The E&S Influx: A look at the impact of new entrants in the Casualty Market
A recent wave of entrants in the E&S space – ranging from domestic surplus lines insurers, established admitted carriers forming standalone surplus lines business units, and newly-formed MGAs – is providing brokers and insureds with more choices than ever when it comes to placing business. For carriers and clients alike, the new dynamics that come along with this influx of capacity brings both benefits and potential drawbacks that all parties should carefully consider as we move forward in this rapidly evolving space.
To start, new entrants are beginning to have a noticeable impact on marketplace dynamics as the additional capacity brings added competition, contributing to rates decelerating and, in some cases, decreasing, particularly for lower to moderate hazard risks in the E&S Casualty market. This trend is notably at odds with the environment of persistent economic and social inflation, which might otherwise dictate rate increases. Further, as prior year losses work their way through a reopened court system, long-time insurers face more of headwinds than newer entrants who lack a legacy claim portfolio. This can lead to a volatile environment that impacts pricing and limit deployment, and may complicate the relationship between the broker, the carrier, and the underwriter.
While added competition and volatility can put a strain on certain market dynamics, there are also notable benefits that come from new players entering the E&S space. The surplus lines channel continues to see large submission volumes and rapid growth that require advances in operational and technological efficiency. These new markets can help accelerate the pace of innovation, and this should be welcomed. Further, experienced underwriting teams within newer companies and dedicated resources for underserved niches can bring much-needed capacity to distressed or emerging risks flowing into the E&S space.
All this change drives a key component of the insurance market – choice. Outside of heavily distressed classes of business, brokers and insureds now have many options when choosing where to place their business. To effectively navigate the market and make the best possible choice for their business, it is important for both brokers and insureds to acutely understand the value proposition of an insurance company for the entire lifecycle of the relationship – from submission clearance to risk assessment, policy issuance, and claims handling. When placing a piece of business in a market with many choices, careful thought should be given to a number of considerations – many of which are more complex than simply the premium quoted for a given risk. A few key considerations include:
- What is the financial strength of the organization? Not only is the financial condition an indication of solvency and ability to pay claims, but other insurance carriers may contemplate this when considering whether to offer excess capacity over an underlying market. Most excess carriers have minimum financial strength requirements that underlying insurers must meet. These guidelines can be fluid as carriers continue to assess the long-term solvency of prospective underlying insurers.
- How does the company handle claims? Because the insured is buying a “promise to pay,” brokers and insureds should understand where and how claims are handled, as well as the company’s experience and reputation for paying claims.
- What is the company’s distribution philosophy? True strategic partnerships should be scalable and mutually beneficial. Brokers should be aware of what channels the company trades in and how their particular relationship is emphasized. The best relationships between broker and carrier are those that are well aligned strategically and the portfolio scales.
It is an exciting time in the E&S space. The nature of the channel demands innovation, open-mindedness, depth of product, adaptability, and speed, all of which can flourish through the continued evolution of insurance solutions – both new and established. But brokers and insureds will need to be deliberate in their choices, working closely with insurance companies to find the best fit for symbiotic sustained success. After all, long-term partnerships, the bedrock of the E&S market, require trust; trust in the company’s people and products and its ability to solve for not only today’s marketplace, but tomorrow’s as well.
Matt Roy is the Head of E&S Casualty at Ascot Group. He can be reached at firstname.lastname@example.org.
The information contained herein is intended for informational purposes only. Statements of coverage availability and scope are general in nature, subject to change and underwriting of any individual risk, and provide no guaranty or warranty of coverage, express or implied. Products and services are offered through insurance company affiliates within the Ascot Group. Not all products and services are available in every jurisdiction, and some may be available in the United States only on a surplus line basis through licensed surplus line brokers. The precise coverage afforded by any insurer is subject to the actual terms and conditions of the policies as issued. The publication and delivery of the information contained herein is not intended as a solicitation for the purchase of insurance on any US risk.
This article is provided for purposes of general education only, is not intended for the purpose of providing legal advice or legal counsel, and is not intended to assure compliance with or complete analysis of any law, rule or regulation. Additionally, this article should not be interpreted to imply or infer that all exposures, hazards or loss potentials on any subject or issue were identified or considered. No warranty, or guaranty of accuracy, fitness or suitability, express or implied, is granted with respect to any of the information contained herein.