NAPSLO 2016

Top 5 Challenges and Opportunities for E&S

Attendees of the 2016 NAPSLO Annual Convention shared their thoughts on what lies ahead for the excess and surplus insurance industry.
By: | October 5, 2016 • 5 min read

Thousands of attendees converged on Atlanta, Ga., from Sept. 25 to 28 for NAPSLO’s Annual Convention. From the many conversations among brokers, carriers and underwriters, a few common challenges and opportunities facing the excess and surplus market emerged.

1. Soft Market Conditions

Overwhelmingly, convention attendees cited the continuing soft market as their primary challenge.

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Excess capital and low investment income are making organic growth difficult, and most see no end in sight to that dynamic. The boost in M&A activity driven by these conditions is also emboldening primary insurers to take on new risks with expanded resources that typically are better suited to the E&S market.

“More standard carriers are entering into the Allied Health marketplace and driving prices down, which makes me less confident that the hard market will come again any time soon,” said Jennifer Schoenthal, a health care underwriter with Beazley.

“E&S shines where the standard market won’t go. There will always be opportunities for E&S as technology advances.” — Hank Watkins, president, Lloyd’s North America.

“E&S brokers used to be the brokers of last resort because there was no participation from standard insurers, but small agent consolidation makes standard insurers more inclined to place coverage themselves in new areas and forego E&S,” said Jon Starck, divisional vice president of marketing for the executive liability division of Great American Insurance Group.

“They are expanding their appetites.”

Some, however, took a more positive view, noting that some segments are performing better than others, forming “hard pockets” within the overall soft market.

“I think, though, there is a blurring between the soft and hard market. Non-admitted forms and products have improved, and there is a demand for specialized expertise,” Starck said.

2. New Risks Present New Opportunities

Despite movement from the primary market into E&S territory, opportunities remain in emerging risks like cyber, drones and driverless cars.

“E&S shines where the standard market won’t go. There will always be opportunities for E&S as technology advances,” said Hank Watkins, president of Lloyd’s North America.

One risk the primary market is hesitant to tackle is flood exposure. After the Senate vote earlier this year to allow the private market to provide flood insurance, many underwriters have approached with caution, but E&S insurers are already writing primary coverage.

“I don’t think there is enough investment in new technologies, but it’s tough to find the extra pennies in a challenging business environment when you’re trying to manage headcount and expenses.” — Ron Beauregard, head of U.S. E&S property, Beazley

“The NFIP is $25 billion in debt,” Watkins said. “There is a place for E&S to step in.”

Schoenthal of Beazley also noted that the specialty underwriter is adding value by participating in several health care-related risks that prove too tricky for the primary market, including telemedicine, clinical trials, implantable devices, nutraceuticals, and military medicine.

3. Technology and Pace of Change

To achieve growth in a soft market – other than through merger or acquisition – carriers, underwriters and brokers have to innovate. But that’s easier said than done.

“It’s imperative that we figure out how to create new products,” said David Nelson, senior vice president, E&S and specialty contract underwriting, Nationwide Insurance.

While many companies have idea-gathering mechanisms, they tend to fall short on the technology needed to turn those ideas to reality.

Younger generations communicate and build relationships differently, and there is increasing customer demand for greater ease of doing business. But industry leaders question whether they can keep up with the pace of technological change occurring in other sectors.

“We are an industry not used to rapid change,” said Craig Kliethermes, president and COO, RLI Insurance Co.

“I don’t think there is enough investment in new technologies,” said Ron Beauregard, head of U.S. E&S property, Beazley, “but it’s tough to find the extra pennies in a challenging business environment when you’re trying to manage headcount and expenses.”

In addition to servicing younger customers, updating technology will also be critical to attracting younger workers to the industry, many attendees agreed.

4. Talent Pipelines

Perspectives on recruiting and retaining talent varied widely. Some felt the issue was critical. With baby boomers preparing to retire, some executives were concerned about how to best transfer their knowledge and skills to incoming talent who — because of changes in technology — do business very differently.

Others were more optimistic. The more upbeat companies were those that had developed formal partnerships and internship programs with universities, or had robust training programs that gave new recruits face time with their older, experienced counterparts.

“We are an industry not used to rapid change.” –Craig Kliethermes, president and COO, RLI Insurance Co.

“People can always be trained,” said Schoenthal.

“You have to be willing to look outside the mold and look at other skill sets to find the person best able to do the job.”

5. Other Trends to Watch

Looking forward, attendees noted some new risks that present underwriting challenges and that need close attention.

Cyber and the Internet of Things as they relate to property risk remains a difficult exposure to identify and quantify, but will evolve rapidly as more devices become “connected.”

The marijuana market, set to expand as more states legalize possession of the drug, could offer abundant opportunities for insurers, but that expansion for now is stalled by prohibitive federal law.

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Watkins of Lloyd’s said that market pulled its products for marijuana purveyors last year due to incongruities between state and federal laws, and is watching developments closely to determine when, if ever, it would be wise to re-enter the market.

Kliethermes of RLI also highlighted the emerging trend of funded litigation — when a third party essentially “invests” in a lawsuit, hoping to make a profit from the settlement or eventual award. This outside funding makes plaintiffs’ attorneys less willing to settle, or more inclined to demand larger settlements.

Some of these third parties focus specifically on cases stemming from auto accidents, covering the defendant’s medical and living expenses in exchange for a piece of the final compensation.

Given the increasing severity of commercial auto claims, E&S insurers could have an opportunity to step in and provide coverage for this new risk.

Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at [email protected]

More from Risk & Insurance

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Risk Management

The Profession

Verizon’s risk manager David Cammarata loves when his team can make a real impact on the bottom line.
By: | May 2, 2017 • 4 min read

R&I: What was your first job?

I was a financial analyst with the N.J. Casino Control Commission.

R&I: How did you come to work in risk management?

I was told at a Christmas luncheon in 2003 that I was being promoted into a new job.

R&I: What is the risk management community doing right?

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I think the risk management community is getting a lot better at utilizing big data and analytics to manage risk. Significant improvements have been made, but there is still much more room for improvement.

R&I: What could the risk management community be doing a better job of?

I think that the insurance and brokerage communities need to really start thinking about what this industry is going to look like in 10 years. They need to start addressing how they are going to remain relevant. I think that major disruptions to existing business models will occur and that these disruptions combined with innovation and technological advances may catch many of today’s industry leaders by surprise.

David Cammarata, assistant treasurer, risk management and insurance, Verizon Communications Inc.

R&I: What was the best location and year for the RIMS conference and why?

San Diego, any year.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

I think the advent of cyber risk and cyber insurance. For several years it has been, and it continues to be, the main topic of discussion at industry meetings.

R&I: What emerging commercial risk most concerns you?

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I think the most scary scenarios include a nuclear, biological, chemical or radiological event, a widespread global health epidemic and/or a widespread state sponsored cyber shutdown.

R&I: How much business do you do direct versus going through a broker?

We do almost all of our business through a broker.

R&I: Is the contingent commission controversy overblown?

No. It’s a conflict.

R&I: Are you optimistic about the U.S. economy or pessimistic and why?

Optimistic because hopefully President Trump’s policies (lower taxes and less regulation) will be pro-business and good for the economy.

R&I: Who is your mentor and why?

My dad, who passed away many years ago. He was very influential during the formative years of my career. He taught me how important integrity and reputation were to your brand and he had a very strong work ethic.

R&I: What have you accomplished that you are proudest of?

I would have to say raising two awesome kids. My daughter is graduating from James Madison University this year as co-valedictorian. My son is finishing his sophomore year at Rutgers and has near perfect grades. But more importantly, both of my kids have turned out to be really good people.

R&I: How many emails do you get in a day?

A lot.

“I love it when the risk management organization is able to contribute in a way that makes a real impact to the corporation’s overall objectives. On several occasions we have been able to make real contributions to the bottom line.”

R&I: What is your favorite book or movie?

“My Cousin Vinny.” That movie makes me laugh no matter how many times I watch it.

R&I: What’s the best restaurant you’ve ever eaten at?

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My dad used to take me to a place called Chick & Nello’s. It was an Italian place that did not have a menu. They came to your table and told you the two or three items they were making that day. The food was out of this world.

R&I: What is your favorite drink?

Iced tea. The non-alcoholic kind.

R&I: What is the most unusual/interesting place you have ever visited?

I can think of several places but for me it would be a tie between India and Italy. India just has such a different culture and way of life and Rome has breathtaking historical sites.

R&I: What is the riskiest activity you ever engaged in?

Well, one of the best thrill rides I’ve been on was Kingda Ka at Great Adventure. It feels risky but probably isn’t all that risky. I flew in a prop plane with my brother-in-law one time … that felt kind of risky. I have also parasailed, does that count? I think it definitely has to be driving on the N.J. Turnpike day in and day out.

R&I: If the world has a modern hero, who is it and why?

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What about the Fukushima 50? I don’t think I could have done what they did.

R&I: What about this work do you find the most fulfilling or rewarding?

I love it when the risk management organization is able to contribute in a way that makes a real impact to the corporation’s overall objectives. On several occasions we have been able to make real contributions to the bottom line.

R&I: What do your friends and family think you do?

I don’t think they really know. My children see me as dad; others just see me as an executive with Verizon.




Katie Siegel is a staff writer at Risk & Insurance®. She can be reached at [email protected]