Fuel for Innovation

In an era of fierce competition, E&S players turn to customization and cutting-edge technology to differentiate themselves.
By: | August 31, 2016 • 7 min read

The pressure on excess and surplus (E&S) lines brokers’ and insurers’ top lines has never been greater, say industry experts.

Increasing competition, mergers and acquisitions activity, and available capital, not to mention declining rates, have all resulted in many companies being squeezed out of the market.


However, the E&S industry continues to outperform the overall property/casualty market, reporting profitable results for the second straight year in 2014, according to A.M. Best. The report on performance in 2015 is due in September.

Total surplus lines direct written premiums also increased by 6.7 percent during the same period in 2014, compared to 4.5 percent for the total P&C market, the ratings agency said.

“The market is a very competitive place right now.” — Wyeth Coburn, wholesale broker and producer, Risk Placement Services Inc.

Added to that, ahead of the National Association of Professional Surplus Lines Offices (NAPSLO) annual convention in Atlanta this month, companies have become increasingly focused on customizing and innovating their products and services in order to stay ahead of the competition.

As a result, many have invested heavily in cutting-edge technology as well as employing ever more sophisticated underwriting and risk mitigation strategies.

“The market is a very competitive place right now,” said Wyeth Coburn, a wholesale broker and producer at Risk Placement Services Inc.

“Most of the major brokers all have the same product so it’s really about differentiating yourself through innovation and the quality of service you can provide.”

Market Pressures

Scott Culler, regional president at Markel, said one of the biggest challenges facing E&S brokers and insurers is the continued increase in competition and capital availability, particularly in property.

“There are new players coming into the market all the time, which can be a big challenge for brokers when they have 50 companies knocking on their door all looking for business,” he said.

In terms of premiums, on average, property decreased by 10 percent and professional lines by at least 5 percent, while casualty and management liability were also under pressure, experts said.

Jeremy Johnson, president, U.S. commercial, AIG, went as far as to say that the property market had become competitive to the “point of irresponsibility” in terms of its pricing and terms.

“There’s no doubt that the market is a lot more competitive than it was a year ago,” he said.

A key driver for increased competition has been the acceleration in M&A activity over the last year.

Among the biggest deals was Hartford Financial Services Group’s $170 million takeover of Northern Homelands.

James Drinkwater, president of AmWINS brokerage and one of NAPSLO’s wholesale broker directors, said that companies increasingly face competition both from within the E&S industry and the wider P&C market.

“The biggest challenge for us is the traditional market’s creep into the E&S space,” he said.

David Bresnahan, executive vice president, Berkshire Hathaway Specialty Insurance

David Bresnahan, executive vice president, Berkshire Hathaway Specialty Insurance

“Competition is fierce, with new insurers and MGAs entering the space on an almost daily basis.”

David Bresnahan, executive vice president at Berkshire Hathaway Specialty Insurance, said the increased competition resulted in “too much supply chasing too little demand.”

“It’s a really difficult underwriting environment at the moment, but that could all change with one big event,” he said.

“Property is certainly the biggest outlier — it’s the area where the market is down much more than any other this year, fueled by an aggressive reinsurance industry flooding the market with capital.”

Robert Raber, a senior financial analyst at A.M. Best, however, said that despite added competition, he expects premiums to be slightly up this year because of insurers’ pricing power.

Underwriting and Risk Mitigation Strategies

Johnson said the biggest challenge to the industry was to make sure that it remained relevant to its customers in an ever-changing environment.


“At a time when our business models and those of our customers are changing, and technology and computer power is creating a paradigm shift, we need to be able to deliver to them — not only in terms of product, but also the expertise to help them reduce their total cost of risk,” he said.

“In order to do this, we need to differentiate ourselves not only in terms of pricing, but also our value proposition to the customer through the use of our underwriting and risk mitigation strategies.”

Drinkwater said that there was a loosening of underwriting guidelines, with insurers considering risks they hadn’t previously, as well as expanding their terms and conditions.

However, he added, this was tempered to some extent by companies cutting their distribution costs and outsourcing specialist underwriting.

Meanwhile, others have been more proactive in terms of risk mitigation.

Scott Lockman, director of commercial insurance at Clements Worldwide, said that being small enabled his company to come up with new strategies and to create new products more readily than its larger competitors.

“Most of the smaller companies in the E&S space, ourselves included, are very innovative on the pre-loss side and in the analysis of their exposures in order to find ways to mitigate against them,” he said.

Investment in Technology

Raber said that companies were continuing to invest in their technology platforms in order to bind policies more quickly and effectively, as well as to control costs.

“Increasingly companies are seeking to customize their product and provide the insured with the exact coverage that they need,” he said.

“That also helps them with their rate structure, and to correctly price for a particular product.”

Bryan Salvatore, president of Zurich North America Commercial’s specialty products business unit, said that data and analytics are increasingly being used to better understand risks and to focus on more profitable business.

Jeremy Johnson, president and CEO, Lexington Insurance Co.

Jeremy Johnson, president, U.S. Commercial, AIG

“That in turn improves not only the service for the customer, but also makes the risk selection and underwriting process more efficient,” he said.

Johnson said that AIG had invested heavily in technology to help its customers understand their key risk drivers and leverage data, including the use of unmanned aerial vehicles for building and pipeline inspections, and personal sensor devices for employees to improve workplace safety.

“The name of the game is to try to out-risk-select the competition at a time when more and more markets are moving towards big data and black box technologies,” Bresnahan said.

Regulatory Challenges

Aside from the daily financial challenges for E&S companies, there are still a host of regulatory hurdles that need to be overcome.

Brady Kelley, executive director at NAPSLO, testified before the House Financial Services Subcommittee on Housing and Insurance in January about the Flood Insurance Market Parity and Modernization Act.

The bill was subsequently passed by the committee in March and then the full House in April.

If passed by the Senate at the end of this year, Kelley said the bill would endorse private flood insurance issued by nonadmitted insurers.

“This bill, in effect, changes the current federal definition of private flood insurance to ensure that surplus lines insurers are eligible to offer private market solutions to consumers with flood risks that fall outside of the national flood insurance program or the traditional market,” he said.

New Areas of Opportunity

Despite its many challenges, the E&S market remains well placed to capitalize on new opportunities and risks that the traditional market doesn’t typically cover.

Drinkwater said that cyber liability remained the No. 1 emerging risk for the market.


“One of the biggest emerging risks is poorly handled cyber breaches, which ultimately cost companies a lot of money and CEOs their jobs,” he said.

Other areas, he said, included health care, logistics and private flood.

Lockman said that the biggest areas of opportunity were in higher risk categories such as kidnap and ransom, political violence and evacuation coverage.

“The increase in the number of humanitarian companies being deployed in high risk areas around the world has presented big opportunities for growth and we don’t see that slowing down at any point,” he said.

Culler added: “What’s exciting is that despite all the competition and challenges in the marketplace, the E&S industry continues to grow.” &


Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Risk Manager Focus

Better Together

Risk managers reveal what they value in their brokers.
By: | June 1, 2017 • 11 min read

Michael K. Sheehan, (left) Managing Director, Marsh and Grant Barkey, Director of Risk Management, Motivate International Inc.

Ask a broker what they can do for you and they will tell you. But let’s ask the risk manager.

What do risk managers really need in a broker? And what do the best brokers do to help risk managers succeed in their jobs?

Chet Porembski, system vice president and deputy general counsel, OhioHealth Corp.

Risk managers say it’s a broker who helps them look knowledgeable and prepared to their bosses. It’s someone who sweeps in like a superhero with an ingenious solution to a difficult problem.

Risk managers want to see brokers bring forth better products year after year. They want a broker who shows up at renewal time with new ideas, not just a rubber stamp.

Great brokers embed with the risk management team and learn everything they can about the company and its leaders. They help risk managers prepare and keep tabs throughout the year on changes at the organization with an eye towards planning the future.

“There’s the broker that sees themselves as just a hired ‘vendor,’ or I should say, somebody that basically just does the job at hand,” said Chet Porembski, system vice president and deputy general counsel at OhioHealth Corp.

“And then there’s the broker that views themselves very much as a business partner.  They truly bring added value to the relationship.”

These brokers look at the tough issues the risk manager is facing and bring in the resources to try to help their client in ways even the client might not have thought about yet. They also do advanced planning that makes the risk manager’s job easier when a problem arises.

“That’s the kind of broker I want.” Porembski said.

And that’s the kind of broker many risk managers need more than ever.

“The only way that the relationship is going to be successful is if you build a tremendous amount of trust.” — Frances Clark, director of risk management and insurance, Sentara Healthcare

That’s because risk managers are under increasing pressure these days. They carry more weight as corporations shrink their departments to cut costs.


Climate change, cyber threats and geopolitical shifts are turning what were once unthinkable losses into risks that are almost commonplace. And this is all happening in an under-insured risk environment, according a study by PwC entitled Broking 2020: Leading from the Front in a New Era of Risk.

Thankfully there are good brokers out there, risk managers say, who can bring more value to a client today than ever before and help ease that fear.

Brokers — the traditional intermediary in the risk transfer chain — do in fact have a tangible and growing role in developing viable and innovative solutions for the risk manager, according to PwC’s study.

They are the “global risk facilitation leaders.”

“[Whatever] organizations are doing in the short term — be this dealing with market instability or just going about day to-day business — they need to be looking at how to keep pace with the sweeping social, technological, economic, environmental and political (STEEP) developments that are transforming the world,” PwC said in the report.

Advisors That Are Getting It Done

Cyber risks are just one growing challenge that all organizations grapple with.

Frances Clark, director of risk management and insurance at Sentara Healthcare, remembers when her broker first suggested that she hold a leadership tabletop cyber drill.

Clark said her broker kept saying, “I know this is going to be a painful experience, but you are going to come out so much better in the long run.”

Frances Clark, director of risk management and insurance, Sentara Healthcare

Her broker was right, and went so far as to help arrange a system-wide drill that included representatives from the legal, finance, security, communications, marketing and medical teams.

They reviewed the many ways a cyber attack can happen and then practiced a response.

“We benefitted greatly from that exercise,” Clark said.

When Doctors on Demand developed a telemedicine app to offer mental health services through mobile devices, the company ran up against insurance limitations across state lines. All states require that the physician giving the advice be licensed in the same state where the patient is located.

The concern was for patient encounters where the patient actually crossed state boundaries during the encounter, due to the utilization of a mobile phone. The patient may have started with a properly licensed physician in the original state, but then crossed into a neighboring state where the physician was not licensed.

Larry Hansard, a regional managing director at Arthur J. Gallagher & Co., and a 2017 Power Broker®, worked to secure medical professional liability coverage without the traditional licensure exclusions placed on medical professionals by insurance carriers.


The initiative he helped develop actually changes how health care can be delivered to patients. It allows the emerging telemedicine sector to now offer services around the world.

Two-thirds of the risk managers in the PwC Broker 2020 survey labeled their brokers as “trusted advisors.” But the same survey found that some participants see their broker as more of a straightforward service provider rather than as a source for solutions.

The survey results indicate there is plenty of room for brokers to bring more value to clients.

OhioHealth’s brokers meet each year with OhioHealth’s risk management team to review insurance coverages.  And when the health system holds quarterly risk management retreats, the brokers attend. They bring with them education and insights on a broad range of topics, from property insurance markets to cyber solutions.

Porembski’s brokers also collaborate with the risk managers when there’s an upcoming presentation on risk issues to senior management. Sometimes the brokers help prepare the presentation, he said.

“We end up looking exceptionally good to our senior leaders and our board,” he said.

Involving the broker in interactions with leaders outside the traditional risk management team has benefits beyond selling products, he said. It extends the relationship circle.

Clark tries not to think of her brokers as outside vendors just providing a service. She wants them to be as committed and knowledgeable about the organization as she is.

“The only way that the relationship is going to be successful is if you build a tremendous amount of trust,” Clark said.

“You have to be completely open and honest about everything, no matter how bad it is, or how bad it may look to the market or underwriters.”

“Once you establish that trusting relationship, I think everything else falls into place,” she adds.

Sentara underwent significant growth recently, acquiring five hospitals in about six years. The expansion required a vast amount of integration on insurance programs and a merger of risk management departments and claims.

Clark said her brokers rolled up their sleeves and expertly navigated her through the consolidation.

“I can’t reiterate enough how most risk managers don’t know how to deal with an M&A unless you’ve gone through it.”

She said she wouldn’t have been able to manage the risk of the mergers without her broker’s counsel.

Grading the Broker

Mike Lubben, director of global risk management at Henry Crown & Co. in Chicago, sets standard expectations of his insurance brokers: know the exposures, understand how a risk manager has to sell ideas internally and understand the urgency of requests.

He lets his brokers know his expectations with regular report cards, complete with letter grades. And he isn’t shy about giving out Fs.

  • How did the broker service the EPLI coverage?
  • Did the broker provide expertise and coverage analysis?
  • Was there anything creative?
  • Did the broker recommend new endorsements based on the previous exposure?
  • Did the broker recommend any risk mitigation programs?
  • How well did he communicate and help with presentations?

“A good broker will think this is fantastic,” Lubben said.

This method starts the conversation. It helps Lubben establish long relationships with some stellar brokers.  But if the broker misses the mark, Lubben can have a talk with them about ways to do better in the future. Some brokers he has sent away.

Recently a broker failed on what Lubben calls “blocking and tackling,” the basics like returning phone calls within one day and responding promptly to emails.


Lubben gave him an “F” on those subjects and told him why. The broker still didn’t improve his game and was eventually replaced.

For many people, insurance can seem very routine from renewal to renewal. But a really good broker will break from routine and come back with some kind of enhancement or improvement.

If the renewal is flat with no change in premium, then Clark says she’ll ask, “What are you going to do for me this year?”

The best brokers are always striving for better, she said.

“Without the brokering community, you would be hard pressed to do your job. I really appreciate what the brokers do, they bring a level of expertise that we can’t possibly have on all lines of coverage.” — Mike Lubben, director of global risk management at Henry Crown & Co.

Motivate International Inc., which operates more than half of the bike share fleets in North America, went through a recent renewal.

Their broker, Marsh, explored more than 10 options with different strategies and programs. In the end, after all of that, they decided the expiring coverage was the best fit.

“Those exercises are very valuable for risk managers,” said Grant Barkey, Motivate’s director of risk management.

“As an innovative company committed to delivering best-in-class services, we believe thorough exploration leads to informed decision-making.”

A good broker understands that a company’s day-to-day operations and a highly effective risk management program have implications for what type of policy should be procured, he said.

Brokers need to partner with risk managers to figure out what those options are, and what the markets are saying and then succinctly relay the information to management.
They also need to have the tact and curiosity to inquire about future plans and figure out what resources might be needed to better serve their client.

When PwC surveyed risk managers, most put their insurance carriers and industry groups ahead of their brokers as the primary source of cyber and supply chain risk solutions; yet these areas are still cited as risk managers’ top concerns.

“Becoming the go-to partners for developing and coordinating innovative and effective solutions in these priority risk areas is at the heart of the commercial opportunity for brokers.” PwC said in its report.

“Yet, our survey suggests that these are important areas where brokers are falling short of the market’s demands and therefore need to adapt.

For example, less than a third of respondents are very satisfied with brokers’ analytical and modelling services across a range of areas.”

When participants were asked how their brokers could be more efficient, respondents put risk analysis at the top of PwC’s survey list. Significantly, more than a third also cited ‘big data’ analysis.

Finding the Right Fit

Paul Kim, Co-CBO of U.S. Retail at Aon Risk Solutions, helps match brokers to risk managers. He keeps in mind that insurance companies tend to sell product, while the clients are looking to manage risks. The right broker assists in mapping risks to existing products and also customizing broad solutions, he said.

“The risk manager’s job has become more complex in the current environment, but there are so many tools available for those individuals to make better informed decisions that truly help protect the overall risk profile of their companies,” Kim said.

Paul Kim, Co-CBO of U.S. Retail, Aon Risk Solutions

That’s why finding the right broker should be first and foremost, he said. Look for an individual with strong industry knowledge, product expertise and market relationships. A strong broker is able to effectively communicate what the risk manager’s goals are to the marketplace to be able to execute and achieve those goals.

“Not every broker can do that,” Kim said.

“Not every broker is the right broker.”

PwC said those brokers who quickly master the art and science of identifying ambiguous threats and then mobilize a broad private/public stakeholder pool to economically manage those risks over time will pull ahead of their competition.

“We’re really generalist,” Lubben said.

“Without the brokering community, you would be hard pressed to do your job. I really appreciate what the brokers do, they bring a level of expertise that we can’t possibly have on all lines of coverage.”

When selecting a broker, the risk manager should also take into account the entire organization behind the broker. Ask about the additional support systems that are available to the broker’s clients.

The company should have a deep bench so when the primary broker is out of the office there’s someone else to rely on who is almost as knowledgeable. The broker organization should also be able to assist you with your budgeting and forecasting from a financial risk perspective.

In PwC’s survey of risk managers, nearly three-quarters want analytics from their broker to help inform their decisionmaking, with concerns over new and emerging risks being a strong driver for this demand.

Clark also thinks it is vitally important for a broker to offer a claims advocate, somebody on the outside, when you are dealing with a carrier on a complicated claim.

“Otherwise you are vulnerable to what the carrier says,” Clark said.


To lead in this new era of risk, it’s also important that brokers forge close relationships with a broader set of stakeholders that includes governments, academia, specialist risk consultancies and even their industry peers, PwC said in the report.

It’s also going to be important to develop shared databases and research capabilities.

In turn, brokers need to assure this diverse stakeholder group that they are the right party to lead.

Clark, at Sentara Healthcare, said she knows what her risk exposures are today, but she’d like her brokers to anticipate her needs before she does.

“It’s kind of crazy, but amazingly some of them do it,” Clark said.

The broker will also use past experience and industry knowledge to anticipate where policy terms and conditions can be tweaked and improved upon.

“They will, say, advise us that we need to change this policy language, and then a year later you have a claim on that and you thank your lucky stars that they changed it,” Clark said.

“It is amazing to me every time it happens.”  &

Juliann Walsh is a staff writer at Risk & Insurance. She can be reached at [email protected]