AM Best recently released its report on the state of Excess & Surplus Lines (E&S) highlighting the segment’s growth of 11.2% in 2018, which represents an increase for the seventh consecutive year in the market and one of the largest increases in the last 30 years. A new record level of $49.9 billion in premium was set in 2018 with growth continuing through June 2019. I recently participated in an AM Best-hosted webinar with several of the industry’s leading executives in the E&S market, where we discussed the report’s important takeaways and how members and their organizations are continuing to contribute to the growth of the market and meet its challenges to deliver on their promises to agents and brokers and their insureds.
Our key takeaways include:
- The E&S market is outpacing the standard Property & Casualty (P&C) industry.
- Demand for E&S expertise was high in 2018 in part because of economic growth in the U.S., with all types of businesses becoming increasingly more complex as they leverage new technology and innovations.
- Average rates have been rising as non-admitted and admitted insurers focus on generating more favorable underwriting results despite competition from standard market companies for borderline surplus lines accounts.
- The profitability of the surplus lines market on a direct basis has been more favorable than that of the P&C industry.
- Consolidation in E&S and the specialty market segment has impacted wholesaler brokers and MGAs on the distribution side and remains a key aspect in the reshaping of the market.
- The E&S market continues to develop products to cover new or emerging risks (cyber, cannabis), distressed risks, high-capacity risks, and other unique risks that cannot be insured in the standard P&C market.
We also discussed the challenges the E&S market faces, including the impact of weather-related catastrophes; the desire for carriers to be good stewards of capital and preserve capacity; the continued need for greater risk selection while managing the messaging correctly with regard to the measures being taken by carriers, such as tighter underwriting, better pricing structures and coverage terms; and rising insurance retailer expectations.
Insurers that are best at articulating their strategy are those that will separate themselves from others; you can’t just focus on price. There’s a great deal of effort and work in getting a program together and this needs to be communicated to retailers. Explosive liability verdicts like those we are seeing in certain industries, such as transportation, have contributed to the need for thoughtful pricing, coverage terms, and risk selection so carriers can be good stewards of capital and capacity. Carriers are examining how much limit and capacity to deploy on a risk. You have many more players needed to get the layers you need for a particular risk.
Additionally, as retailers look for more effective solutions with competitive terms, the wholesale market needs to distinguish itself as a good partner. This involves offering specialization, data analysis and risk modeling, market access, and claims advocacy. Indeed, RPS is committed to exceeding agent and broker expectations. RPS has the ability to provide white papers on top-of-mind topics and emerging trends and stewardship reports in addition to offering coverage and form analysis and providing proper layering to ensure there aren’t any gaps. We do a great deal of data analytics and modeling for our agents and brokers.
RPS is also committed to offering ease of business across all of our product lines with online quote-bind-issue platforms that facilitate the process for agents and brokers. With our 80+ offices, 200+ markets, and 20+ exclusive programs, we continue to be well positioned to find a home for our agency partners’ risks and to be there when it matters most. We’re selling a future promise, and continue to be successful in delivering on the promise to put people’s lives back together after a loss.