National Underwriter Property & Casualty spoke with NAPSLO Board Members Jacqueline Schaendorf, president and CEO of Insurance House Inc., and James Drinkwater, CEO of AmWINS Brokerage, what they consider both the greatest challenges and most promising opportunities right now in the E&S market?
Read Schaendorf and Drinkwater's responses below:
Jacqueline M. Schaendorf, CPCU
President & CEO
Insurance House Inc.
The classic balance between growth and profit is what I consider to be one of the greatest challenges in the E&S segment of the insurance industry, currently. While the E&S marketplace has been growing over the past several years, the rate of growth has been declining since 2012, per industry data from the A.M. Best “2016 Special Report U.S. Surplus Lines – Segment Review.”
The E&S segment is historically one of the most profitable segments of the insurance industry and profits tend to attract capital. There has definitely been an increase in competitors and capital – both traditional and non-traditional, which has led to downward pressure on pricing. If cost structures remain flat in a declining pricing environment, then obviously profit margins will be unfavorably impacted. With the current and expected interest rate environment remaining at the low levels experienced by the industry, investment gains will not significantly make up the profit margin difference.
When these conditions exist where the trend in growth is declining, competition and capital is increasing and investment portfolio returns are negligible, E&S carriers have to take the opportunity to create new products, reduce expenses, or expand their distribution. E&S intermediaries would follow this approach with an increased geographic footprint, gain efficiencies in operations with enhanced technology, and focus on strengthening their skillsets in particular products to remain highly relevant to their carrier and agency partners.
The good news for the E&S sector of the insurance industry is that while growth is declining, there is still growth and I believe plenty of opportunity to do what the leadership and talent in our segment excels at and that is prepare for underwriting, insuring and placing emerging and complex risks. The E&S insurance segment enables the ability for businesses to innovate and commerce to expand. With the unprecedented level of technological advances in products and services in so many different industries, the E&S industry will continue to be the first choice for risk managers and agents as they work to place coverage for new and untested exposures.
James C. Drinkwater
New York, N.Y.
The most obvious challenges to the E&S marketplace throughout 2016 have been the continued decline of rates across most lines of business. Overall, Standard markets are still encroaching on what is traditionally E&S space and, predictably, the lines between the two have blurred for the time being. In addition, the broader marketplace continues to evolve with the extraordinary level of investment interest in our space, driving retailer, wholesaler and carrier consolidation, as well as new ways of delivering capital to support risks.
Despite these market dynamics, we are energized by what can be viewed as a changing market environment. Such conditions always present us with many opportunities and I am a big believer that the wholesale model is the most efficient distribution model for specialty carriers. With AmWINS’ scale and focus on specialization, we deliver value to both our retail clients and carrier partners.
Furthermore, we have seen opportunity in emerging risks and have been able to quickly and effectively respond by providing solutions for such spaces as new technologies and the growing sharing economy, as well as cyber exposures. While new technologies are disrupting many businesses, we don’t believe the same opportunity for disruption exists in our space. AmWINS is committed to investing in technology to improve the process of broking and risk transfer, increasing efficiency and leveraging our data and analytic capabilities for our clients and carriers.
We believe that using technology allows for greater client interaction and, when combined with superior data collection, provides more efficient market solutions and continued innovation in product development.
Finally, and reflecting back to my earlier comment about the talent of our team, one of the most exciting opportunities we are seeing is the caliber of people that are attracted to the E&S sector. This new generation is challenging us to think differently about our business, the way we market and engage with our retail clients, and how we train and develop talent. As important as technology is, we still believe the E&S space is driven by people. The age old saying “it’s a people business” still rings true and we are committed to quality in every position of our firm.
It is certainly an exciting time to be in the E&S space; we think there is a great deal of opportunity to continue to grow our market share.