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E&S Coverage: Not just for hard-to-place risks any more
After a number of years of sustained banner growth, excess and surplus lines (E&S) has proved its mettle as a central part of the insurance industry.
This growing and dynamic sector, which has historically provided coverage for high-risk or hard-to-place risks that fall outside the scope of standard risk appetites, has experienced a consistent level of growth that Sompo’s EVP and Head of Property E&S Insurance, John Lavin believes to be sustainable.
In addition to its flexibility and adaptability, the E&S market is known for its ability to fill voids left open by the standard market.
Momentum across E&S products can be attributed to a few factors, including restricted appetites in the admitted market, reinsurance costs and availability, and the volatility of CAT losses year after year. However, a key driver of that growth, especially over the last several years, is increased interest from insureds who are struggling to find coverage for their property risks – specifically CAT risks.
“The property E&S market is very robust. We’ve seen significant growth in this area over the last eight years, mostly due to the high frequency and severity of storms,” said Lavin.
The E&S Market Has Become a Strong Source of Affordable Coverage
John Lavin, EVP and Head of Property E&S Insurance, Sompo
As more and more insureds turn to E&S, some may wonder whether rates will remain affordable.
Far from its old reputation as an “option of last resort,” the E&S market has become a place many insureds are turning to cover property risks, according to Lavin. “I think it’s become more vital to the insurance industry,” he said.
E&S direct written premiums rose 32.3% year-over-year in 2021, and 20.1% in 2022. Last year, premium growth slowed but remained strong, rising 14.5% year-over-year, per S&P Global research.
In recent years, carriers have been raising their rates by single (if not double) digits in an effort to remain profitable in the face of storms that are causing more frequent and more severe claims. As many insureds have struggled to find affordable coverage for their property risks in this environment, they have increasingly sought out E&S.
Reinsurance, too, has played a role in pushing people out of traditional markets and into solutions like E&S. Facing increased reinsurance costs, carriers are reluctant to write coverage for insureds in catastrophe-prone areas, further exacerbating the challenges some face in finding both affordable and adequate coverage.
“The standard market really has pulled back on its capacity,” Lavin said. “They have exited certain classes and shied away from certain regions, so I think a lot of that business is coming to our space.”
Speed and Agility Make a Difference
As insureds have found the E&S markets to be a better home for some of their property and CAT risks, the shift to E&S is a trend that is likely to continue.
E&S underwriters quickly develop products and tailor them to an insured’s specific needs. Their agility and creativity can help insureds acquire coverage at a favorable price and within a favorable timeframe. All these factors are contributing to insureds’ enthusiasm.
“We’re proactive in our approach, but we’re also very reactive where we can turn on a dime,” Lavin said.
A High Percentage of CAT Risks
Lavin estimates that about 80% of Sompo’s E&S property business is in the CAT arena, in part because traditional carriers are struggling to cover wildfire, hurricane and other exposures. E&S, by contrast, has been able to provide coverage that meets the market’s needs.
“There’s a lot of perils we cover, but the storms tend to be the biggest one,” Lavin said.
It’s difficult for experts to predict how E&S property rates will develop, as we are still in the midst of hurricane season. Carriers will continue to face claims as the year winds down. A strong E&S insurer will analyze its books to ensure that it can provide sustainable coverage, both now and in the future.
“We’re not just insuring for today, we’re insuring for tomorrow,” Lavin said. “We’re going to have to continue to build on that so that we can cover the losses that we expect to see in the next five years.”
Strong E&S Submissions are Increasingly Necessary
When insureds are turning to the E&S markets for their risks, it’s important that they clearly articulate their exposures during the application process. Thoroughly prepared submissions allow underwriters to swiftly determine if they are able to offer coverage and the types of coverage available.
“We’ve got a broad range of risks that come in,” Lavin said. “Those complex and hard-to-place coverages — that’s where we shine. The ability to adjust pricing, terms and conditions, and really tailor those risks to the individual insured is our greatest strength.”
Wholesale and retail brokers need to collaborate with their insureds to ensure submissions have all of the vital information before going to the underwriters.
“The key for us is receiving submissions that are clear and distinct and then engaging with an insured that is interested in finding a carrier who is committed to building a long-term partnership with them,” Lavin said.
An Eye Toward the Future
As E&S cements its place as a critical resource for protecting properties against CAT and other exposures, insureds will want to seek out a carrier committed to developing sustainable E&S solutions.
Sompo strives to partner with the best wholesale and retail brokers to deliver insureds the E&S coverage they need. It can also offer some guidance to risk managers to help them be more cognizant of their exposures.
“Our long-term commitment and ongoing investment in the E&S space – specifically on the operations and claims side, coupled with our expertise, our creativity, and our consistency over the years are all things that we’re going to point out,” Lavin said.
“We do attend meetings with the risk manager, especially on some of these tougher accounts, to give them a better understanding of the current market and how we assess their risk.”
Insureds should also seek out E&S carriers who are willing to help them place coverage over the long haul.
Sompo prides itself on its underwriters’ creativity and agility. They’re able to rapidly evaluate submissions, and this efficiency can be helpful for insureds and their brokers, who may be assessing several potential solutions.
“We’re trying to give multiple options, whether the insured is price-conscious or they’re coverage-conscious — whichever it is. Typically, we can find a solution that meets their needs,” Lavin concluded.
To learn more, visit: https://www.sompo-intl.com/
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Sompo. The editorial staff of Risk & Insurance had no role in its preparation.
