5 E&S Trends to Watch in 2023

The E&S market has weathered quite a few storms in the past few years, from the COVID-19 pandemic to supply chain issues to cataclysmic climate events.

Because of these complex risks, the need for E&S insurance has grown dramatically. According to the U.S. Surplus Lines Service and Stamping Offices, E&S premiums exceeded $31 billion in just the first half of 2022.

Experts predict that the growth will continue well into 2023. 

The critical strengths for E&S insurers are the ability to react quickly to change and to provide affordable and innovative coverage to meet an insured’s specific needs, which often can be harder to insure in a traditional insurance market. 

There always will be new emerging risks for the E&S market. Some of the challenges facing the E&S market include the soaring cost of nuclear verdicts, social inflation, consumer inflation, cyber risks, third-party litigation funding, human trafficking risks for hotels and motels and climate change.

Here are just a few key trends affecting the E&S industry for 2023, including issues continuing from 2022. 

1) Flexibility

As traditional insurance carriers limit their appetites in certain areas due to catastrophic events, E&S coverage can quickly adapt coverage due to weather-related events or economic-related conditions.

E&S carriers must be transparent and engaged with their customers. 

2) Staffing 

Hiring and retaining good talent continues to be a problem for E&S insurance carriers, and this will not go away in 2023.

There is competition between carriers, wholesalers and brokers for hiring good people in E&S. There is a demand for specialist underwriters who can deal with the increased submissions and be ready for future needs.

A vital part of retaining talented workers is the commitment of E&S management teams to train, develop and continue mentoring their staff.

3) Capacity 

Capacity was a big issue in 2022 and will likely continue through 2023, impacting wholesale and E&S markets.

There have been new entrants into the E&S marketplace, but they haven’t made a strong impact overall.

There has been a shift in traditional insurance capacity in areas that are hard hit by natural disasters, which opens these areas for E&S coverage.  

4) Inflation

Inflation has impacted everyone, from consumers to the insurance industry.

The consumer price index, which designates the inflation rate, is holding steady at a larger percentage than in the past, which could lead carriers to be more cautious while pushing business to the E&S market. E&S can better adjust for the increase in inflation and financial uncertainty.

However, inflation has made it harder for underwriters to correctly price coverage for the future, causing a higher risk of being underinsured as well as raising the costs of claims and ultimately, annual premiums.

As inflation rates are predicted to drop in 2023, E&S can adjust rates more rapidly than standard market carriers.  

5) Social Inflation and Nuclear Verdicts 

Social inflation and nuclear verdicts work together to escalate higher damages awards. They will continue to be a big issue impacting the E&S market in 2023.

Courts are still clearing cases on hold in 2020 from their docket, and some lawyers are willing to settle the cases for lower settlements while taking to jury only the cases that they feel could receive larger jury awards.

Social inflation will continue to impact underwriting by limiting the types of risks they choose to write. This affects the availability of coverage limits at industries with a higher risk for nuclear verdicts.

This is not a definitive list of trends impacting E&S, because these can change quickly as the risk environment adjusts.

There will always be new challenges to the E&S market, but E&S can adapt much quicker and more efficiently and find the right insurance solutions for our customers. &