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The excess and surplus (E&S) market has undergone stellar growth this year, with premiums and submissions both set to increase.
Premiums rose 32.4% to $31 billion in the first half of 2022, while year-on-year premiums increased at their highest rate since 2009, according to the U.S. Surplus Line Service and Stamping Offices.
Premium bearing transactions also hit a five-year high of almost 2.8 million for the first six months of the year, up 9.6% on the first half of 2021, Wholesale and Specialty Insurance Association records show.
The E&S market’s key strength is in providing affordable and innovative coverage to meet an insured’s specific needs, that often they can get or are harder to insure in the traditional insurance market. This has never been more prevalent than this over the last 12 months.
“The sky is the limit for the E&S market,” said Kyle Burnett, head of E&S property at Swiss Re. “There has always been a need for E&S broker and carriers, whether it was large or small, in supporting a submission or placement, but now more than ever the capacity and skill set is needed.”
But despite its undoubted success, the market has faced a host of challenges. Chief among them are the current inflationary environment, both economic and social; heightened competition from a huge influx of new entrants; and a shortage of talent.
Certain lines have also been hit with a spate of nuclear verdicts, particularly in sexual abuse and molestation, assault and battery, and wildfire cases, and losses, most notably in property catastrophe, where there have been capacity shortages in high-risk areas such as California, Florida, Louisiana and Texas. As a result, insurers have pushed for higher rates in these segments, tightened terms and conditions or exited the space altogether.
In California alone, the growing threat of wildfires and reduced admitted capacity has led to a significant increase in demand for E&S homeowners coverage. As a result, direct written premiums filings have almost tripled since 2018 to $235m, according to S&P Global Market Intelligence.
“While the surplus lines and specialty commercial markets have benefitted from a favorable pricing environment over the past few years, the reason for the push for pricing increases is that the performance on several lines of coverage has been trending unfavorably,” said David Blades, associate director at A.M. Best.
“These lines include catastrophe-exposed property, general liability for moderate-to-higher risk manufacturing and construction exposures along with tougher professional liability lines, and commercial automobile.
“This has been reflected in the underwriting performance of a number of surplus lines companies. The upward pressure on pricing appears to be decelerating with additional capacity entering the marketplace, so the individual carriers will have to balance where they feel they are presently in terms of rate adequacy on individual accounts with the desire to push forward for additional pricing increases, where they deem those increases are needed.”
Inflation has hit the E&S segment, like the traditional market, hard. It has resulted in rising claims costs, in part caused by the ongoing supply chain crisis, and volatile investment markets, as well as making it harder for underwriters to price the risk. Compounding this is the backlog of claims due to the closure of courts during the COVID-19 pandemic.
Kyle Burnett, head of E&S property, Swiss Re
Also, as a result of the increased competition from newly-capitalized and re-capitalized insurers, and managing general agents on the distribution side entering the market — reflected in the fact that 14 of the top 25 biggest players’ market share declined in 2021 according to S&P Global Market Intelligence — pricing increases have generally started to level off in the last couple of years. Notably, general and professional liability premiums have decelerated.
“Some carriers are still reluctant to put up full capacity or large chunks of layers, so there’s still a push to fill out these gaps in these programs for insureds,” said Dawn Brost, at Nationwide. “At the same time, the attractive rate environment has been broadened by the new capacity coming into the market.”
The need to attract and retain new talent continues to be a problem too, as more experienced insurance professionals have retired and the void hasn’t been filled. In greatest demand are underwriters to deal with the increasing volume of submissions.
“The greatest and most often heard challenge facing the E&S market remains finding and retaining specialist underwriters,” said Michael Garrison, The Hartford’s head of Navigators Wholesale. “We are all in the same race to find, hire and train underwriting resources across the breadth of property and casualty lines to support recent growth and prepare for the future.”
Despite all these challenges, however, the E&S market has capitalized on the opportunities presented by the flight of insureds from the traditional space as primary layer rates have increased sharply.
In particular, it has tapped into the need for coverage for new risks such as cyber and cannabis, as well as more traditional ones like certain classes of public and private directors and officers, habitational real estate, New York City construction, transportation and healthcare.
“Freedom of rate and form allows E&S insurers to move faster to meet ever-changing conditions,” said Erich Bublitz, head of E&S at AmTrust Financial Services. “The market has come into its own over this inflationary period of uncertainty, where new business is being driven into the space as brokers, insureds and their risk managers have become more familiar with it.”
As well as increasing premiums, submissions have been on the rise too. And E&S insurers are well placed to take on that business.
“We are seeing an increase in submissions for specific classes of business, but renewals have remained steady with brokers focusing their efforts on new business opportunities that have become problematic from a pricing or terms and conditions standpoint,” said Laura Johnson, underwriting manager and E&S general liability team lead at AXA XL. “There is some uptick in risk managers looking at E&S.
“What was a standard retail play is shifting to E&S as an output due to the creativity of this segment. We expect to see this in the product area first as this is where E&S and risk management are closely aligned.”
Improved technology and data will enable insurers to take on more submissions and be more efficient in how they process them by improving underwriting decisions and expediting account handling. By automating the procedure to carry out more transactional tasks, it will free up underwriters to focus on the more complex and critical ones.
“The unique market we are in today has demonstrated the innovation there is in the wholesale and E&S marketplace,” said James Drinkwater, president of AmWINS.
One fact is for sure, however: the E&S market is more active than ever as the country emerges from the pandemic, with construction projects resuming, and hospitality, retail and travel reopens. Concurrently, insureds and their brokers are seeking more capacity to fill out their insurance programs.
In this vein, E&S will continue to play a key role moving forward. It will be vital in addressing a host of current and emerging risks, particularly as companies and their boards come under increasing pressure from their shareholders to conform with new environmental, social and governance requirements. &
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Ancillary benefit programs may be just one piece of the workers’ compensation puzzle, but they can have significant cost and duration implications if not managed well.
Lara Heal, senior director of managed care for MEMIC, a private mutual workers’ compensation insurance company, knows the value of having a solid dashboard tool.
“Having transparency into our total program so that we can understand where our physical therapy and radiology spend is going is one piece of it,” Heal said. “But the quality of care and the outcome that injured worker receives is equally, if not more, important. At MEMIC, our ultimate goal is for our injured worker to get back to work and back to a productive lifestyle. That’s all part of our mission to make workers’ comp better – for everyone.”
As MEMIC’s medical cost containment partner, CorVel prioritizes helping Heal’s team pinpoint meaningful data that can be used by everyone from the claims handler to the executive. With modular analysis capability, CorVel’s dashboard is designed to help senior leaders like Heal save valuable time and customize views so that each level of her organization can understand what story the claims data is telling.
CorVel’s ancillary benefits dashboard provides a clear picture of total program spend, utilization patterns, and jurisdictional considerations that affect the delivery of care for injured workers.
“When we review program results using the dashboard, it’s not confusing, and we can trust what the data is telling us. It’s critical that there is an efficient way to use this information that makes sense for the business need,” Heal said.
Lara Heal, Senior Director of Managed Care, MEMIC
A large part of managing ancillary benefit spend comes down to how clearly claims handlers can spot opportunities to re-channel claims in-network.
“The job of a claim handler is so complex,” Heal said. And having clear data that illustrates differences in patient outcomes helps claim handlers have confidence in the significance of guiding patients toward network providers who can deliver care swiftly and effectively.
“Giving managers the tool to really focus in on utilizing our networks benefits the injured worker, as well as our bottom line,” Heal said.
“The spend is one piece of it, but it’s the quality of care and the outcome that the injured worker is receiving that’s most important,” Heal said. “If they’re waiting too long to get a diagnostic test done and their treatment’s being delayed, recovery will also be delayed. This is why utilizing a network of high-quality physical therapy or radiology providers who can get our injured worker an appointment quickly is important.”
Sarah Scott, Vice President of Network Services, CorVel
The ancillary benefits dashboard allows MEMIC to illustrate the impact of both prospective and retrospective approaches to network utilization throughout their service territory. Sarah Scott, CorVel’s vice president of network services explained: “Prospective management is when the claims adjuster refers into their ancillary program at the time treatment is ordered. It allows for impact to both treatment utilization and spend per visit resulting in overall reduction in costs and improved outcomes.
“Retrospective management impacts medical cost after the treatment has been rendered, resulting in overall reduction in cost,” Scott added. “So, if the claims handler misses a referral or they receive the claim after treatment was initiated, we can capture a network discount for the client.”
Heal’s team has been able to use the dashboard to establish benchmarks that reflect the nuances of MEMIC’s multi-state ancillary benefit program. “We know there are jurisdictional differences, and we know what those are,” she said.
“Having the ability to drill down by state of jurisdiction, from Maine to Florida and beyond, enables us to identify opportunities, target our strategies and better manage our ancillary program.”
CorVel’s dashboard provides a mechanism to identify alternative network providers. “Some states allow for greater control of medical care,” Scott said. “Having the ability to identify claims treating out of network allows the carrier to take action. Additionally, providing an alternative in-network provider within 5 miles makes the dashboard a really powerful tool.”
Along the path to finding the most expedient means of recovery for injured workers, it’s easy to lose sight of how well programs like ancillary benefits are being utilized.
“It was important when we were selecting our ancillary benefit partners that we had transparency and visibility into those programs,” Heal said. “Without the ability to easily obtain and review our data, it is difficult to develop strategies to improve outcomes. We see it as a significant aspect of what makes MEMIC different.”
At CorVel, the goal has been to make the ancillary benefits dashboard into a tool that supports carrier clients like MEMIC in identifying opportunities and crafting strategies toward improvement. “The challenge,” Scott said, “is to make these dashboards actionable for our clients.
“Program utilization is the number one KPI we measure on the MEMIC program, drilling into the percentage of their medical spend channeled through their prospective and retrospective ancillary programs,” Scott said. “We establish targets for their team to work toward and utilize the dashboard to report their progress and program impact back to them.”
“Prior to the dashboard, we had this information, but it was difficult to interpret multiple reports from multiple sources and pull it together in order to take appropriate action,” Heal said.
Ultimately, to support injured workers on their path to recovery, using data is a powerful way to improve care and outcomes.
“When you don’t have good, actionable data and you’re relying on anecdotal information, it just doesn’t work,” Heal said.
For more information, visit www.corvel.com.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with CorVel. The editorial staff of Risk & Insurance had no role in its preparation.
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