The E&S market is well-equipped for 2020’s risk challenges, and beyond
As the U.S. commercial insurance market continues to harden, many businesses are seeing challenges in insuring risks. As a result, wholesale brokers are experiencing a dramatic increase in submissions. Given evolving issues like the global pandemic and trends that include social inflation-charged claims settlements and verdicts and more severe weather events, there are few signs of it easing up in the near future.
Across the board, commercial insurance lines – commercial auto, property, Directors & Officers, primary and excess casualty -- are experiencing significant firming. Just consider the Excess and Umbrella markets. According to several recent July 1 market reports, businesses are seeing as much as 30 % rate increases or more for their Excess and Umbrella programs.
And, with carriers pulling back on capacity, there is less available. Some estimate that USD 500 million capacity has exited the market. Once a company could build a tower of coverage upwards of USD 1 billion, now business must tap into more carriers to buy approximately USD 500 million of limits. Lead umbrella carriers would offer up to a USD 25 million in capacity but have since slashed capacity closer to USD 5 million. That means it has gotten more challenging for brokers to build up desired amounts of capacity, often needing to rely on eight or 10 carriers, not the usual four or five.
Wholesalers are stepping up
The capacity crunch. Rising rates. New and emerging risks. Wholesaler brokers excel under these conditions. Wholesalers have long been established as a key point of distribution for specialized insurance products. Their success is evident in their growth, with many wholesalers seeing growth in the high teens over the last couple of years. Some estimate that hundreds of millions of dollars in retail premiums have already moved to the wholesale market. We anticipate there will be plenty more to come.
Wholesalers have done an admirable job to prepare for it. For one, they have made a noticeable investment in talent, not only adding to their teams but providing considerable training to young underwriters. Many of us are impressed with the underwriting talent that wholesale brokerages are cultivating. And this talent and technical expertise is more important than ever in the current environment, especially for long-established Excess & Surplus markets like AXA XL.
While many other markets may look to take more advantage of E&S opportunities, it will not be easy. Just as wholesalers’ technical savvy and underwriting skill is key to the continued success of the E&S insurance market, E&S carriers need to bring a lot to the table too.