WSIA 2018

The 5 Best Insights We Heard at WSIA 2018

A few themes emerged at this year’s Annual Marketplace, including challenging market conditions, the talent gap, and the promise of Insurtech.
By: | October 3, 2018 • 5 min read

A record-breaking 4,500 people gathered at this year’s WSIA Annual Marketplace in Atlanta in late September. WSIA president Jacque Schaendorf says attendance continues to rise year after year.

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“I can’t say enough about the efficiency of networking at the WSIA Marketplace,” she said. “There are so many opportunities for education and career development, and I think more industry professionals are starting to realize the value of that.”

Risk & Insurance® sat down with a handful of attendees to learn what trends and challenges they’re tracking in the E&S space. Here are 5 key takeaways:

1. The E&S market expects continued opportunities for growth.

According to Jude DiBattista, head of E&S Property & Casualty at QBE North America, the growing economy increases the need for E&S coverage.

Jude DiBattista, head of E&S Property & Casualty, QBE North America

“Certain classes are seeing 6 to 10 percent increases in demand,” he said. Among them are construction; increasing frequency and size of infrastructure projects introduces substantially more risk and drives up the need for excess liability products. The real estate and hospitality sectors have similarly benefitted from the economic upswing and are seeking additional coverage.

The E&S market is also well positioned to underwrite risks associated with emerging trends like the gig economy, commercial drone use, and legalized medical and recreational marijuana.

“This is not just the market of last resort,” Schaendorf said. “We’re the market for the most complex risks. Innovation is taking place in so many sectors; E&S can foster that because we can take on the new and emerging risks. There’s lots of opportunity in this space.”

2. But ongoing soft conditions remain challenging.

Despite these opportunities, a common point of conversation in the Marketplace was the ongoing challenge of a soft market. Despite the heavy catastrophe losses of 2017, persistent overcapitalization is impeding carriers’ ability to raise rates.

“We’ve seen some rate increases, but only single-digit. We would need four times the losses of 2017 to spark a material hardening in the market,” DiBattista said.

“Something has to happen, it’s just a question of what,” said one casualty executive. “It could take another financial cataclysm for the market to move.”

Others echoed the sentiment: “Short-term capital moves too fast for there to be a light-switch change, but something eventually has to give,” another attendee said.

Another senior executive also pointed out that raising rates takes more than the right market conditions — it also takes communication skills to justify those increases in the marketplace. “We have a whole generation that’s never had to go back to a client with a price increase,” he said. To get rates, customer-facing staff have to be trained to make it happen. They have to know how to explain to clients why the price is going up and why that’s good for them in the long run.

3. Lack of talent remains a top risk facing the industry.

Attendees also shared concerns about a lack of incoming talent, an issue many say is coming to a head now as older workers in senior leadership positions begin to retire. The curtailment of training programs across the industry has been a contributing factor, as well as shortcomings in the active recruitment of college students.

Schaendorf said the talent gap poses serious succession risks across the industry, and that WSIA has made cultivating the next generation its top focus. The organization spearheads an internship committee that liaisons with 30-35 universities and runs E&S-focused educational presentations and symposiums throughout the year.

“I think it’s important to cast a wide net. We’re trying to attract actuarial, finance and business students as well as insurance and risk management students. We want the best and the brightest,” she said.

4. AI, automation, and a slew of new technology tools are set to create real change.

Insurtech has been generating buzz for years, but talk is transitioning to action.

  • “This isn’t a dotcom situation – these tools are real,” Schaendorf said. She identified two immediate benefits that technology can bring to the industry:
    The proliferation of third-party data enables more granular underwriting, which E&S carriers in particular can take advantage of due to a more relaxed regulatory environment.
  • Digitization and automation of manual processes increases efficiency and frees up underwriters and brokers to do what they were trained to do.

“There are two sides to the Insurtech coin: externally, it can speed up delivery to the customer and improve customer service; internally, these tools help us collect and manage data, analyze trends and capture a snapshot of our growth,” DiBattista said.

Some carriers are already using artificial intelligence to triage new business. New submissions are analyzed against a set of parameters based on the amount of risk the insurer is comfortable taking on, and by the time it gets to the underwriter’s desk, it’s already been vetted.

A common apprehension roused by new technology is the threat of disintermediation. The fear of robots stealing jobs is not reserved for the factory floor. Most industry veterans, however, don’t see this becoming reality any time soon.

“You still need a certain intuition for underwriting,” one executive said. “You need someone to dig into the losses and understand what happened. Every loss is like an onion, not an apple.”

“Disintermediation is always a threat, and it may affect some lines and classes more than others, but I don’t see it happening any time soon,” Schaendorf said. “Let’s let tech gather data, transform it into real informational insights, then let the experts analyze it. Let tech automate certain parts of the transaction so industry professionals can exercise more creativity.”

5. Climate change and environmental contaminants will hit excess liability hard.

More frequent and more severe storms will make bigger dents on E&S carriers’ bottom lines. But the property loss is not the only exposure.

As evidenced by the petrochemical toxins unleashed by Hurricane Harvey and the broken manure lagoons breached by Hurricane Florence, downstream pollution is a serious environmental byproduct of severe storms. The enormous amount of rain can lead to sewage overflows from waste treatment plants and industrial waste from manufacturing facilities. According to the Associated Press, “nearly half a billion gallons of industrial wastewater mixed with storm water surged out of just one chemical plant in Baytown, east of Houston on the upper shores of Galveston Bay.” The waste included known carcinogens like benzene and vinyl chloride.

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While the exact cost of cleanup is unknown, at least two corporations were ordered to pay a total of $115 million to clean up a single toxic waste site. In addition to cleanup and remediation, liability costs could be staggering if exposure to the waste is found to cause health issues. Nearly all environmental polices are written on an excess basis.

Most underwriters believe this risk will only grow as severe weather becomes the norm. The effects of climate change will force underwriters of all lines to reevaluate their exposure. Liability litigation over climate change itself could also become an issue.

“Eventually someone will come after the biggest polluters and hold them accountable for climate change,” one environmental underwriter said. “Those are going to be massive claims, and I think it’ something the E&S market should anticipate.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Risk All Stars

Stop Mitigating Risk. Start Conquering It Like These 2018 Risk All Stars

The concept of risk mastery and ownership, as displayed by the 2018 Risk All Stars, includes not simply seeking to control outcomes but taking full responsibility for them.
By: | September 14, 2018 • 3 min read

People talk a lot about how risk managers can get a seat at the table. The discussion implies that the risk manager is an outsider, striving to get the ear or the attention of an insider, the CEO or CFO.

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But there are risk managers who go about things in a different way. And the 2018 Risk All Stars are prime examples of that.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Goodyear’s Craig Melnick had only been with the global tire maker a few months when Hurricane Harvey dumped a record amount of rainfall on Houston.

Brilliant communication between Melnick and his new teammates gave him timely and valuable updates on the condition of manufacturing locations. Melnick remained in Akron, mastering the situation by moving inventory out of the storm’s path and making sure remediation crews were lined up ahead of time to give Goodyear its best leg up once the storm passed and the flood waters receded.

Goodyear’s resiliency in the face of the storm gave it credibility when it went to the insurance markets later that year for renewals. And here is where we hear a key phrase, produced by Kevin Garvey, one of Goodyear’s brokers at Aon.

“The markets always appreciate a risk manager who demonstrates ownership,” Garvey said, in what may be something of an understatement.

These risk managers put in gear their passion, creativity and perseverance to become masters of a situation, pushing aside any notion that they are anything other than key players.

Dianne Howard, a 2018 Risk All Star and the director of benefits and risk management for the Palm Beach County School District, achieved ownership of $50 million in property storm exposures for the district.

With FEMA saying it wouldn’t pay again for district storm losses it had already paid for, Howard went to the London markets and was successful in getting coverage. She also hammered out a deal in London that would partially reimburse the district if it suffered a mass shooting and needed to demolish a building, like what happened at Sandy Hook in Connecticut.

2018 Risk All Star Jim Cunningham was well-versed enough to know what traditional risk management theories would say when hospitality workers were suffering too many kitchen cuts. “Put a cut-prevention plan in place,” is the traditional wisdom.

But Cunningham, the vice president of risk management for the gaming company Pinnacle Entertainment, wasn’t satisfied with what looked to him like a Band-Aid approach.

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Instead, he used predictive analytics, depending on his own team to assemble company-specific data, to determine which safety measures should be used company wide. The result? Claims frequency at the company dropped 60 percent in the first year of his program.

Alumine Bellone, a 2018 Risk All Star and the vice president of risk management for Ardent Health Services, faced an overwhelming task: Create a uniform risk management program when her hospital group grew from 14 hospitals in three states to 31 hospitals in seven.

Bellone owned the situation by visiting each facility right before the acquisition and again right after, to make sure each caregiving population was ready to integrate into a standardized risk management system.

After consolidating insurance policies, Bellone achieved $893,000 in synergies.

In each of these cases, and in more on the following pages, we see examples of risk managers who weren’t just knocking on the door; they were owning the room. &

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Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, clarity of vision and passion.

See the complete list of 2018 Risk All Stars.

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]