Insurance rates are rising, capacity is shrinking, and carriers are tightening their underwriting requirements. As a result, agents must work harder and harder to find insurance coverage that meets the needs of their clients. To solve these challenges, some agents are taking a closer look at excess and surplus (E&S) markets.
The Perfect Insurance Storm
Many factors are contributing to the current insurance market. There are the obvious issues, including the COVID-19 pandemic, the rise in cybersecurity threats, and an increase in extreme weather. The impact of this last factor cannot be underestimated. According to Reuters, a mid-year Swiss Re report showed weather-related events are becoming both more frequent and more severe. The Swiss Re study showed that in the first half of 2021, global insurance natural catastrophe losses totaled $40 billion, and $15 billion of that was related to the winter storm that hit Texas and other southern states in February. With wildfires and hurricanes still an ongoing threat, losses will continue to add up.
There are also less obvious issues, like the rise in excessive fee litigation. According to the National Association of Plan Advisors, the U.S. Chamber of Commerce has noted that, “What began as a steady increase has exploded in the past 18 months, culminating in over 100 excessive-fee suits in 2020 — a five-fold increase over the prior year — and many more lawsuits filed this year.”
Combine all these factors, and you get a hardening insurance market. This means that rates are higher, and that’s assuming coverage can be secured at all. In some of the especially hard-hit sectors, carriers are pulling out. The property insurance market in Florida – plagued by hurricanes and the Surfside condo collapse — is one example. Insurance Journal says that four insurance companies have closed for new business, and at least a dozen have implemented strict underwriting restrictions. According to Barry Gilway, president and CEO of Citizen Property Insurance Corp., “The reality is the marketplace in Florida is shutting down.”
E&S Markets Provide a Lifeline
The current insurance landscape can seem pretty dire for the people and businesses who can’t get the coverage they need. For anyone in this situation, the E&S market is becoming a lifeline. Independent insurance agents are at a distinct advantage in this market, with the freedom to seek out additional markets with no restrictions. Captive agents are struggling to place business, and therefore losing accounts over carriers’ tightening guidelines and non-renewing existing business.
While many insurance lines are struggling to keep up with the evolving risk landscape, E&S and specialty lines are well-suited for the challenge. According to the 2020 Annual Report of the US Surplus Lines Service and Stamping Offices, the United States E&S market is booming. Total surplus lines premium went from $37.5 billion in 2019 to $41.7 billion in 2020, a 14.9% increase. In addition, the 2021 Midyear Report from the 15 Stamping Offices states that this trend has continued in the first half of 2021, with total premium up 21.9% compared to the previous year.
Right now, the E&S market may be the only practical option for placing certain risks. If you’re an agent and you’ve had trouble securing coverage for your clients, this is an area you need to have plenty of markets readily available for market access.
Over the last several years, programs have popped up that offer agents access to a wide range of E&S and specialty lines carriers and wholesalers. They offer coverages through multiple markets for hard-to-place risks, including hospitality, property, home, automotive, as well as artisan and specialty classes. They also make it easier for agents to use online search platforms to find immediate coverage when a need arises.
As we watch the insurance landscape continue to evolve in the wake of an unstable economy and era of change, now is the time to make sure you have relationships and appointments in place with these carriers and wholesalers. E&S and specialty carriers are rising to the occasion to provide lifelines to agents and consumers, and you should be ready as well. If you can’t help them, they’ll find someone who can.
About David Wilson
Wilson is the vice president of Specialty Markets for Smart Choice, an agency network for independent agencies based in High Point, North Carolina.