokers to advise their industrial manufacturing and processing clients on the benefits of risk management to reduce their exposure and to verify that they are buying appropriate coverage limits.

Experience and relationships still matter in today’s market, maybe now more than ever. Independent agents and brokers should choose a wholesale broker with a solid track record and longtime relationships with underwriters. Seasoned wholesale brokers who have experienced the market’s historical ups and downs know how to negotiate and structure placements to make them more affordable.

View the 2021 U.S. Property Market Outlook

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