E&S property panel: Rate increases expected to accelerate through June

E&S property price increases are likely to accelerate through at least mid-year while the sector is still struggling with heavy submission flow, with the challenge in getting responses from underwriters as well as the impact of MGAs adding further friction to the process, panellists at the E&S Insurer Conference said.

Speaking at the conference in New York on Wednesday, Wes Robinson, national property president at Risk Placement Services (RPS), said that property pricing depends on the market segment.

“Directionally, I'm not seeing any letdown from rate,” he said. “It feels like it's accelerating. It looks to be doing that at least through June.”

He added: “But the large accounts are not going to behave the same as small and middle market accounts. Some clients are going to be forced to buy as much insurance as they can, as much as the banks make them, while some clients, such as a public entity, don't have to buy any insurance if they don’t want to or they can cap that.”

Robinson said the current hard market conditions are “much more far reaching” than those he saw back in 2006, when it was concentrated on Florida and Louisiana.

The executive highlighted the struggle the E&S market has had in keeping up with the heavy increase in submissions in recent years, as well as dealing with the limits management that carriers have implemented.

“The standard markets shed so much business starting in 2018. As it found its way here it’s been a struggle for the entire industry just to keep up with the volume and then figuring out how to go from four carriers to eight to 16 to now 32 carriers on every account. That to me is the biggest challenge for sure,” Robinson said.

Chris Carlson, property practice director at CRC Group, agreed, adding: “Getting an underwriter on the phone is an extreme challenge. The amount of submissions in the channel is historic. And the talent gap is huge – there's just no one left to do business.”

Like Robinson, Carlson noted the big effort needed in filling excess layers because of the high number of carriers needed these days.

“Then ultimately the challenge that we have is presenting affordability and availability,” he said. “Once we complete this tower, how do we go to our clients and say, ‘Okay, you want this excess layer but it’s priced way beyond where you can afford.’ So you have seen a shrinking in limit purchasing as well.”

RPS’s Robinson commented that the challenges in getting a response from underwriters “adds friction to the overall process”.

“We talked about the talent gap, and what are we going to do to address all that, but I would say whether you're a retailer or wholesaler or insurance carrier, nobody was properly equipped to deal with the volume that is coming in,” he said.

John Lavin, executive vice president of E&S property at Sompo International North America Insurance, highlighted that a lot of younger staff have not known the market to be any different.

“We got 38,000 submissions this year, but probably half of my staff think this is the normal market,” he said. “So they’ll say, ‘What are you talking about, they just come to me, they call you, they email you over and over, you turn it down, they come back again.’ So when the market does change, which hopefully it will one of these days, we won’t have that whole process to get through those 38,000 and find a couple of gems.”

Chris Lee, head of E&S property at Axa XL, said that it will be “a game of margins” at some point to improve productivity.

“We have really got to understand how we can be productive,” he said. “How can we make this employee the most productive person that we can? Do we have to introduce AI bots to help that person for margin purposes? So I think we're starting to run a game of margins at some point but, right now, it's just desperation. People are moving jobs left and right.”

MGAs contributing to the friction

The panel also discussed the impact of MGAs in the property E&S space.

RPS’s Robinson commented that “some of the middle market MGA-style business has flooded the market to a point where it's contributing to the overall submission flow and friction in the channel”.

More recently, property cat underwriting giants such as AmRisc and Icat have now have less capacity to dole out.

“There was a trend toward bigger mega MGAs particularly in the cat space,” said CRC’s Carlson. “We’re seeing that trend down right now. But I do think MGAs and their use are the wave of the future. It does help solve a talent problem. I think you'll see more MGAs, just not on the scale of market moving that we have seen the last four years.”

Providing a reinsurance perspective, Sarah Freitag, head of E&S specialty P&C at Aon, noted the challenging 1.1 renewals.

“What we're pleased to see in the market, though, is things are not so failing that it is not placeable and people can't get coverage. But there are definitely issues that we're seeing like attachment points going up,” she said.

Freitag highlighted that comparing E&S rates on property to cat reinsurance XoL rates gives a 100 basis point difference cumulatively over the last 20 years.

“That's a pretty staggering change when reinsurance companies are wondering about the adequacy of the insurance side,” she said.

“So that's why we're seeing a lot of pressure on the reinsurance side. But also, conversely, you need to understand the reinsurers haven’t seen the frequency because they have the higher attachment point. So there are reasons for those differences.”