It has been a challenging few years for those in the excess and surplus (E&S) lines insurance market. An endless soft market, extreme competition from the standard markets, and a bad economy left wholesale and retail agents scrambling to retain business. Established wholesalers have also been facing competition from several new players.
New business has been even harder to come by, but for the brokers and agents who work hard enough there are plenty of opportunities out there, say underwriters.
E&S experts agree the market may not harden in 2011, but some stabilization is beginning to occur in terms of rates and capacity.
“The biggest surprise of 2010 in the wholesale world was the addition of new wholesalers in the business,” says Maureen Caviston, president of Partners Specialty Group, a nationwide wholesaler. “I find that a reason to be optimistic about our business because they wouldn’t be entering our business if they didn’t think it was a great opportunity. Last year this time, I don’t think we were predicting new players or the consolidation that occurred this year.”
Based on events that happened in 2010 or are expected to occur next year, the top five areas for opportunity and difficulty in 2011 are:
1.) Network Security/Cyber Liability
Data breach and privacy liability cases are popping up all over the place for businesses of all kind, and insurers agree that there are plenty of opportunities for agents that become knowledgeable in this business now.
“Agents need to get comfortable selling cyber liability and data breach products,” says Caviston. “I think every business needs it and it’s a great door opener to understand that coverage or find a wholesaler that understands it and can help you sell it.”
Janet Smith, president of Bailey Special Risks in Henderson, Tenn., says cyber liability and data breach insurance is the top product her office is seeing interest in. She says it can be difficult to sell this coverage during the tough economic climate, but not doing so can hurt agents later on.
“The biggest concern if you aren’t talking about this is your E&O is exposed,” says Smith. “If a small company has a security breach incident they cannot afford, they could come after you.”
There is uncertainty in the healthcare arena for 2011 and beyond, in light of healthcare reform and the legal challenges around it, according to Matt Anderson, senior vice president of Ryan Specialty Group.
However, agents and brokers who specialize in this area can be a great resource for consumers and medical professionals.
“With healthcare reform and medical professional liability, you are looking at implementing 40 to 50 million new patients into the system who were previously uninsured,” says Anderson. “Whether it will ultimately pass is the question and only will time will tell, but with these new patients, there are many bad outcomes possible.”
Anderson says there will be a need for more medical professionals to treat these people adequately. Technology will also become even more important to this sector because of the increase in patients and the use of web consultations and electronic storage of medical records.
In addition, there are issues around tort reform and the reimbursements of Medicare and Medicaid that will make a big impact on the market in 2011.
“Medical professional specific- agents must be tuned into what is going on and how the potential uncertainties with medical reform, tort reform and technology are going to affect and impact their insureds,” says Anderson.
3.) Competition from Standard Markets
The standard markets have been a thorn in the side of the E&S industry the last few years. Because the standard market has been so soft and admitted carriers are desperate for business, they have been going after the E&S business. E&S experts expect that to ease somewhat next year, but not as much as everyone would like.
“I certainly expect competition and perhaps more competition from standard markets,” says Anderson. “I think the standard markets have been doing a good job of underwriting in a disciplined fashion so they are underwriting profitably, so they can stay in the game. I expect they will be a competitor of mine.”
“What I find is a lot of the standard carriers are willing to take on more difficult accounts,” says Smith. “This has been going on for awhile, but we are seeing it more and more.”
However, some lines of business have begun to see less competition from the standard markets, such as real estate, apartments on both the property and casualty side and some construction business, according to Caviston.
“There are more people analyzing their books of business and saying ‘I won’t write that business anymore’ than there are people going after it,” she says. “We are also seeing some non-renewals come out of the standard carriers, which is also a good sign because we haven’t seen that in a few years.”
David Miller, vice president of underwriting for W.A. Shickendanz Insurance Agency, Inc., agrees that they have begun to see less competition from the standard markets as well, particularly for manufacturing risks.
4.) Federal Legislation
In 2010, the Nonadmitted and Reinsurance Reform Act (ACT) was passed, which creates uniform surplus lines insurer eligibility standards and simplifies the ability to obtain and sell surplus lines insurance nationwide.
The National Association of Professional Surplus Lines Organizations (NAPSLO) was instrumental in the passing of the legislation and plans to spend a lot of time in 2011 educating people about the act.
“The challenge for us is that it appears the states are not sufficiently aware of what that change means for them and what they will need to do to change locally to comply with the legislation,” says Letha Heaton, president of NAPSLO. “That means we have a lot of education to do and we need to be a resource for our members that need education.”
The E&S experts agree that an economic recovery is in full swing, and they expect 2011 will be a strong year for many of the E&S classes, as long as consumer confidence continues to improve.
“I’m optimistic. I think the worst is behind us,” says Miller. “It was a soft market and a horrible economic market the last two years and we made it through and I think we came through stronger.”
The economic recovery also opens up opportunities.
“Small business will begin to grow again and those [agents] who are experts in cyber liability, environmental and technology, and can deal with those exposures will be able to distinguish themselves,” says Heaton.
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