When the world is riskier than ever, E&S underwriters must deliver elevated solutions
In a world that is riskier than ever, the pressure is on us as E&S underwriters to find solutions that respond to the unprecedented disruption and dislocation seen in the property insurance markets in 2023.
And while that word – unprecedented – has been overused in the past several years, in this case, it is spot on. Since I began underwriting tough property risks as a trainee 30-plus years ago, I have never seen so much change and growth as we experienced in the past year. Everyone has recalibrated their risk tolerance.
Risks that previously found a home in the admitted market came flooding into surplus lines in 2023. Within the Axis E&S property team, we saw a significant increase in business over 2022. And while reinsurers and carriers cut line sizes as they re-evaluated and re-underwrote their property portfolios, this opened significant opportunities for E&S brokers and underwriters like Axis.
But in my view, this “overnight” shift in risk appetite has been percolating for nearly 20 years. The entire property market recalibrated its risk appetite as it witnessed rising natural catastrophes, shifting political risks, and the threat of social inflation driving increases in loss frequency and severity. The market has sought to reduce volatility in its financial performance in response to new and more frequent losses.
Data from AM Best bears that out: surplus lines insurers’ market share grew to 11.2 percent of total property casualty direct premiums written at the end of 2022. In addition, surplus lines as a percentage of commercial lines direct written premium grew to 21.6 percent, the second time it has climbed above 20 percent following the first in 2021. Like never before, it’s up to us as surplus lines underwriters to adapt and elevate our response.
The challenges of this golden era
This may be “the golden era” for the E&S market. It is hard for me to imagine a better time to do what we do, competing every day to solve some of the toughest risk management challenges.
However, with all the dislocation and growth in this market there are also frustrations for customers, brokers and carriers alike. Let’s address some of the biggest challenges:
- Finding property insurance capacity – The rapid pullback of capacity in 2023 was massive. It left brokers and customers scrambling for answers and solutions. We do not foresee a similar pullback in 2024. However, we have not seen a big influx of new capital for property risks. So, capacity remains constrained but stable and our underwriting conditions will remain rigorous.
- Getting the science right – The science of underwriting is more critical than ever in evaluating a property insurance program. Axis has invested in digital tools that help us manage aggregations, exposures and volatility. It’s vital that we get the right data up front to evaluate a potential deal and move it through the pipeline.
- Balancing the art of underwriting – Our most powerful analytical tools are our underwriters. Their specialist expertise in elevating understanding of complex risks and balancing the science and art of underwriting drive our growth and success. As underwriters, we do our best work with our wholesale broker partners when we understand, trust and value one another. That requires deep, consistent engagement between individual brokers and underwriters, which takes time, but drives huge benefits for our insureds, and ensures that submissions get the necessary attention to secure the coverage customers need.
- Getting to yes – One of the easiest things for an underwriter to say is, “No”. That’s especially true in this market today. But if I wanted to do easy, I would have gotten out of the E&S market decades ago. Our team evaluates tough risks and asks tough questions, all in the interest of trying to get to a “Yes”.
Setting expectations
One of the key expectations a broker or customer should have in this market – at least from Axis – is the willingness to engage on a risk. That doesn’t mean the underwriter accepting every deal as submitted, but to dig in and offer options, alternatives and, ultimately, solutions.
- Options – If we can’t provide coverage as requested, we can provide options for a different attachment point, increased deductible, or pricing options.
- Alternatives – We can get creative and look for different approaches entirely including single peril, limiting, or excluding coverages or perils.
- Solutions – Keep driving for mutually beneficial outcomes that help the customer deal with a challenging risk.
As an example, our team recently worked with one of the most creative wholesale brokers I know on a complex deal involving a manufacturing customer in a category that has long been challenging to write profitably. We explored alternatives and decided to separate certain perils, so we and other carriers could match our appetites with the customer’s specific risks. That’s the sort of engagement that’s required in this fast-growing, capacity-challenged E&S property market.
Pressure for solutions
The E&S market has changed dramatically in the past year and E&S market share of property-casualty business is double what it was 20 years ago. That trend is unlikely to shift anytime soon.
Today’s E&S property market plays an increasingly pivotal role in the insurance industry and wider society, supporting employment, economic growth and prosperity. Without a robust, resilient and responsive E&S market, there would be fewer offices, warehouses, homes and apartments built, and a host of innovative, entrepreneurial ideas would wither and die.
We believe the E&S property market will remain robust in 2024 but without the dramatic dislocations experienced last year and without significant increases in E&S property capacity. This means the pressure will remain on wholesale brokers and carrier partners like Axis to be intentional in finding specialty solutions for customers with complex risks.
By Michael Carr, executive vice president, E&S property, Axis Wholesale