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.

Advertisement




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.

Advertisement




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

More from Risk & Insurance

More from Risk & Insurance

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

Advertisement




That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

Advertisement




Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]