With 2012 about to arrive, NU spoke with some of the key figures in the E&S/Specialty Markets arena to hear their assessments of where the biggest opportunities will be found in the year ahead—and to get their take on the greatest challenges that will have to be faced over the next 12 months.
Click next to read their responses.
Without being able to predict the nature or scale of the disasters we’ll experience in 2012, the key areas of concern for us are sluggish investment returns, surplus capital and relatively modest increases in premium rates. Against this backdrop, we continue to face uncertainty and delay in the European and U.S. regulatory environments. The risk of increasing compliance costs has not diminished and poses yet another challenge to the market's competitiveness. These realities will make disciplined, responsible underwriting as important as ever in 2012.
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 world economy also has an effect. Rates will remain relatively flat, both in property and casualty, except for specific areas of the country where property rates may harden in small percentage points. I do not see rates weakening, due to the cost of reinsurance and some of the standard markets having difficulties with their loss experience in 2011. The personal-lines area in our segment of the specialty-insurance world in the latter half of 2012 will harden, with small percentage increases.
In order to get final approval [for premiums in excess of budget expectations], we expect more risk managers will need to bring alternative quotes to their senior management. If there’s no change in submission quality or marketing strategy, it will be unrealistic for risk managers to deliver these alternative quotes, much less further reduction in premiums, without reducing critical coverage limits and increasing deductibles. [So] we expect to see significant opportunities in 2012 from agents and risk managers who have already had difficult renewal negotiations and don’t need to be convinced that better submission quality and a fresh approach are required for optimal terms and pricing.
Managing Director of Wholesale Marketing
Markel is optimistic about the market opportunities in 2012. After six-plus years of declining premiums, we are seeing areas where premiums are, in fact, increasing. Our competition is pulling back, tightening forms, increasing rates or exiting the marketplace in a number of product lines. Markel has been growing throughout 2011—and in the last few months we have picked up the pace. We intend to capitalize on this trend in 2012.
Joel D. Cavaness
Risk Placement Services Inc.
Market opportunities for the wholesale community will expand in 2012. The standard markets are feeling the pains of the last year, and they feel the pain from the pricing that has been occurring over the last five or six years with significant pricing pressures, especially in the casualty lines. Although it is a long way from being a hard market, we are seeing a dramatic increase in submission flow and a fair amount of increase in bound new business.
Executive Vice President and Chief Underwriting
Officer for Commercial Markets
We’re targeting industries such as health care, technology, life sciences and private education, and we're continuously improving our specialized capabilities to help our agents and brokers capitalize on these market opportunities. The industry continues to be challenged by a series of headwinds, including slow economic growth, sustained high unemployment levels, investment yields near all-time lows, and more frequent and more severe natural catastrophes. However, we believe the pendulum has shifted and the market is clearly firming. We expect to see commercial P&C pricing continue to increase, and we will continue to drive for price increases in 2012.
Aspen U.S. Insurance
We don’t foresee any new challenges at this time for 2012; however, there are many ongoing challenges that will continue into the new year, one of which is the excess capacity in the marketplace. Despite the firming we are seeing in the marketplace, the number-one factor keeping rates below adequacy is too-robust competition in some lines, with more than enough supply to meet marketplace needs. We are seeing a few outlying companies that seem to be more concerned with production than profit. Sooner rather than later, we believe they also will recognize the importance of returning to the basics of responsible underwriting and pricing in a very challenging and risky marketplace.
Meadowbrook Insurance Group
For sustainable profits to re-emerge, prices need to go up. While we are seeing some bottoming out and even price hardening in certain specific product lines or market segments, we still do not foresee a turn in the market cycle in the near future. There is still a lot of capacity and strong competition present in the market. Given the existing excess capacity available in the market—[combined with] fierce competition, low yields on fixed-income portfolios and tough economic conditions—profits will continue to be a struggle to achieve consistently. A lot in 2012 will depend on the weather.
Crump Northwestern U.S.
In the area of professional liability or FinPro lines, we expect to see continued general softness in the overall market due to excessive capacity—with some signs of the market stabilizing overall.
Product Line Executive for Specialty Lines (U.S. and Canada Region)
Specifically, we believe there are continued opportunities in environmental liability, corporate aviation and cyber liability, and we see a heightened interest in the development of solutions to address multinational exposures, whether driven by risk-management, tax or regulatory concerns. Underwriters need to be able to differentiate their product, drawing attention to coverage, service, claims handling and market commitment. There remains an abundance of competition, with many [carriers] looking to build market share at the expense of profit; the temptation to allow the insurance products to be commoditized along price lines must be resisted.
Principal Insurance Sector
Critical to top- and bottom-line growth is the ability to leverage the wealth of customer data to identify and promote products and services that match a customer's specific profile during any channel interaction. This lowers search and acquisition costs and increases awareness, products per customer and long-term loyalty.
Vice President, Specialty Insurance
Chubb Group of Insurance Cos.
Every company that collects, stores and/or transmits private information, such as an individual’s name along with a Social Security number, employment information, health information or debit/credit card information, is subject to state notice regulations. Some companies may also be subject to federal compliance regulations. This creates a significant market opportunity for agents and brokers in the cyber-security space to assist companies with loss-mitigation tips and risk-transfer solutions.
Joseph J. Beneducci
Chairman, President & CEO
ProSight Specialty Insurance Holdings
Technology will continue to play an increasing role in satisfying customer needs. I'm not talking about the technology we use to rate and issue policies. While that's definitely important, too, I'm talking about the use of technology and data-mining techniques to better understand customer behaviors, needs and buying trends.
Vice President and Crime, Kidnap/Ransom and Extortion, and Workplace Violence Expense Product Manager
Chubb Group of Insurance Cos.
The key challenge in 2012 will be the continuing worldwide economic downturn. This has contributed to an upsurge in claims severity as companies monitor their finances and operations more closely and uncover previously overlooked losses, such as employee theft of funds, property or pension-fund assets.
We continue to operate in a sluggish economy and an environment with more risk. As a result, contractors are generally smaller businesses than they were a few years ago. Their demand for bonds and the premiums they pay is down. For agents and brokers who play in this space, the challenge is easy to see: more competition, downward pressure on pricing and generally higher risk.
Wayne H. Carter III
Executive Vice President
Crump Professional Programs
The most significant challenge for 2012 will be the effective deployment of the still-abundant surplus within the P&C industry. There is a significant body of expertise with access to capital whose investors are looking for a return. The return can only be realized if the capital is deployed.