There seem to be two schools of thought for excess and surplus lines insurers at the moment, with some companies developing more and more targeted niche products, while peers rely on current offerings in their strongest business areas.
The following are capsule looks at the latest initiatives at a number of leading E&S players.
Steve Franke of Scottsdale Insurance Company, a wholly owned subsidiary of Nationwide, said that Scottsdale does not have any new products planned for introduction, although he added that the company’s current roster of coverages is “pretty broad” already.
“We’ve been having a very good year, even with the softening market,” he said.
He noted that he sees clients actually seeking out more broad-based coverage as a reflection of the current market conditions. “With the market the way it is, there’s a trend toward broader coverage,” he said.
There is, Mr. Franke said, a geographic element to how the market is taking shape, with standard companies moving more aggressively in some areas while shying away from others.
Standard companies are “coming back pretty strong”–making a push in the central parts of the country, in areas less likely to be struck by hurricanes or other natural catastrophes, he explained.
Where the standard companies avoid risks, Mr. Franke noted, E&S companies generally tend to move in, but he said the Gulf Coast presents a more difficult area, even for E&S companies. That’s because reinsurers are unwilling to accept the risks they present.
“We’d like to” move into the Gulf Coast area, he said, “but unfortunately there are reinsurance issues.” Mr. Franke did say, however, that increasing regulation in Florida has allowed the company to make some gains there, most notably in its casualty lines. Reported by Matt Brady
Matt Yeldham, casualty underwriting director for Wellington Underwriting, plc, a Lloyd’s syndicate, also said his company is focused on the products it already offers, rather than working to create new ones.
“The market on casualty is still pretty firm,” he said, although there have been some changes. Among the most significant, he said, is a decline in the residential housing coverage market. Although that area has been a strong earner for the company in the past few years, the recent decline in the U.S. housing market has led to a subsequent decrease in the market’s profitability for insurers.
“We’re not seeing as much business as we were a year ago,” he said, adding that the housing market–and its position in the insurance market–seems to have peaked.
Other areas remain strong, however, he said, noting specifically the commercial construction market and public/private projects, such as bridges and tunnels.
Additionally, Mr. Yeldham said, “For anything energy-related, it’s boom time,” noting that energy companies are generally upgrading their facilities and other assets. Reported by Matt Brady
Some E&S companies continue to seek out and find new risks to cover.
Matthew Power, president of the Risk Specialist Companies Inc., a subsidiary of American International Group, said the roots of its new product offerings can be seen in last year’s storm season.
“One of the lessons learned from the 2005 storm season,” he said, was that clients faced significant losses in “health care and higher education.”
As a result, AIG created a new product designed specifically for those sectors– evacuation response coverage. The product is designed to cover the costs of evacuating a population, such as patients or students, in response to a mandatory evacuation order and housing them for up to 30 days. The product can be written to include multiple locations and does not require any actual damage to trigger coverage.
Additionally, Lexington has also introduced a zoning restriction protection program, which Mr. Power said “fills a badly needed gap in the commercial real estate sector.”
Effectively, the product is designed to help a client during the rebuilding phase after a loss, he explained. When rebuilding a structure, and especially with older buildings, clients have often found that changes to the zoning codes have made it very difficult, if not impossible, to rebuild or repair a structure exactly as it was. The coverage protects real estate developers and lenders from financial losses associated with zoning rule changes.
In addition to experience, Mr. Power also attributed Risk Specialist Companies’ development of the new products to its organization. Rather than simply trying to optimize along the traditional insurance structure, he said that Lexington has organized itself along “industry verticals” allowing those working with specific industries to gain insight and expertise about their particular needs. The evacuation coverage, he said, is a good example of something that “came from a lot of client interaction” in the health care and higher education segments.
“The industry focus allows us to really drill down” into an industry, he said, learning the specific interest, concerns and players that can show where opportunities are. Reported by Matt Brady
Jerry Sullivan, global head of the architects and engineers E&O team for Beazley Group plc, also said that more and more E&S companies are looking toward specialization as a means of finding new business. Beazley, he said, has a new product to provide coverage to architects and engineers not only for their errors and omissions, but also for their technology exposures.
Such exposures would involve the running of their Web site or the accidental transmission of a virus, he said, adding “these exposures have gone unanswered and uninsured for a lot people.”
Beazley writes a significant amount of technology coverage, and Mr. Sullivan said the company “already had a sense of these exposures” before coming up with the idea of offering it as a specific coverage.
“We had a brainstorm during a meeting,” he said, explaining that Beazley realized that “anybody who sends an e-mail or has a Web site has this exposure.”
The coverage has proven very popular. Mr. Sullivan estimated that roughly 95 percent of the architects and engineers coverage Beazley sells includes the technology protection.
In a broader sense, he said, the decision to focus more on technology coverage is a major part of Beazley’s corporate strategy.
“We are positioning ourselves as a specialty carrier,” he said, adding that “you’re starting to see a lot of E&S carriers” do the same. Reported by Matt Brady
Although it is not focused in any single area, Markel Corporation is another company that is continuing to seek new opportunities, according to Letha Heaton, senior vice president of marketing for its Shand Morahan & Co. subsidiary.
Markel is introducing a new product designed to provide protection against “a health hazard that results in a business being shut down.” Although noting that it is not business interruption insurance, Ms. Heaton said the new product–outbreak extra expense coverage–is designed to provide remuneration on a daily basis to cover specific and expected ancillary costs during the interruption, including, for example, public relations help.
The thinking behind such a product, Ms. Heaton said, is that Markel is consistently looking for new risks created by changing world events that the standard market is either unwilling or unable to accept.
“When there’s a huge, or even a minor shift in the political, social or economic environment, it creates a new risk,” she said.
The outbreak coverage is an example of that mindset. “Clearly there is enough evidence to believe that anything from avian flu to a malicious attack by terrorists could cause a business or building to be shut down by the health department,” Ms. Heaton explained.
Another area that is growing along a similar path is in health care, where Markel offers coverage for any number of nontraditional procedures such as botox injections. With the baby boomer generation aging, Ms. Heaton noted that such procedures are becoming increasingly popular, but are not established enough for many traditional insurers.
As with the outbreak coverage, “it’s an opportunity for the E&S community to step up,” she said. Reported by Matt Brady
At Liberty International Underwriters, Chief Underwriting Officer David Cohen said the Liberty Mutual division has not designed any new products of late, but it has expanded nonetheless, with a renewal rights acquisition and new office locations.
LIU was established in 1999 as an international specialty lines insurer distributing products through the broker channel.
“Our approach is to try and be as close to the brokers as possible,” said Mr. Cohen. “We have been doing that by making some significant investments in opening up offices around the country.”
General liability remains the largest product in terms of premium and also the fastest growing line. LIU writes umbrella policies for the admitted market and all primary GL is written in the nonadmitted market.
Contractors in New York and California are having difficulty obtaining liability coverage in the admitted market, so they are increasingly turning to LIU, he said. “For New York contractors, the results have not been that favorable, and many of the standard markets have pulled out of it,” Mr. Cohen said.
He said that as a nonadmitted carrier, he can put terms in policies, such as requiring subcontractors to have insurance.
“We may require the insured to carry a self-insured retention, so that if there is a loss the insured feels the pain also,” he said.
The environmental nonadmitted market remains pretty stable, he said. “It is not feeling the pressures of the softening market, but certainly the rates are not going up either,” he said.
Last year, LIU bought the renewal rights to Quanta’s environmental business and attracted several of Quanta’s top employees. “So, we were able to grow in that line.”
Mr. Cohen said one pitfall to avoid in the environmental world is putting out policies that stretch 20 years. “That is an awfully difficult thing to underwrite. I have difficulty predicting the next 12 months,” he said.
Mr. Cohen sees the overall market somewhat softening, which can also apply to the nonadmitted market.
“If a risk makes its way into the nonadmitted market for some significant claims activity, then the rate does not drop,” he said. “We get the price we want, the terms we want.” But if a relatively clean risk makes it into the nonadmitted market because it is a difficult product, “there will be some competition for that business.”
“A few years ago, there was a lot of real estate business in the nonadmitted marketplace,” Mr. Cohen said. “But as the market starts to soften that business starts to get written in the admitted market.”
The James River Insurance Company began writing policies in 2003 and went public two years later. Today the Richmond-based E&S carrier distributes products from 13 underwriting divisions through a limited number of surplus lines brokers.
In the spring, the carrier opened a division focusing on the sports and entertainment industry. With its new division, the company says it can expand its writings to include a wider array of more complex exposures including amateur sports, which includes legal liability to participants, arenas and stadiums, casinos, professional and semi-professional sports organizations and theatrical production companies, and many similar risks.
James River Marketing Director John Clarke said the company had always written sports and entertainment business in its General Casualty division, but the availability of underwriter Eric Taylor made it worthwhile to set up a whole new division, in which Mr. Taylor’s expertise could be put to the best use.
In fact, many of the specialty areas of the company arise in just that manner–when the talent becomes available, he said.
Much the same happened with the energy business two years ago. “When we found the expertise, we just marched into that area,” he said.
The relatively limited availability of energy coverage presented an opportunity for a newcomer like James River to fill. “You have Zurich and St. Paul, but there is not the same level of market availability that you find in the general coverage area because it is so different,” Mr. Clarke said.
The 2004-2005 catastrophe losses only exacerbated that trend, he added.
“What we can do that other people can’t do is all driven by talent,” Mr. Clarke said.
Maxum Specialty, a Duluth, Georgia-based specialty and E&S lines writer opened its doors three years ago, and today has a surplus of nearly $55 million.
Company President Randall Jones said that among the company’s strategic principles is to appoint very few producers and “focus upon significant business relationships with each appointed producer.”
The most recent package of coverages the company offers is called Tech Express, which serves small technical consultants and suppliers. “We felt there was a market niche that was not being served,” Mr. Jones said.
Multiline coverage, including professional and general liability and property, is necessary for smaller risks because sometimes they are more expensive on a standalone basis. “What we provide is one-stop shopping for the small technical consultant,” he said.
Mr. Jones said spotting unusual opportunities arising for any number of reasons can lead to emphasis on a new product. For example, last year Colorado state lawmakers passed legislation that improved the market environment for residential contractors’ general liability coverage.
“The law provided a short time period for something called a ‘right-to-cure,’” Mr. Jones said. Such a law would make suing contractors more challenging and therefore covering them more profitable, he said.
In a similar vein, the carrier started its trucking division, which is only written in the admitted market, when it appeared there was a niche for writing what Mr. Johnson termed “experienced regular route haulers.”
“These are drivers that travel the same routes for the most part, and they tend to have few accidents,” Mr. Jones said.
By offering special rates to those who fit the criteria, Mr. Jones said Maxum was able to offer a product not generally available and to write it at a profit.
In general, he said, ideas for products can come from wholesale brokers the company may not have a relationship with at the time. But they will then be appointed once the product is in place, he said.
Earlier this summer, Atlanta-based American Safety Insurance entered the general liability market for nonconstruction risks.
Chief Underwriting Officer Geoff Gregory said he heard from brokers and other observers that there was a niche in the market for smaller risks that were ranked best in terms of the hazards they present.
Like other E&S market participants, Mr. Gregory said, American Safety will focus on risks for which team members have unique knowledge so they are able to underwrite at a profit. The target market for the nonconstruction coverage will be primary general liability for current and discontinued industry, commercial and consumer products, he said.
With premiums starting as low as $7,500 and self-insured retentions and deductibles beginning at $2,500, Mr. Gregory feels the new product will serve a group of clients now presently underserved.
ASI also has introduced a new product that expands its excess and umbrella liability coverage up to $5 million over ASI primary coverage, as well as other carriers’ primary policies. Premiums begin at $2,500 for low- and medium-hazard risks, and $7,500 for high-hazard risks.
Mr. Gregory said the key to successfully underwriting excess policies is in knowing what areas to avoid. The company has about 15 excluded classes in this area with pharmaceuticals, invasive medical devices and public entity coverage among them.
At The Hartford, recent product developments include an enhancement of a directors and officers liability policy that was first introduced two years ago in response to emerging exposures.
David McElroy, senior vice president and head of Hartford Financial Products organization, said that management liability products, “more than any other insurance coverages, reflect the evolution of the business and judicial environment.”
“As new case law develops and new legislation is enacted, businesses face additional or changing exposure,” he said.
Last month, the carrier introduced a new generation of its “Side A” D&O policy. Priority Protection Plus broadly protects directors and officers from personal liability when a company cannot or will not provide them with indemnification. This type of policy is needed in situations like business insolvency or when a company is prohibited by law or unwilling to pay for judgments against directors and officers.
“We introduced Side A D&O…when courts ruled that a traditional D&O policy may technically be viewed as an asset of the company in a bankruptcy proceeding, leaving individual directors and officers with no coverage,” Mr. McElroy said.
The Hartford first introduced Side A coverage in 2004, when it launched its original Priority Protection policy. Now, the insurer has applied feedback from brokers and clients to make this new version a concise, clearly written and versatile policy designed for public and private organizations of all sizes.
The company contends the policy is easily converted from broad-form primary protection to an “excess and difference-in-condition” policy by simply checking one box on the declarations page. If the DIC feature is elected and the underlying insurance program does not pay, the policy drops down to fill coverage gaps.
It is also easily converted to independent director-only coverage through the issuance of a single endorsement, Hartford said.
Drawing board/drafting table
Other potential art– Knitting needles
Gulf Coast hurricane damage image
Image of rebuilding of commercial building:
Or as an Alternate: evacuation of a school or hospital
Art of someone building houses
Avian Flu Art
Older Driver driving/leaning against truck