With 2012 about to arrive,NU spoke with some of the key figures in theE&S/Specialty Markets arena to hear their assessments of wherethe biggest opportunities will be found in the year ahead—and toget their take on the greatest challenges that will have to befaced over the next 12 months.

Click next to read their responses. 

HankWatkins
President
Lloyd'sAmerica

Without being able to predict the nature or scale of thedisasters we'll experience in 2012, the key areas of concern for usare sluggish investment returns, surplus capital and relativelymodest increases in premium rates. Against this backdrop, wecontinue to face uncertainty and delay in the European and U.S.regulatory environments. The risk of increasing compliance costshas not diminished and poses yet another challenge to the market'scompetitiveness. These realities will make disciplined, responsibleunderwriting as important as ever in 2012. 

Alan Kaufman
Chairman& CEO
Burns & Wilcox

I do not anticipate that 2012 will be much different than 2011.The main reason is due to the overall U.S. economy. The worldeconomy also has an effect. Rates will remain relatively flat, bothin property and casualty, except for specific areas of the countrywhere property rates may harden in small percentage points. I donot see rates weakening, due to the cost of reinsurance and some ofthe standard markets having difficulties with their loss experiencein 2011. The personal-lines area in our segment of thespecialty-insurance world in the latter half of 2012 will harden,with small percentage increases.

John Pagoumian
President
NAPCO

In order to get final approval [for premiums in excess of budgetexpectations], we expect more risk managers will need to bringalternative quotes to their senior management. If there's no changein submission quality or marketing strategy, it will be unrealisticfor risk managers to deliver these alternative quotes, much lessfurther reduction in premiums, without reducing critical coveragelimits and increasing deductibles. [So] we expect to seesignificant opportunities in 2012 from agents and risk managers whohave already had difficult renewal negotiations and don't need tobe convinced that better submission quality and a fresh approachare required for optimal terms and pricing.

Wendy Houser
ManagingDirector of Wholesale Marketing
MarkelCorp.

Markel is optimistic about the market opportunities in 2012.After six-plus years of declining premiums, we are seeing areaswhere premiums are, in fact, increasing. Our competition is pullingback, tightening forms, increasing rates or exiting themarketplace in a number of product lines. Markel has beengrowing throughout 2011—and in the last few months we have pickedup the pace. We intend to capitalize on this trendin 2012.   

Joel D.Cavaness
President
RiskPlacement Services Inc.

Market opportunities for the wholesale community will expand in2012. The standard markets are feeling the pains of the last year,and they feel the pain from the pricing that has been occurringover the last five or six years with significant pricing pressures,especially in the casualty lines. Although it is a longway from being a hard market, we are seeing a dramatic increase insubmission flow and a fair amount of increase in bound newbusiness.

The challenge of a transitioning market is twofold. One is tomanage the amount of marketing activities that will go on in thistype of a market. Many accounts will simply be marketed because theretailer just does not know what to expect out of his incumbentmarket, so it is up to him to check the waters.

The second factor is dealing with people who know how to sell ina changing market. If you think back, it has been a long time sinceanyone has had to deliver an increase to a client. We have to be ina position to provide them market intelligence, be well out aheadof the expiration, and provide them with advance notice on marketconditions and guidance on their particular account.

Gary Thompson
Executive VicePresident and Chief Underwriting
Officer for Commercial Markets
TheHartford

We're targeting industries such as health care, technology, lifesciences and private education, and we're continuously improvingour specialized capabilities to help our agents and brokerscapitalize on these market opportunities. The industry continues tobe challenged by a series of headwinds, including slow economicgrowth, sustained high unemployment levels, investment yields nearall-time lows, and more frequent and more severe naturalcatastrophes. However, we believe the pendulum has shifted and themarket is clearly firming. We expect to see commercial P&Cpricing continue to increase, and we will continue to drive forprice increases in 2012.

MarioVitale
President
AspenU.S. Insurance

We don't foresee any new challenges at this time for 2012;however, there are many ongoing challenges that will continue intothe new year, one of which is the excess capacity in themarketplace. Despite the firming we are seeing in the marketplace,the number-one factor keeping rates below adequacy is too-robustcompetition in some lines, with more than enough supply to meetmarketplace needs. We are seeing a few outlying companies that seemto be more concerned with production than profit. Sooner ratherthan later, we believe they also will recognize the importance ofreturning to the basics of responsible underwriting and pricing ina very challenging and risky marketplace.

RobertCubbin
CEO
MeadowbrookInsurance Group

For sustainable profits to re-emerge, prices need to go up.While we are seeing some bottoming out and even price hardening incertain specific product lines or market segments, we still do notforesee a turn in the market cycle in the nearfuture. There is still a lot of capacity and strongcompetition present in the market. Given the existing excesscapacity available in the market—[combined with] fiercecompetition, low yields on fixed-income portfolios and tougheconomic conditions—profits will continue to be a struggle toachieve consistently. A lot in 2012 will depend on the weather.

Garrett Koehn
President
Crump NorthwesternU.S.

In the area of professional liability or FinPro lines, we expectto see continued general softness in the overall market due toexcessive capacity—with some signs of the market stabilizingoverall.

Categorically, markets are adjusting to more recent experience.We see some hardening, for example, in the privatedirectors-and-officers area, with some key carriers hoping tobroadly raise rates in 2012 (in spite of this abundance ofcapacity). We expect the miscellaneous errors-and-omissions areasto remain relatively stable, with growth opportunities in thecyber-liability and privacy areas as more buyers appreciate theneed for these coverages.

Jeremy Johnson
ProductLine Executive for Specialty Lines (U.S. and CanadaRegion)
Chartis

Specifically, we believe there are continued opportunities inenvironmental liability, corporate aviation and cyber liability,and we see a heightened interest in the development of solutions toaddress multinational exposures, whether driven by risk-management,tax or regulatory concerns. Underwriters need to be able todifferentiate their product, drawing attention to coverage,service, claims handling and market commitment. There remains anabundance of competition, with many [carriers] looking to buildmarket share at the expense of profit; the temptation to allow theinsurance products to be commoditized along price lines must beresisted.

Marik Brockman
Principal Insurance Sector
PwC U.S.

Critical to top- and bottom-line growth is the ability toleverage the wealth of customer data to identify and promoteproducts and services that match a customer's specific profileduring any channel interaction. This lowers search and acquisitioncosts and increases awareness, products per customer and long-termloyalty.

Product, service and channel innovation represent keyopportunities in 2012. Creating separation from competitors, aseconomies recover, begins with investment in strategic-growthinitiatives during down times. Emerging or growing risk types, suchas digital security, online reputation or business continuity,represent the potential to carve out new products and services.Developing partnerships with other service providers and retailersto reach high-value customers—and developing joint or integratedproducts and services—represent new channels for growth.

Ken Goldstein
Vice President,Specialty Insurance
Chubb Group of InsuranceCos.

Every company that collects, stores and/or transmits privateinformation, such as an individual's name along with a SocialSecurity number, employment information, health information ordebit/credit card information, is subject to state noticeregulations. Some companies may also be subject to federalcompliance regulations. This creates a significant marketopportunity for agents and brokers in the cyber-security space toassist companies with loss-mitigation tips and risk-transfersolutions.

In the current economic environment, a number of small tomidsize companies will find it challenging to allocate theappropriate IT dollars needed to help defend the business againstunauthorized access. Consequently, these companies will continue tobe significant targets for global hackers, and may find it hard topurchase cyber-liability coverage [without being subject to]aggressive terms and conditions.

Joseph J.Beneducci
Chairman, President &CEO
ProSight Specialty InsuranceHoldings

Technology will continue to play an increasing role insatisfying customer needs. I'm not talking about the technology weuse to rate and issue policies. While that's definitely important,too, I'm talking about the use of technology and data-miningtechniques to better understand customer behaviors, needs andbuying trends.

The new breed of successful specialty-insurance provider isn'tsimply waiting for new submissions to show up in their inbox, butrather is proactively learning and improving their offerings basedon the evolving needs of their customer base. Specialty carriersand producers will find it increasingly difficult, if notimpossible, to successfully improve and distinguish their valueproposition without a more sophisticated use of technology anddata-mining.

Greg Bangs
VicePresident and Crime, Kidnap/Ransom and Extortion, andWorkplace Violence Expense ProductManager
Chubb Group of InsuranceCos.

The key challenge in 2012 will be the continuing worldwideeconomic downturn. This has contributed to an upsurge in claimsseverity as companies monitor their finances and operations moreclosely and uncover previously overlooked losses, such as employeetheft of funds, property or pension-fund assets.

Employees who are under severe personal financial pressure aremore likely to steal, especially if they are concerned about losingtheir jobs. This increased motivation to commit dishonest acts isexacerbated by increased opportunity to do so, due to companycutbacks in internal audit and other internal control functions dueto the poor economy. Small and midsize companies will bedisproportionately victimized, as their internal fraud controls areoften weaker than those in larger organizations. 

RickCiullo
COO
ChubbSurety

We continue to operate in a sluggish economy and an environmentwith more risk. As a result, contractors are generally smallerbusinesses than they were a few years ago. Their demand for bondsand the premiums they pay is down. For agents and brokers who playin this space, the challenge is easy to see: more competition,downward pressure on pricing and generally higher risk.

The opportunity is harder to see and may take a few more yearsto play out. Agents and brokers know that their surety customersneed them now more than ever for sound advice. But customers alsoneed surety capacity that is stable and predictable. This recessionwill not last forever. The better contractors will survive to enjoythe recovery; they'll need surety capacity to execute theirbusiness plan. Now is a good time to build more and deeperrelationships with customers and prospects, and to match them upwith surety underwriters who can support their long-term needs.

Wayne H. Carter III
Executive Vice President
Crump Professional Programs

The most significant challenge for 2012 will be the effectivedeployment of the still-abundant surplus within the P&Cindustry. There is a significant body of expertise with access tocapital whose investors are looking for a return. The return canonly be realized if the capital is deployed.

Depending on the perceived pressure to deploy that capital, someof that expertise will likely take more risky positions than theywould normally view as prudent. Those activities will continue tokeep a lid on price increases throughout the industry. While somepricing discipline is returning to the market, responsiblerisk-bearers who know they need rate will have a difficult timeachieving the levels they desire.

From an overall market standpoint, technology will play a majorrole in enhancing efficiency and time-service standards over thenext couple of years. Our industry has been very slow to embracethe effective use of technology, but we are starting to see sometraction in the development of electronic exchanges for thesmaller, run-of-the-mill risks. Those who are quickest to harnesseffective use of these delivery systems will be the long-termwinners in handling this vast market segment.