Excess and surplus insurance has long provided coverage options for hard-to-place risks, and E&S insurers are seeing a lot of business opportunities in the current market. Risk volatility is mirrored in the ebbs and flows of the E&S marketplace — new entrants appear, trying to take advantage of rising demand, while some insurers reduce their appetite for or outright exit certain classes of business. Shifting underwriting approaches is unhelpful to insurance buyers, particularly during difficult economic conditions. For this reason, buyers should choose their risk partners carefully.
Challenging conditions, growing risks
For buyers of property and casualty insurance, the current marketplace is challenging. Risk volatility is high and losses are increasing, which puts pressure on insurance pricing and can lead to tighter capacity. Factors driving these trends include:
- Litigation. The litigation environment has been difficult for defendants and their insurers for a long time, and that is continuing as plaintiffs pursue liability lawsuits. Outsize verdicts are becoming more common, which in turn is driving larger settlements. These developments essentially are raising the floor for defendants' litigation expenses and forcing insurers to increase rates on casualty lines.
- Weather volatility. Severe weather events, from hail to wildfire to windstorms, are causing an uptick in property claims. Even though the insurance industry is well capitalized, a string of catastrophe-prone years has prevented the industry from recouping financial losses. Pressure on profitability inevitably leads to price increases.
- Undervaluation. Larger and more frequent property losses are happening in part due to increased weather volatility. Another problem is the pervasive undervaluation of insured property. Economic inflation and labor shortages are pushing up the price of building materials, which leads to significantly higher expenses. For example, an office building damaged by fire will take longer and cost more to rebuild due to the inflated costs of steel and other metals as well as supply-chain disruptions — factors that skew insurers' and policyholders' expectations when claims occur.
What to look for in an E&S partner
Knowing what options are available from which excess and surplus lines insurers is challenging in this kind of environment. Experienced retail agents and brokers are critical risk advisers, but buyers should also know that savvy intermediaries often find the best coverage options by working with wholesale specialists. Wholesalers have strong relationships with E&S underwriters and understand the challenges facing businesses that need insurance solutions. With that in mind, here are some of the key traits insurance buyers and their risk advisers should look for when selecting an E&S insurance partner.
Stability. Financial strength is the foundation of stability for an insurance company, but it is not the only factor that buyers should consider. Another element is an insurer's approach to underwriting E&S risks for the long term. A company that provides capacity when demand is high but reduces it or shifts its approach at will is not going to be a reliable risk management partner. A consistent, long-term approach to underwriting is a better way to achieve results, both for the insurer and its policyholders.
Experience. Insurers that have vast experience in E&S business make better partners because they understand historical loss patterns and have stood the test of time through difficult markets.
Creativity. One of the hallmarks of the E&S marketplace is flexible and innovative solutions to managing risks. Insurance buyers should seek insurers that are solution-minded and able to consider risks from different perspectives. Creative underwriting often makes a big difference when other providers struggle to offer effective options.
AXA XL has a deep bench of talent in E&S experience. Our company was born out of a market crisis in the mid-1980s, when casualty insurance essentially became unavailable. We have grown to become a global insurance leader in property and casualty lines, with extensive expertise and financial strength. What has made us successful through all this time, however, is our philosophy of being a risk management partner, not simply a payer of claims. To learn more about how our E&S team delivers creative solutions, please visit https://axaxl.com/insurance/product-families/excess-and-surplus
. Ankur Chokshi (left) is the head of E&S Primary Casualty business for AXA XL, overseeing non-admitted lines of business including products liability, general casualty, and transportation liability. Christoper Lee (middle) is the head of E&S Property business, with responsibility for underwriting management of AXA XL's book of non-admitted property insurance. Kimberly Smid (right) is the head of E&S Excess Casualty in the Americas, a portfolio that includes non-admitted general liability, railroad liability, and umbrella.