NAPSLO Report

E&S Going Strong

Optimism about the opportunities in excess and surplus lines was strong during the NAPSLO conference.
By: | November 3, 2014 • 5 min read

The state of the excess and surplus lines market is strong, as evidenced by the nearly 4,000 attendees, who networked their way through the annual convention of the National Association of Professional Surplus Lines Offices in Atlanta, from Sept. 15 to17.

“There’s a lot of optimism about the market and [the number of attendees] is a testament to the strength and vitality of surplus lines,” said Brady Kelley, executive director of the national organization, which focuses on networking and education for the surplus lines industry.

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In fact, A.M. Best reported that surplus lines companies “have been extremely successful when compared with the overall property/casualty (P/C) industry.”

Surplus lines now account for about 13.7 percent of all commercial lines direct premiums written, up from 6.1 percent in 1993, according to a 20-year retrospective on U.S. surplus lines released by A.M. Best in September.

“In 2013, 22 of the top 25 surplus lines groups produced year-over-year growth in premium (as measured by direct premiums written) — a testament to what is likely a contraction in the standard market’s appetite for risk and a broad flow of business back into surplus lines,” according to the report.

“A lot of people are optimistic because the economy is still growing and when the economy is growing, it can make up for a lot of foolish decisions.” — Alan Jay Kaufman, chairman, president and CEO of Burns & Wilcox

But the sector is not without its challenges, specifically overcapacity in the market, according to Alan Jay Kaufman, chairman, president and CEO of Burns & Wilcox, international insurance brokers and underwriting managers.

“The market here is soft,” he said. “I think it’s soft in more areas than people want to talk about. … I would not say ‘doom and gloom.’ A lot of people are optimistic because the economy is still growing and when the economy is growing, it can make up for a lot of foolish decisions.”

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E&S underwriting, said Stanley Galanski, president and CEO of The Navigators Group Inc., is “the essence of underwriting. There are no rules. There are no rates. There are no mandatory forms. In E&S, it’s all about your expertise and your judgment.”

To be successful, companies must have underwriters who can bring a “high level of expertise to the risk” and deep relationships with wholesale brokers, he said.

It also requires constant innovation, said Mario Vitale, CEO, Aspen Insurance. “Specialty E&S is tailored for high risk situations. It allows underwriters skilled in these special niches to apply their tools of the trade to help the insured, to help the brokers, with creative risk-based solutions.”

He said Aspen would be releasing some new products in 2015, and noted that there were numerous emerging risks to occupy carriers, including the impact of climate change, nanotechnology, fracking, drones, bitcoin and wearables.

“I believe all of these trends and all of these emerging technologies will bring risks and will bring demands for solutions and underwriter innovations to find them,” he said.

“It’s unbelievable how that [cyber] market is developing so quickly.” — James Drinkwater, president of AmWINS Brokerage

Jeremy Johnson, president and CEO of Lexington Insurance Co., the E&S division of AIG, said in a recent A.M. Best webinar that his organization is designing products to deal with risks from drones, celebrity risk and cyber bullying, and also has “in the pipeline” products to address risks related to Uber and Airbnb.

“If we are not staying ahead of where our customers are going as an industry, we won’t be relevant,” he said.

Bruce Kessler, division president, ACE Westchester, which focuses on the wholesale distribution of excess and surplus lines products, said, “You have to be strategic as an E&S company as to where to grow and where to shrink.”

But, he also noted, the “ease of entry” into the space, which he sees as “healthy and robust.”

“It’s easy for new capacity to come in,” he said, and that has put some pressure on property/catastrophe rates. That softening is “probably the biggest talk of the conference.”

Overcapacity offers one of the industry’s biggest challenges, Kaufman said. “Standard lines companies are aggressively looking to write the gray areas that may at one time have been E&S and now it’s back to standard lines. … You will see companies taking greater risks than they normally have in the past — risks that they don’t understand.”

Jeff Saunders, president of Navigators Specialty, said, “The capital in the industry is looking for a better return than from a Treasury note.”

While the influx of capital has reduced rates — significantly on property and less significantly elsewhere — the company has to compete “no matter what the rate environment is,” he said. That requires E&S insurers to be “agile while rotating in and out of sectors.”

E&S strategies are also increasingly being influenced by predictive modeling, ACE Westchester’s Kessler said. He also noted that he is seeing greater interest in product recall and cyber coverage.

Other experts at the NAPSLO conference agreed that cyber policies were finally taking off.

“It’s unbelievable how that market is developing so quickly,” said James Drinkwater, president of AmWINS Brokerage and one of NAPSLO’s Wholesale Broker directors, during a panel discussion at the conference.

“Companies are getting hit [with cyber attacks] constantly,” Vitale said. “As long as there are more hackers, they will get more sophisticated and we will have to do a better job of staying on top of emerging trends.”

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The opportunities in E&S outweigh the challenges, said Peter Clauson, senior vice president, excess casualty, Liberty International Underwriters.

When LIU excess casualty was established in 1999, he said, the E&S business was about a $10 billion market. “Fifteen years later, we are at $37 billion, and there’s a lot of talk that in five years, we could be a $50 billion market.

“That’s a lot of growth and opportunity,” he said.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2017 Teddy Awards

The Era of Engagement

The very best workers’ compensation programs are the ones where workers aren’t just the subject of the program, they’re a part of it.
By: | November 1, 2017 • 5 min read

Employee engagement, employee advocacy, employee participation — these are common threads running through the programs we honor this year in the 2017 Theodore Roosevelt Workers’ Compensation and Disability Management Awards, sponsored by PMA Companies.

A panel of judges — including workers’ comp executives who actively engage their own employees — selected this year’s winners on the basis of performance, sustainability, innovation and teamwork. The winners hail from different industries and regions, but all make people part of the solution to unique challenges.

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Valley Health System is all-too keenly aware of the risk of violence in health care settings, running the gamut from disruptive patients to grieving, overwrought family members to mentally unstable active shooters.

Valley Health employs a proactive and comprehensive plan to respond to violent scenarios, involving its Code Atlas Team — 50 members of the clinical staff and security departments who undergo specialized training. Valley Health drills regularly, including intense annual active shooter drills that involve participation from local law enforcement.

The drills are unnerving for many, but the program is making a difference — the health system cut its workplace violence injuries in half in the course of just one year.

“We’re looking at patient safety and employee safety like never before,” said Barbara Schultz, director of employee health and wellness.

At Rochester Regional Health’s five hospitals and six long-term care facilities, a key loss driver was slips and falls. The system’s mandatory safety shoe program saw only moderate take-up, but the reason wasn’t clear.

Rather than force managers to write up non-compliant employees, senior manager of workers’ compensation and employee safety Monica Manske got proactive, using a survey as well as one-on-one communication to suss out the obstacles. After making changes based on the feedback, shoe compliance shot up from 35 percent to 85 percent, contributing to a 42 percent reduction in lost-time claims and a 46 percent reduction in injuries.

For the shoe program, as well as every RRH safety initiative, Manske’s team takes the same approach: engaging employees to teach and encourage safe behaviors rather than punishing them for lapses.

For some of this year’s Teddy winners, success was born of the company’s willingness to make dramatic program changes.

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Delta Air Lines made two ambitious program changes since 2013. First it adopted an employee advocacy model for its disability and leave of absence programs. After tasting success, the company transitioned all lines including workers’ compensation to an integrated absence management program bundled under a single TPA.

While skeptics assume “employee advocacy” means more claims and higher costs, Delta answers with a reality that’s quite the opposite. A year after the transition, Delta reduced open claims from 3,479 to 1,367, with its total incurred amount decreased by $50.1 million — head and shoulders above its projected goals.

For the Massachusetts Port Authority, change meant ending the era of having a self-administered program and partnering with a TPA. It also meant switching from a guaranteed cost program to a self-insured program for a significant segment of its workforce.

Massport’s results make a great argument for embracing change: The organization saved $21 million over the past six years. Freeing up resources allowed Massport to increase focus on safety as well as medical management and chopped its medical costs per claim in half — even while allowing employees to choose their own health care providers.

Risk & Insurance® congratulates the 2017 Teddy Award winners and holds them in high esteem for their tireless commitment to a safe workforce that’s fully engaged in its own care. &

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More coverage of the 2017 Teddy Award Winners and Honorable Mentions:

Advocacy Takes Off: At Delta Air Lines, putting employees first is the right thing to do, for employees and employer alike.

 

Proactive Approach to Employee SafetyThe Valley Health System shifted its philosophy on workers’ compensation, putting employee and patient safety at the forefront.

 

Getting It Right: Better coordination of workers’ compensation risk management spelled success for the Massachusetts Port Authority.

 

Carrots: Not SticksAt Rochester Regional Health, the workers’ comp and safety team champion employee engagement and positive reinforcement.

 

Fit for Duty: Recognizing parallels between athletes and public safety officials, the city of Denver made tailored fitness training part of its safety plan.

 

Triage, Transparency and TeamworkWhen the City of Surprise, Ariz. got proactive about reining in its claims, it also took steps to get employees engaged in making things better for everyone.

A Lesson in Leadership: Shared responsibility, data analysis and a commitment to employees are the hallmarks of Benco Dental’s workers’ comp program.

 

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]