Slideshow: Surplus Lines Predictions from E&S Experts

Whether the economy helps us or not, the volume of business will be more significant than it has been in 2012.

JAMES DRINKWATER

Member, NAPSLO Board of Directors

CEO, AmWINS Brokerage

The specialty marketplace remains fluid. We have seen a significant increase in submissions and bound accounts in a variety of areas as the standard markets seem to have a lack of appetite for certain classes and specific industries while our markets understand the inherent risks and can underwrite them accordingly.

Our largest growth area has been Catastrophe Exposed Property, and this will continue to be both a challenge and an opportunity. In addition, a few markets such as New York Contractors, Transportation and Health Care have moved away from the standard admitted marketplace. 

STEVEN GROSS

Member, NAPSLO Board of Directors

Chairman & CEO, Metro Insurance Services Inc.

From the vantage point of a program manager, the greatest challenge right now and for the foreseeable future is to manage our clients' expectations on rate increases. It is evident that the industry has come to a crossroads where underwriting profitability is a high priority as a result of low investment income and poor experience over the last seven years of declining rates. There is no doubt that increases are justified, particularly on accounts that have had adverse loss experience.

Continuing to reduce redundancy in reserves has to become more limited as the last few years of higher loss ratios come home to roost. What is especially challenging is the forecasting of appropriate rate increases on accounts which have proven to be profitable (as a result of mild weather events) despite the depressed rates, knowing it is only a matter of time before those accounts are not profitable.

Capital is still plentiful and there is plenty of capacity and competition in the marketplace. Until the losses catch up and the capacity diminishes, business will continue to be extremely competitive. 

The opportunity lies in differentiating your products and services and providing new technology to improve turnaround time. In this "I need it now" environment, investment in technology will play a huge role in the success of the intermediary. Using data mining to develop loss trends and risk characteristics will be of huge importance in determining which risks are profitable and will allow the law of large numbers to play its role in a book of homogeneous business. 

JOEL CAVANESS

Member, NAPSLO Board of Directors

President of Risk Placement Services Inc.

The economy continues to be sluggish, which affects surplus lines. A certain amount of our success depends on providing coverage for start-up businesses with no experience in insurance. We face a dilemma if there is a decline in start-ups due to the economy.

Finding, recruiting, retaining and educating the right people in the industry is always a challenge. We need to keep the energy, momentum and growth of business going.  

GILBERT C. HINE 

Member, NAPSLO Board of Directors

President of McClelland & Hine Inc.

For carriers, the challenge is achieving adequate ROI writing business in a market with continued significant capacity, falling investment yields and declining underwriting margins. For brokers, the challenge is in effectively dealing with spotty market conditions as carriers begin to implement corrective actions on their more marginal lines. Both must continue to make major resource commitments to implement effective, timely technology to add value to their relationships and achieve increases in productivity in an age of instant information and 24/7 communication.

LETHA E. HEATON

NAPSLO President, 2010-2011

Vice President, Admiral Insurance Co.

Addressing the troublesome and pretty chaotic catastrophe and wind environment, we know that weather patterns have demonstrated that historic models aren't reliable. What will be a reliable model is still largely an unknown.

As for Cyber & Data Breach coverage: Everyone wants to write it, but nobody wants that first ground-breaking class action suit! What the climate will be for plaintiffs in this class will in no small part be determined both in court rooms and by statutes. My guess is we haven't even anticipated all the ways this exposure can go wrong. 

MARSHALL TURNER

Member, NAPSLO Board of Directors

President & CEO of Maxum Specialty Insurance Group 

At Maxum, we believe one of the most meaningful challenges facing the E&S industry is how to handle the lower-premium accounts in the most efficient way. These small E&S accounts require underwriting attention but also require expanding current technology offerings to deliver customized solutions quickly, and with less handling, for our partners and ourselves to be competitive. 

The opportunity is to create a best-in-class technology solution that will lower the cost of handling for more business and provide an advantage so that our wholesale partners retain and deliver their value add to their customers. 

KEVIN T. WESTROPE  

NAPSLO Secretary 

President/CEO, Westrope 

The greatest challenges are coming from the standard market, which is determining if it will maintain some discipline in pricing, terms and conditions. We recently saw very good results in Q2 earnings reports for most carriers. However, they have not gotten healthy overnight. Cash flow seems to be stabilizing but is still below where it should be. That, coupled with the limited redundancy left in their reserves and the lack of significant catastrophes, would indicate that the current rate environment must continue to gradually improve. 

Unfortunately, that discipline has not always prevailed. If it does, then the continued opportunities for E&S will continue to get better. Much gray-area business has moved back into the realm of specialty carriers, where it probably belongs.