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Opening Note
Write the Editor: awells@insurancejournal.com
“The world’s not a less risky place.”
“We’re clearly in historical hard market conditions for property and casualty.”
“I don’t think we’re going to see anywhere near the same level of flow back into the admitted market.”
Risky Business
These are the words of top leaders in the excess and surplus lines industry who believe today’s risk is more complex and riskier than ever before. And the world of E&S is changed forever as a result.
What could be more telling than new research by Deep Sky Research, a Montreal-based carbon removal project developer, that revealed the frequency of deadly hurricane weather has jumped 300%, showing what used to be the 100-year hurricane will now happen every 25 years.
The new report analyzed data within the U.S. via its Hurricane Rainfall Model to examine how hurricane risk is changing due to climate change. Deep Sky Research’s model found that in addition to more deadly hurricane weather, the probability of smaller storms has doubled. The severity of extreme hurricane rainfall has grown 33% and hurricanes could cost more than $450 billion in the next five years (a 50% increase).
Florida is expected to have the greatest losses due to hurricanes, with Texas a close second.
States along the Gulf Coast including Texas, Louisiana and Mississippi should expect the greatest increases in rainfall while those on the Atlantic coast such as North Carolina and South Carolina will see smaller increases, the analysis found.
That rainfall will lead to more flash flooding in South Atlantic counties in the U.S. every year, according to Deep Sky’s proprietary machine learning model which revealed storm surge is worsening because hurricanes are getting stronger but also because sea levels are rising. This means that when a storm surge occurs, flooding is more severe.
Deep Sky Research analyzed millions of public data points to build a Hurricane Rainfall Model based on the past four decades of climate data to examine these trends, which found that the frequency and severity of extreme hurricane rainfall is climbing.
Flooding is most destructive in densely populated areas. For example, Miami’s three counties in particular are extremely vulnerable to flash flooding caused by hurricanes, Deep Sky said in its announcement. One storm per year is now expected, on average, to reach 2.5 feet of flooding in Miami Beach.
Many of the impacts of climate change are slow-moving, but some will be devastating in their rapid escalation. Deep Sky said the U.S. will see worsening hurricanes not in the next 50 years, but in the next five. This means for those in the E&S market, there’s never been a better time to shine.
A s pecial thank you to Ryan Specialty, sponsor of this issue of Insurance Journal.
Andrea Wells V.P. of Content
Chairman of the Board Mark Wells | mwells@wellsmedia.com
Online Training Coordinator George Jack | gjack@ijacademy.com
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News & Markets
Main Street America Insurance Exits Personal Lines
By Chad Hemenway
Main Street America Insurance said it will stop offering personal lines insurance in favor of a commercial lines strategy.
The Jacksonville, Florida-based insurer founded about 100 years ago in Keene, New Hampshire, said it is “tightening” its focus and leaning into what it called a “tremendous opportunity” in commercial lines.
“Main Street America is doubling down on commercial lines and clearly defining our future direction in the marketplace,” said Chris Listau, president and CEO, in a statement.
“As a trusted and respected brand in the independent agent channel, we’re continuing to move forward confidently in an area that enables us to take advantage of the incredible potential that exists in the commercial lines space,” Listau added. “This will further support our agents in solving the unmet needs of small business owners.”
The insurer, which became part of Madison, Wisconsin-based American
Family Insurance Mutual Holding Co. in 2018, said concentrating on commercial lines will allow it to innovate and serve the market faster. Main Street America Insurance markets commercial insurance, as well as fidelity and surety bond products throughout the U.S. The company said it writes more than $1.1 billion in annual premium — all via independent agents.
“We’re excited to marry current market opportunities and a refined focus with the independent agency channel’s ability to dominantly handle complicated, complex risks often associated with commercial lines customers,” said Richard Vaughn, head of sales at Main Street America.
Attempts to reach Main Street America for additional information were forwarded to American Family, who said the information it could provide was in the press release.
According to industry rating agency AM Best, Main Street America Protection Insurance Co. and Main Street America
Assurance Co. are each members of American Family Insurance Group, which holds a financial strength rating of A (Excellent). According to AM Best data, about 30% of Main Street America Protection’s book was commercial multiperil in 2023. The line accounted for more than 81% of Main Street America Assurance’s 2023 direct premiums.
With more direct premiums attributable to personal lines, Main Street Protection posted a combined ratio of 104.7 in 2023. Main Street America Assurance’s 2023 combined ratio was 97.3.
In 2020, Main Street America Group rebranded to Main Street America Insurance.
According to local news sources, Main Street America earlier this year listed for sale its Keene office building. The company said it planned to continue operating in Keene but did not need the large building after adopting a hybrid workplace following the pandemic.
RAND Study Eyes Impact of Legal System Abuse, Social Inflation
Astudy from RAND found that rising litigation rates, trial awards and claim severity are consistent with the expected effects of social inflation.
The study, What Is the Evidence for Social Inflation? Trends in Trial Awards and Insurance Claim Payments, found a 10% increase in the annual number of new court filings per capita between 2012 and 2019 in 19 states, and that 64% of cases reached a verdict in favor of the plaintiff in 2019, up from 53% in 2010.
The RAND study also found a 7.6% compound annual growth rate in inflation-adjusted trial awards in personal injury/wrongful death cases from 2010 to 2019, and a 2.7% annual rise in the
inflation-adjusted severity of bodily injury insurance claims between 2010 and 2019 for certain commercial liability and personal auto policies.
Those involved in the study say the increase of legal system abuse generated by billboard attorneys, combined with
third-party litigation funding of lawsuits by dark money investors, are contributing factors to rising social inflation — a term to describe social trends believed to expand the liability of parties allegedly responsible for claim-causing harms. It has been argued that social inflation creates a feedback loop: rising levels of tort compensation fuel expectations of financial windfalls and stimulates the filing of new claims and lawsuits.
The report shows the percentage of large trial awards ($5 million or more) rose between 2010 and 2019 — from a range of 5.5% to 7.5% between 2010 and 2016 to 12% by 2019.
News & Markets
US P/C Insurance Industry Posts First H1 Underwriting Profit Since 2021
The U.S. property/casualty insurance industry recorded a net underwriting gain of $3.7 billion and net income of $94.6 billion for the first-half of 2024, according to a new report.
“After years of consistent losses, premium growth is helping the overall industry move towards stabilization, with positive first-half underwriting gains for the first time since 2021,” said Saurabh Khemka, co-president of underwriting solutions at Verisk, in a media statement announcing the figures released jointly by Verisk and the American Property Casualty Insurance Association (APCIA).
point as well, the combined ratio for the first half of this year is estimated to be 97.6, compared to 104.2 for last year’s first half.
Basing their estimates on information from statements submitted to insurance regulators by insurers representing roughly 91% of the private U.S. property/casualty market, Verisk and APCIA reported that net written premiums grew just over 10% to $462.7 billion.
The 10.3% jump was similar to a 9.6% increase in net written premiums recorded for first-half 2023 over the prior-year sixmonth period.
Incurred losses, however, rose only 2.2% for first-half 2024, fueling a 6.2 point drop in the industry loss ratio.
With the expense ratio dropping a half-
Robert Gordon, senior vice president of policy, research, and international at APCIA, said “it remains to be seen if insurers can finish the year with an underwriting profit after two straight years of underwriting losses,” noting that while commercial lines have been profitable, personal lines insurers are “still struggling to keep up with rising losses” — with wildfire season continuing and an expected spike in hurricane season activity looming ahead.
“Insurers’ surplus is continuing to recover from the catastrophic losses in 2022, although it has not kept pace
with inflation or the economic demands for insurance coverage,” Gordon added.
In the first half of 2024, the industry’s policyholder surplus increased slightly — to $1.07 billion from $1.014 billion at the end of 2023.
Still, insurers’ rate of return on average policyholders surplus rose to 9.1% in the first half of 2024, up from 3.6% at the end of 2023.
According to the Verisk/APCIA report, investment income grew 22.2% to $39.6 billion, but the biggest factor contributing to the $94.6 billion net income on the bottom line, after taxes, was $58.6 billion in net realized gains. Adjusting for over $50 billion in capital gains realized by one insurer, first-half 2024 gains are estimated to be approximately $45 billion.
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FBI: From Cybercrime to Terrorism, America Faces Many Elevated Threats ‘All at Once’
By Michael Goldberg
The country is facing heightened threats from many corners at a time when law enforcement agencies are struggling, FBI Director Christopher Wray said in an exclusive interview with The Associated Press, adding that he is “hard pressed to think of a time in my career where so many different kinds of threats are all elevated at once.”
Wray spoke with The Associated Press while visiting the Minneapolis field office to talk about partnerships between law enforcement agencies and also with other entities. His remarks come as the FBI confronts heightened concerns over terrorism, both domestic and international, as well as Chinese espionage and intellectual property theft and foreign election interference.
“I worry about the combination of that many threats being elevated at once, with the challenges facing the men and women in law enforcement more generally,” Wray said at the office in the suburb of Brooklyn Center. “And the one thing that I think helps bridge those two challenges is partnerships. That’s how we get through. It is by all working together.”
Wray’s assessment of an elevated threat landscape is consistent with alarm bells he has sounded for months. Soon after the Oct. 7 attack by Hamas in Israel, Wray began warning that the rampage could serve as an inspiration to militants, “the likes of which we haven’t seen since ISIS launched its so-called caliphate years ago.”
The FBI has also scrambled to deal with security concerns related to the United States’ southern border, with officials revealing in June that eight people from Tajikistan with suspected ties to the Islamic State group were arrested and were being held on immigration violations.
Officials are also dealing with the specter of foreign election interference. The FBI and other federal agencies have announced that Iran was responsible for a hack targeting the Trump campaign and for an attempted breach of the Biden-
Harris campaign, part of what officials portrayed as a brazen and aggressive effort to interfere in American politics.
Wray declined to talk about any specific investigation or threat but said investigations into cyberattacks, including against election infrastructure, candidates or campaigns, require help from the private sector.
“One of the things that we have been doubling down on with every passing day is, is on partnerships, because ultimately you’re talking about the ability to connect the dots, whether it’s against some kind of election influence threat or some other kind of threat,” Wray said. “You need to have partners sharing information with each other to put the two pieces together to see the bigger picture.”
Law enforcement officers are being killed in the line of duty at a rate of about one every five days, Wray said, noting that four first responders have died in Minnesota alone in 2024. They include a Minneapolis officer killed in May while trying to help someone, and two officers and a paramedic who died in Burnsville in February when a heavily armed man opened fire.
Such violence “breaks my heart every single time,” the director said.
The FBI has not been spared such attacks: Days after agents searched Donald
Trump’s Florida estate, Mar-a-Lago, to recover classified documents, a gunman who called on social media for federal agents to be killed “on sight” died in a shootout after trying to get inside the FBI’s Cincinnati office.
Wray said the FBI has been working to beef up traditional partnerships with state and local law enforcement, while also creating other ones with business and academia to help counter threats against cybersecurity or intellectual property. In Minneapolis and other offices, he said, authorities are cooperating with the likes of school resource officers and mental health professionals to help at-risk teenagers in hopes of heading off future threats.
Working with industry is important for protecting innovation and artificial intelligence from foreign threats, Wray added.
“AI is in many ways the most effective tool against the bad guys’ use of AI,” he said. “So we need to work closely with industry to try to help make sure that American AI can be used to help protect American people from AI-enabled threats coming the other way.”
Associated Press writer Eric Tucker in Washington contributed to this report.
Copyright 2024 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
People
National
Resilience, headquartered in San Francisco, named Killian Brady chief underwriting officer. He will continue to act in his role as chief operating officer of
global insurance operations.
Brady has more than 15 years of industry experience.
Everest Insurance, the insurance division of Everest Group Ltd. headquartered in Warren, New Jersey, appointed Stephen Buonpane to lead the company’s U.S. wholesale and programs business.
Buonpane most recently served as head of Everest’s casualty lines and industry practices business.
serves as chief auditor of the group. Before joining Chubb in 2008, Ohsiek served at the U.S. Securities and Exchange Commission and KPMG.
Ohsiek succeeds Annmarie Hagan, who has been named vice president of Chubb Group and chief financial officer of operations, technology and transformation. Hagan has over 35 years of industry experience.
Mong-Diep “Dee” Le will succeed Ohsiek as chief auditor. She currently serves as executive vice president and global controller for Chubb and is internal audit functions worldwide. Le has more than 25 years of accounting and reporting experience.
Rhode Island, named Jessica Wrigley as director of commercial lines.
Most recently, Wrigley served as a senior territory manager and marketing representative for Safeco Insurance.
XPT
Specialty, headquartered in New Haven, Connecticut, appointed Tyler Myers as transportation underwriter.
Myers has over 10 years of experience as a broker specializing in underwriting commercial automobile risks.
Midwest
Powers
Insurance & Risk
tered in De Moines, Iowa, appointed Travis Sheets senior vice president and general counsel. Previously, Sheets served as chief legal officer for BH Companies.
South Central
BevCap Management LLC, headquartered in McKinney, Texas, hired Danny Vehovic as vice president of dealer risk services.
Vehovic most recently served as regional distribution executive, central U.S., at Berkley Aspire.
Everest also named Danielle Stewart chief operating officer. Stewart currently serves as the national head of wholesale distribution for Everest Insurance and was previously the director of business strategy at Liberty Mutual.
East
IMA
Chubb appointed George Ohsiek as vice president and chief accounting officer of the Chubb Group. He currently
Financial Group Inc. expanded its team in New York City, hiring Shawn A. Jacobs for the newly created role of employee benefits new business client executive.
Jacobs has 17 years of industry experience and joins IMA from UnitedHealthcare.
DeCotis
Specialty Insurance, headquartered in Providence,
Management, headquartered in St. Louis, hired Brittany Gaglioti as a commercial account manager and Contina Hester as a personal lines marketer.
Gaglioti brings nearly 10 years of experience in the insurance industry to her new position.
Hester has five years of experience in the insurance industry, having previously served as a licensed account manager at M3 Insurance.
GuideOne Insurance Company, headquar-
Skyward Specialty Insurance Group appointed Julie Miglin as vice president, spearheading the expansion of its Healthcare Solutions unit with the introduction of its new Life Sciences solutions. Miglin has more than 15 years of underwriting experience.
Steven Smith joined Skyward Specialty to lead the Transactional E&S Property portfolio. Smith has more than 30 years of underwriting expertise specializing in the segment.
Southeast
Alliant Insurance Services, headquartered in Irvine, California, named Sean Bisig vice president and producer in its employee benefits group. He will continue to be based in Charlotte, North Carolina.
West
MGIS, headquartered in Salt Lake City, named Jim Wrage
continued on page 20
Killian Brady
Stephen Buonpane
Danielle Stewart
George Ohsiek
Annmarie Hagan
Mong-Diep Le
Shawn Jacobs
Jessica Wrigley
Tyler Myers
Brittany Gaglioti
Contina Hester
Travis Sheets
Danny Vehovic
continued from page 18
vice president of sales and distribution. Wrage worked for more than three decades at Principal Financial Group.
Kurt Meyer retires from his role as MGIS chief sales officer at the end of the year. He joined the company in 2013 and previously served as vice president of underwriting and operations, group benefits.
Alliant Insurance Services opened an office in Honolulu, the firm’s second location in Hawaii.
Chad Karasaki, managing director, will lead the Honolulu office. Before joining Alliant, Karasaki most recently served as chairman, CEO and resident managing director at Aon Risk Services Inc. of Hawaii.
Michael Grossi, executive vice president, has over 29 years of surety and insurance industry experience in Hawaii. He most recently served as managing director and executive vice president at Aon Risk Services Inc. of Hawaii.
WCF Insurance, headquartered in Sandy, Utah, promoted Ken Houting to senior vice president of middle market.
Houting has over 20 years of insurance experience, most recently serving as WCF’s vice president of commercial claims. Before joining WCF in 2022, Houting was head of new markets and strategic accounts for Farmers Insurance Group.
COMPANY’S GROWT H
Ushur, headquartered in Santa Clara, California, named Mike Price chief revenue officer.
Price has 20 years of experience in sales leadership, most recently as CRO at Radiant Logic.
Ushur serves insurance and other industries with AI-powered customer experience automation.
BenefitMall hired Crystal Bishop as a benefits sales executive for Southern California.
Bishop has more than 20 years of experience in the insurance industry.
BenefitMall is headquartered in Dallas.
Woodruff Sawyer added four producers who will open a new office in Modesto, California, focusing on the Central Valley’s agriculture, ranching and dairy industries.
The team includes team Michael Brunn, Rick Moen, Serafim Fontes and April Kobayashi.
All four previously served in various roles at Andreini & Co.
Woodfruff Sawyer is headquartered in San Francisco.
Alliant Insurance Services, headquartered in Irvine, California, named Travis Davis senior vice president within its Alliant Americas division.
Davis is based in Bend, Oregon. Before joining Alliant, Davis most recently served as a risk advisor for Marsh McLennan Agency.
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Business Moves
National
Freeway Insurance
Freeway Insurance, a division of Confie, expanded with six new franchises in Florida, Georgia, Tennessee and California.
In south Florida, James Ospina will head the office in Boynton Beach. In Georgia, John Militano will operate the franchise in Thomaston, south of Atlanta. Phillip Davis leads the office in Morristown, Tennessee.
In California, three new franchises opened, in Azusa, with Adriana Saldivar as owner; in Oxnard, with Igor Avanesov as owner; and in Turlock, with Joel Corona as franchisee.
Freeway was established in 1987 and offers personal insurance plans including auto, home, small commercial and other products.
Confie was founded in 2008 in Huntington Beach, California.
East
HPM Insurance, Insurance Savers Agency
HPM Insurance of Amherst, New Hampshire, acquired Insurance Savers Agency, a personal and commercial lines agency with offices in the towns of Littleton and Thornton.
Gary Finkle is president of Insurance Savers. He opened the first office in 1998 as a one-person insurance agency.
HPM Insurance established its roots in 1860. Lyle Fulkerson is president and CEO. In addition to the Amherst and new Insurance Savers office in Littleton, HPM Insurance also has offices in Bedford,
Goffstown, Laconia and Bristol.
Hub International, Insurance Management Company
Global insurance brokerage Hub International Ltd. acquired Insurance Management Company (IMC) in Erie, Pennsylvania.
IMC provides commercial insurance and risk management services to commercial, industrial, institutional and construction risks. John Bloomstine, president, his sons and the IMC team will join Hub Three Rivers, which is headed by Chet Rhoads.
Hub, headquartered in Chicago, offers risk management, insurance, employee benefits, retirement and other products.
PCF Insurance Services, Asset Insurance
Utah-based PCF Insurance Services acquired the insurance business of Asset Insurance Agency, based in Peabody, Massachusetts.
Asset sells auto, home, commercial and life insurance in Massachusetts, New Hampshire, Maine, Florida, Rhode Island and Connecticut. Erik Muschette is agency founder and principal.
PCF Insurance ranks #13 on Insurance Journal’s 2024 Top Property/Casualty Agencies list.
Midwest
Marsh McLennan Agency, The Horton Group
Marsh McLennan Agency completed its previously announced agreement to acquire Orland Park, Illinois-based The
Horton Group Inc. Employees from The Horton Group will join Marsh McLennan Agency and continue working from their existing nine locations.
Founded in 1971, The Horton Group specializes in property/casualty insurance, employee benefits consultation, and personal lines coverage for businesses and individuals.
South Central
Ryan Specialty, Greenhill Underwriting Insurance Services
Ryan Specialty signed a definitive agreement to acquire certain assets of Greenhill Underwriting Insurance Services from Alera Group Inc.
Houston-based Greenhill is a technology-enabled managing general underwriter focused on the allied health industry. The Greenhill team will be a part of Sapphire Blue, Ryan Specialty’s healthcare managing general underwriter.
Founded in 2014, Greenhill is a managing underwriter of small-to-mid-sized allied healthcare policies with a growing portfolio of product offerings. Greenhill’s business is enabled by proprietary webbased technology, Triton.
Alera acquired Greenhill in 2022.
Southeast
ALKEME, Morris & Templeton
ALKEME, a national insurance broker, acquired Morris & Templeton in Savannah, Georgia. Morris & Templeton was founded in 1981. It offers commercial and personal insurance coverages, and has offices in Atlanta and Savannah.
ALKEME is headquartered in Ladera Ranch, California.
Michigan-headquartered Highstreet Insurance Partners has acquired Flagler Insurance Agency, based in Palm Beach, Florida.
Flagler, established in 1992, has specialized in finding coverage for equestrian, farm, commercial real estate and financial services companies in Florida.
Johnson & Johnson, Strickland General Agency
Johnson & Johnson, a managing general agency operating in 48 states, has acquired Strickland General Agency in Suwanee, Georgia.
Strickland, known as SGA, is a multi-line excess and surplus MGA serving independent agencies in most Southeastern states. Cliff Strickland Sr. is president.
Johnson & Johnson is a fourth-generation, family owned MGA founded in 1930.
IMA Financial Group, Wallace Welch & Willingham
IMA Financial Group is moving into the Florida commercial property insurance market with the merger of Wallace Welch & Willingham Inc.
WW&W, a retail insurance broker based in the St. Petersburg area, has 155 employees. The brokerage traces its roots to 1925. John Hammond is president. The company
will now be known as Wallace Welch & Willingham, an IMA Company.
IMA has corporate offices in Denver, New York and Texas.
West
Hub International, Southern Colorado Insurance
Hub International Ltd. acquired the assets of Southern Colorado Insurance (SCIC LLC) in Colorado Springs, Colorado.
Debbie Klisch, owner, and Andrew Klisch, president, and the Southern Colorado Insurance team will join Hub Colorado. Southern Colorado Insurance will be referred to as SCIC LLC, a Hub International company.
SCIC is an independent insurance agency providing commercial and personal insurance. It specializes in various industries, including construction, hospitality and nonprofit organizations.
PCF Insurance Services, DLD Insurance Brokers
PCF Insurance Services acquired the insurance business of DLD Insurance Brokers in Irvine, California.
DLD Insurance Brokers specializes in serving companies in the construction, real estate, manufacturing, medical device and technology sectors.
PCF, headquartered in Lindon, Utah, offers commercial and personal lines, life and health, employee benefits, and workers’ compensation insurance.
ALKEME, Dunhill Marketing & Insurance Services
Ladera Ranch, California-based ALKEME acquired Dunhill Marketing & Insurance Services in San Diego, California.
Founded in 1992, Dunhill Insurance Services offers insurance services and specializes in life insurance and annuities with a focus on high-end markets.
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Special Report: Surplus Lines
By Andrea Wells
The property/casualty insurance industry and excess and surplus lines brokers in particular are at the world’s beck and call to help navigate what is an increasingly risky environment. The industry continues to respond as social, environmental, technological, political, legal, scientific and economic forces are changing industries, institutions, relationships, communications, products and more.
The fact that the world is getting more, not less, risky explains why E&S leaders expect new business will continue to flow into the E&S market even as some lines of coverage stabilize, why there have been structural changes in the industry, and why brokers are motivated to continue to find new coverage solutions.
“The world’s not a less risky place,” says Neil Kessler, pres-
ident of E&S market specialist CRC Wholesale, adding that the risks are more complex than ever before.
Whether those risks end up in the E&S market or the admitted market, the industry’s value proposition must be to help retail insurance agents solve coverage issues for the most complex risks, Kessler maintains.
Kessler believes that solving problems is what surplus lines does best. “That’s really
where we excel,” Kessler said. “Because the risk profile of what we’re dealing with will continue to evolve and it’s not evolving into a less risky proposition.”
U.S. surplus lines premium continued to show strong growth through the first half of 2024, according to the U.S. Surplus Lines Service and Stamping Offices 2024 Midyear Report, which showed that surplus lines premium accounted for $39.5 billion
from 3.2 million items filed as of June 30, 2024. That growth represented a 10.1% increase in premiums and a 10.8% rise in surplus lines items sold in the market compared to the same period in 2023. For comparison, in the first half of 2023, the data showed $35.9 billion in premium representing growth of 15.9%.
“We’re clearly in historical hard market conditions for property and casualty,” said Tim Turner, president of Ryan Specialty, and chairman/CEO of Ryan Turner Specialty, Ryan Specialty’s wholesale brokerage division.
“Annual numbers have validated that the flow of business into the channel continues to grow at a double-digit pace as the dumping and shedding of admitted business into the non-admitted channel just continues to grow,” he told Insurance Journal.
Turner said there are no indications to suggest that this “historic” hard market is like others in the industry’s past where business moved back into the admitted P&C market after rates stabilized.
“We just don’t see the same cyclical aspect any longer,” Turner said. “We see the business, most of it staying in the E&S market, because it’s too volatile for the admitted markets” to underwrite, he said. The admitted markets cannot get the rates filed and the forms filed fast enough to account for the fast-changing dynamics in today’s volatile and risky world.
“We just don’t see that business moving back into the standard market without any kind of disruption,” Turner said. That disruption would mean a “huge increase in
appetite” by admitted market carriers. “Those are indicators that we are looking for all the time and they’re just not there,” he said.
‘The world’s not a less risky place.’
Structural Changes
As the market changed over the past few years, so did the way that property/casualty insurers handled its risky business.
Scott Purviance, CEO of Amwins, says part of why he thinks this market cycle differs from the past has a lot to do with “fundamental changes” around the way the E&S market operates today.
“Typically, what we’d see is markets soften (on price), and then our submission flow into the market would also decrease,” he said. “We’re seeing the exact opposite right now,” he said. “We’re seeing submission flows grow … we’re seeing more and more flow into our market.”
He says: “I think why business isn’t flowing back into the standard or admitted market this cycle is because so many of the big standard market players now have dedicated specialty or E&S units, and so they’re less likely to allow underwriters to compete with each other and drive prices down.”
Purviance also thinks carriers in general have done a better job at segregating products and lines of business when it makes sense to remain in E&S. They now say, “OK, these are the products we want to write in the E&S unit versus the admitted or standard units,” he said. “So, I don’t think we’re going to see anywhere near the
same level of flow back into the admitted market.”
Ryan Specialty’s Turner agrees that this structural change in how P/C carriers handle E&S business today will keep the business flowing into surplus lines.
According to Turner, the market has seen some rate deceleration and moderation in niche areas in 2024 but some of that has been short lived.
“Anything to do with transportation is coming into the E&S channel now at a record pace,” he said. “Not just trucking, but delivery and shared economy risks as well.”
Turner added habitational business, large venue exposures, sports and entertainment, higher education — all have seen upticks in nuclear verdicts, and remain E&S business.
While “it’s clearly less hard of a market in 2024 than 2023,” Purviance says the growth in aggregate for surplus lines business this year will still be positive thanks in part to the changes carriers have made.
“We went back and looked at the top 25 P/C writers, which includes everybody, State Farm, Allstate, the personal lines guys,” he said. “If you go back to 2000, the top 25, only three of them had dedicated E&S units then. Today, if you look at the top 25, 14 of them have dedicated E&S units,” he said. “So that’s a big segment of the market that’s hopefully not going to be competing and driving prices down” as happened in previous market cycles.
So, while the market saw a turn in property rates for the first time in six years during Q2 2024, property rates are by no means “falling through the
floor,” Purviance noted.
Fluidity
Adam Mazan, president of Risk Placement Services, describes the current state of the E&S market as “fluid” — not one part is the same.
“There’s a lot of moving parts in the market right now and it’s not necessarily all acting the same,” he said. “Whether that’s within certain specializations or verticals such as property and casualty or across verticals, there’s just a lot of different factors impacting the business today that’s creating a very fluid marketplace across the E&S space.”
CRC’s Kessler agrees there’s a lot of fluidity in market conditions but that doesn’t mean a slowdown for E&S or wholesale business. “When we look at the data, from my perspective, we’re not seeing a slowdown in the submission volume coming into CRC these days,” he said.
“We’re still seeing a very significant increase, even in areas of the market that you think would be moderating from a pricing perspective,” he said. “In terms of where we are in that pricing cycle and what some people are feeling, there’s definitely been a lot of change in both personal lines and commercial lines. If you’re an insurance company, if you think about frequency and severity, both of those items are way up.
New E&S Players
The growing opportunities in the E&S market from the hard market not only pushed innovation and growth from traditional E&S markets but also spurred the creation of continued on page 26
Special Report: Surplus Lines
new carriers and investment in the delegated underwriting authority enterprises (DUAEs) market.
One newer insurer, Upland Specialty, formed in September 2020.
“There were a number of new carriers that came to market in the 2020-2021 timeframe but we decided to get together and build an insurance company because wholesale and E&S were very much in our backgrounds,” said Jim Damonte, president of insurance operations, who prior to helping start Upland Specialty served as a senior managing director at Aon’s Reinsurance Solutions Division.
Damonte says that since day one the “overall flow of submission activity is just absolutely beyond robust. I mean, in 20-plus years I had never seen such a huge influx of submissions and there’s just no quit to it.”
For Upland, being new means “you don’t have all these legacy liabilities issues to be as concerned about,” he said. Also being new opens the door for entrepreneurial focused talent, he added.
“We kind of fall in an interesting spot whereby we are attracting underwriters and underwriting teams that are pretty entrepreneurial in nature, but they still have solid recognition that they’re likely better as part of a team. So in lieu of someone starting an MGA, they have the talent and the entrepreneurialism to likely do that, but they recognize the benefit of being part of a broader team and in being more sophisticated with how they handle risk and trade as underwriters.”
Aside from new E&S carrier growth, new managing general agents (MGAs) popped up as cost-effective vehicles for (re)insurers to cover niche or emerging risks, for a fraction of the investment required for new carrier start-ups or for existing carriers to establish in-house expertise. MGAs may bind coverage, underwrite and price select risks, settle claims and bind reinsurance on behalf of an insurance company.
place risks are driving business, AM Best noted in a June market segment report.
‘I don't think we're going to see anywhere near the same level of flow back into the admitted market.’
It seems that MGAs and DUAEs are the “flavor of today,” Purviance said. For Amwins, close to $5.5 billion in business is generated through its MGA platforms, he said. “We’re big believers in specialization, but we’re also investing heavily to build the best infrastructure to do that.”
That’s important as the growth in this DUAE market continues, he said. “When somebody delegates underwriting capital to us, we take it very seriously. Our job is to be stewards of that capital and generate an underwriting profit,” he said.
“We think over the next five years, because the MGA arena has expanded so fast, there’s going to be some haves and have nots, and carriers are going to realize the quality they’re getting from certain MGAs versus others, and there’s going to be a reallocation of that underwriting capital. We hope.”
Personal Lines Changes
Personal lines policies represent a small proportion of the overall E&S market, with premiums for residential, homeowners and other personal property coverages comprising just 4.6% of year-to-date 2024 premium, according to the U.S. Surplus Line Stamping Offices. However, some states have seen a rise in personal lines coverages over the last 18 months in the E&S market attributable to admitted insurers withdrawing from specific markets.
Ryan Specialty’s Turner says his firm has seen an uptick in personal lines for tougher class homes with catastrophe challenges whether that’s wind, coastal or convective storm exposures.
ing out of high net worth personal lines in markets like California in the last 36 months progressively,” he said. “Four huge players have pulled out now, and so it’s really become an ultra hard market overnight for the high net worth and ultra high net worth space.”
That has led to opportunity for the E&S space, Turner added. “We’ve really increased our resources, our underwriting, our delegated underwriting authority talent, and our broking expertise in high net worth,” he said. “When we see these niche firming phenomenon happen, A, you have to have the broking talent, and B, you need capacity and preferably proprietary and preferred capacity.”
That led to Private Client Select Insurance Services (PCS) entering into an agreement with Ryan Specialty as a distribution trading partner in July. The independent managing general underwriter started by American International Group (AIG) and Stone Point Capital will use Ryan Specialty as its exclusive wholesale broker for U.S. high net worth and ultra high net worth business.
‘We're clearly in historical hard market conditions for property and casualty.’
“We’ll be their sole distributor of high net worth and ultra high net worth non-admitted capacity going forward,” Turner explained. “The agreement gave us a tremendous boost in our ability to market these accounts because you can’t deliver the solution in most cases with one carrier. You need a combination of carriers, so you need broking capabilities as well as preferred capacity. And we now have a combination of that as we do in most of these highly specialized niche firming areas.”
For CRC, personal lines is a high growth area as well, according to Kessler.
In 2023, AM Best reported that direct premiums written generated by MGAs grew 14.9% year-over-year to $81.4 billion. This followed robust growth of 19.5% in 2022 and 17% in 2021. Specialty, hard-to-
“What we didn’t see until the last year or two was this big wave of high net worth and ultra-high net worth risks that’s really accelerated in places like Florida and California,” he said. “It is moving and getting firmer every day because the big carriers are pull-
“We’ve hired a significant number of new personal lines producers over the last year and a half and have really looked to grow and invest in that business nationwide,” Kessler said. “It is a small but quickly growing part of our business, and
continued from page 25 continued on page 27
News & Markets
Viewpoint: Navigating the CDI’s Notice of Non-Compliance
The California Department of Insurance is known for its rigorous oversight, making it the gatekeeper of the insurance industry in California. The CDI regulates all aspects of insurance, acting as judge, jury and executioner when it comes to enforcing compliance.
By Marc Jacobs
For insurers operating in California, the stakes could not be higher and receiving a Notice of Non-Compliance (NNC) from the CDI is daunting, to say the least, with the looming possibility of monetary penalties and a regulatory trial before a CDI-funded administrative law judge (ALJ). That being
said, understanding how to navigate this process effectively can help carriers mitigate risks and potentially avoid severe penalties or even loss of licensure.
What Is a Notice of Non-Compliance?
An NNC is issued by the CDI following an examination triggered by a consumer complaint or other information. The NNC outlines the alleged noncompliance, specifies how the insurer has violated insurance regulations, and provides a deadline— typically no less than 10 days—for the company to correct the issue. The notice also includes the potential penalties that could be imposed if the noncompliance is not resolved.
It is important to note that an NNC is not a hearing, but essentially a formal warning that gives the carrier a final opportunity to address any given issue before the CDI moves forward with a more severe
enforcement action. The good news is that at this stage, there is still time to resolve the matter without escalating it to a full hearing.
Responding to an NNC: The Insurer’s Options
Under California Insurance Code (CIC) § 1858.1, insurers have several options upon receiving an NNC:
• Demonstrate Compliance: The company can attempt to prove to the commissioner that the alleged noncompliance does not exist. This is the most favorable outcome, as it effectively nullifies the NNC and shifts the burden back to the CDI to review and potentially close the case.
• Request a Hearing: If the insurer cannot resolve the issue informally, it may request a public hearing. This step must
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and Vincent Loh
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continued from page W2
be carefully considered, as it could lead to a drawn-out process with uncertain outcomes.
• Engage in Informal Conciliation: The carrier may enter into informal negotiations with the commissioner and any complainants to resolve the matter. This option can be valuable for reaching a settlement without the need for a formal hearing.
• Enter a Consent Order: The insurer may agree to correct the specified noncompliance within a set period and pay any penalties. This option allows for a more controlled resolution process, albeit with some financial penalties.
What Happens If the Issue Is Not Resolved?
If a company fails to establish that no violation exists or does not correct the noncompliance, the CDI can proceed to a hearing—a process in which the odds can be heavily skewed in favor of the regulator.
This administrative proceeding is conducted by an ALJ or hearing officer employed by the CDI itself, with the CDI bearing the burden of proof. Given that the CDI is both the enforcer and the employer of the adjudicator, insurers may face an uphill battle in these proceedings. Discovery is governed by specific regulations designed by the CDI, and a proposed decision must be issued within 60 days after the hearing concludes. However, even after a decision is made, the Commissioner retains the sweeping authority to adopt, revise, or outright reject the ALJ’s decision, further tipping the scales against the insurer.
Penalties for noncompliance can be
severe, including fines of up to $10,000 per day for each day the violation continues, with a cap of $100,000. Additionally, the commissioner may suspend or revoke the insurer’s license if it fails to comply with the final order. In cases of willful noncompliance, penalties can reach up to $250,000—penalties that could potentially cripple a carrier’s operations in California.
Strategies for Prevailing Against an NNC
Given the power dynamics involved, insurers would be wise to approach an NNC strategically to avoid escalating the issue to a hearing. Here are key considerations:
• Verify the Alleged Violation: Review the NNC and the underlying statutes or regulations closely. If the company can demonstrate that the alleged violation did not occur factually and/or legally, the NNC may be dismissed. Important questions to ask include whether the violation actually happened and whether it was resolved before the NNC was issued.
• Determine the Nature of the Violation: Not all violations carry the same consequences. For example, if the NNC concerns an “underwriting rule” rather than a “rate, rating plan, or rating system,” the penalties under CIC § 1858.07 may not apply. Understanding this distinction is crucial for formulating an effective response.
• Confirm Jurisdiction: CIC § 1858.07 limits penalties to violations of statutes within Chapter 9 of Division 1, Part 2 of the Insurance Code. If the alleged violation falls outside this chapter, it may be grounds to challenge the NNC and a request for penalties.
• Challenge CDI’s Interpretation: Insurers should scrutinize the CDI’s interpretation of the relevant statutes. Often, the CDI may misinterpret or misapply the law, and a careful legal analysis could reveal grounds for dismissing the NNC.
Practical Recommendations
When facing an NNC, insurers should consider the following best practices:
• Leverage Informal Conciliation: Before
requesting a hearing, carriers should explore informal conciliation with the CDI. This approach allows for a potentially amicable resolution without the need for a formal legal process.
• Assert Compliance Early: Insurers should promptly gather evidence to demonstrate that the alleged noncompliance does not exist. This proactive approach can prevent the situation from escalating and may even resolve the issue entirely.
• Engage with CDI Constructively: Establishing a cooperative relationship with the CDI can be beneficial. Companies should aim to work collaboratively with the CDI to address and resolve the issues raised in the NNC.
• Do Not Assume the NNC Is Correct: Insurers should critically assess the validity of the NNC. Often, NNCs are overly broad or include violations that have already been corrected. Identifying these issues can provide leverage in negotiations with the CDI.
Final Thoughts
Receiving an NNC from the CDI is a serious matter that requires immediate and strategic action. Still, with a clear understanding of the process and the options available, carriers can effectively navigate the challenges posed by the CDI.
By carefully reviewing the NNC, verifying the alleged violations, and engaging in constructive dialogue with the CDI, insurance companies can mitigate risks and potentially avoid the significant penalties that come with noncompliance. In a regulatory environment as challenging as California’s, being prepared and informed is the best defense against the CDI and an NNC.
Jacobs is a partner at Michelman & Robinson LLP, a national law firm. He represents clients across a range of industries—the insurance space, included—in complex, class action and commercial business litigation. Phone: (310) 299-5500; email: mjacobs@mrllp.com.
Loh is counsel at M&R. Operating out of the firm’s Irvine office, he litigates on behalf of a range of clients, including insurance-related companies. Phone: (714) 557-7990; email: vloh@mrllp.com.
News & Markets
Vocational School Owner Arraigned in $1M Comp Fraud Case
Los Angeles area vocational school owner, Guillermo Frias, 65, of Paramount, and the school’s accounting manager, Yesid Colon, 54, of Baldwin Park, were arraigned following a California Department of Insurance inves-
tigation into allegations they submitted fraudulent claims to receive money from insurers for services the school didn't provide.
They also allegedly received kickback payments from counselors that paid for
referrals of students. Four counselors were also arraigned for their involvement in the illegal referrals and kickback scheme.
The investigation began after the CDI received referrals from multiple insurers alleging the vocational school, Caledonian, committed workers’ compensation fraud. The school was reportedly misusing Supplemental Job Displacement Benefit Vouchers, which provide injured workers with up to $6,000 for retraining at a post-secondary educational institution.
During the investigation, the department served a search warrant on Caledonian and seized evidence consistent with the speculation that the school was offering courses outside of which they were approved. The warrant also provided additional evidence that the school did not offer full instruction hours for courses, instructed students through third party vocational institutions, provided distance learning when not approved and instructed students in languages outside of the approved language.
Evidence reportedly found Caledonian paid vocational counselors and employees to refer students, which is also a labor code violation. Caledonian reportedly paid $496,147 to counselors for those illegal referrals. Accepting payment for referrals is also a violation and the evidence showed multiple vocational counselors accepted and received a total of $489,530 for their illegal referrals.
The investigation determined Caledonian was receiving money from insurers for services not rendered. The counselors allegedly involved in the scheme are Jenny Villegas, Friends for Injured Workers CEO, Laura Wilson, CEO of Laura Wilsons and Associates, Jesus Garibay, Gordy’s Legal Service Director, and Hazel Ortega, CEO of Ortega Counseling Center. The defendants were charged with violating Penal Code 550(a) (1), Labor Code 3215, and Insurance Code 750.5.
CELEBRATING EXCELLENCE IN LEADERSHIP
We are proud to announce the promotion of Jane Ramirez to VP of Data Analysis at the Surplus Line Association of California. With 12 years of experience in surplus lines insurance, Ramirez will oversee the review of more than 1 million policy transactions per year and lead a team of 100+ employees. A testament to our company culture, she inspires her department to provide best-in-class account management and reach new heights.
Rick Jones, President
continued from page 26
we are working to make some significant investments to make it an even bigger part of our business,” he added.
Future
David Corry, head of casualty for Argo Group, sees a more stable and disciplined market in the future when it comes to E&S business, different than the days of the past.
“When I got in the industry in the mid-1980s, we were in the classic hard and soft market cycles,” Corry said. “You priced your business and you underpriced the business. Interest rates were higher, and it was more cashflow underwriting.” But eventually carriers got to a breaking point, he said.
‘I mean, in 20-plus years I had never seen such a huge influx of submissions and there's just no quit to it.’
“So then it became a hard market and rates would go up excessively, if you will, to try to make up and you had these peaks and valleys,” he said. “Whereas the last few years, I would describe the market as more stable in the sense of the CEOs, the CFOs, the board of directors, the senior management, the carriers are very disciplined in how they approach their business and what they’re writing, and trying to stay ahead of where their pricing needs to be for their costs,” he said.
“It is not perfect,” Corry said. “There are carriers that have to enter and exit markets and products and exit lines of business. Some carriers suffer financially but overall, if you look at the industry, the number of carriers that are out there, there’s more discipline than there is foolishness and chasing market share.”
Nevertheless, this market cycle and the future for E&S looks different. “I believe that carriers today, certainly at Argo, we are working very closely as underwriters with our reserve actuaries, our pricing actuaries and our claims department to analyze the industries that we write, the products that we offer to those industries, and ensuring
that we’re pricing our product to stay ahead of future loss costs and claim trends.”
For Turner, the historical hard market has been nothing but positive.
“It’s been a tremendously positive experience,” he said.
“The challenge has been to keep up with these real structural changes that
have created record-breaking historical flow. Capturing that business has been the ultimate challenge, while being efficient and keeping your performance level very high, while at the same time managing these record-breaking flows of business and migration of business. That’s been a challenge, and we welcome it.”
Count On Us.
Special Report: Assisted Living/Long Term Care
Senior Living Facilities Face Labor Shortages, Nuclear Verdicts and Changing Insurance Market
By Allen Laman
Continuing worker shortages, the threat of nuclear verdicts in some geographical locations, and the implementation of new technology are all shaping the property/casualty insurance market for senior living facilities.
Challenging areas for coverage can vary by location, experts say, and while new carrier interest and capacity has driven some competition on the liability side, some carriers have completely exited the space. At least one expert believes more carriers may pull
back and tighten their appetites as the market cycle continues.
Overview by Line
The senior living market differs by line of coverage and location, Alex Whipple, senior vice president of senior living practice at CAC Specialty, said in an interview with Insurance Journal.
Overall, he characterized the professional liability and general liability markets as still favorable for senior living operators, adding that new capacity has entered the market in the past year and a half.
“But I say that with an asterisk,” he added. “There
are venues that are very unfavorable. So, the favorability of the market is very dependent on the venue, the geographic location of the communities.” California; Cook County, Illinois; Florida; New Mexico and Kentucky, for example, are challenging regardless of market conditions, “but here we are in a fairly favorable market, and those markets are still challenged,” Whipple said. He attributes this to the activity and climate of plaintiff attorneys targeting the segment in these areas. The combination of favorable plaintiff conditions and high amounts of plaintiffs focused
on the senior living space make them more challenging to operate.
David Thurber, senior vice president, legal, at CAC Specialty’s senior living practice, also listed Colorado, Michigan, Oregon and Washington as challenging states. “We see a lot … of litigation, and we see a lot of much higher starting points for settlements and ultimately verdicts if we get into a trial,” Thurber said. “Those kinds of numbers really do drive … the rates and the response to the coverage in those particular states.”
From a property insurance
perspective, Whipple said the market has improved since hardening after Hurricane Ian in 2022, “but I would describe the property market as ‘fragile’ or ‘fickle,’” he added. “It’s favorable right now, we’re seeing better renewals, we’re seeing decreases on renewals, but as soon as we have a bad hurricane season, which is what is predicted, that could all be flipped upside down.”
Management liability lines are still in a “relatively soft market,” Whipple added, however, auto liability insurance continues to be challenging in the senior living industry and beyond.
According to WTW’s report, 2024 Spring Update – Senior living and long-term care, general and professional liability with favorable loss experience and location report rates ranging from flat to increases of 20%. Non-cat exposed property rates changes average from 0% to plus 10% but CAT exposed property increases range from 10% to 20%. WTW reported auto rates for the sector continue to trend up with 7.5% to 17.5% increases on average.
Meanwhile, according to Alera Group’s 2024 Property
and Casualty Market Outlook that was published in December, underwriters see senior care facilities “as high-risk because many are wood frame construction, prone to fire and other types of catastrophic damage,” the report said.
Alera Group reported that most clients “will see rate increases in 2024, with operators in catastrophe-prone areas seeing the most significant increase. Obtaining coverage in coastal communities and areas prone to wildfires will be “extremely difficult,” the report said. Still, Alera Group expected property rate increases to moderate barring extraordinary catastrophes in 2024.
Overall, it’s a mixed bag when it comes to market conditions that vary across lines of coverage and by geographic location, but there are new carriers interested when it comes to the professional and general liability side for senior living facilities, Whipple said.
Even so, some carriers who previously underwrote senior living facilities have completely exited the space altogether, he said. Those carriers that exited the space were pricing on the lower end of the pricing
spectrum, he added.
Whipple expects to see a few more changes in the marketplace in the next year or so. “We are starting to see other carriers that have taken notice,” he said, “and we would predict that there are other carriers that might pull back and tighten their appetite based on some of those other carriers who have exited. It’s yet to happen, but I would predict that there are a few carriers who might follow suit in the next 12 to 18 months.”
In the Northwest, ‘There’s No Layups’ Michael Ebert, managing partner at Western Pacific Partners Group, explained that in the Northwest U.S., minimal competition and underwriting restrictions are creating a challenging environment. His team continues to see a hard market in the region.
“When we say hard, it doesn’t mean just hard in rates,” he said. “It means it’s hard to find good insurance for the right people.”
WPPG has 3,000 clients in the Northwest U.S. and specializes in insuring smaller senior spaces that usually have 12 or fewer beds. Facilities matter
more than ever before, Ebert shared, noting that WPPG has seen “several carriers pull out from new business.”
He said they are seeing “minimal competition, and the property/casualty rates on this line of business in this area still seem to be in that 25% a year range. It’s heavy. And underwriting restrictions are tightening up. It’s true. It’s difficult.”
Property stands out as the most challenging line, Ebert said, adding that property markets “seem to be evaporating,” making the surplus lines “a go-to market, which it never was.”
WPPG formerly had carriers that would write only property coverage for their clients, “and they’re just hands up at this point,” he said. As a result, WPPG has had to tap surplus lines more in the past 18 months than all its previous history combined.
“At the end of the day, it’s all heavy handed,” Ebert said of lines across the board. “It’s all difficult right now. There’s no layups at all.”
Brant Watson, senior vice president and caregiver niche practice leader at Californiabased Heffernan Insurance Brokers, told Insurance Journal that in tougher venues in and outside of California, most liability coverage is being placed with non-admitted carriers on a claims-made basis. “Even owner/operators that have a good licensure and litigation history are facing renewals where liability deductibles and premiums are under upward pressure,” he said.
Lawsuits and Inflation
In many cases, lawsuits continued on page 30
Special Report: Assisted Living/Long Term Care
continued from page 29
against senior living facilities don’t necessarily come down to the quality of care received, Whipple said. Instead, it comes down to litigation environments and plaintiff attorney tactics.
Plaintiff lawyers use an emotional playbook that exists within what CAC Specialty’s Thurber described as “a new and evolving national culture” toward money, victims and compensation that extends into the court system.
In Washington state, Ebert described the space as “very litigious” and “very sensitive.” That makes it even more important for his team members to offer and secure all potential ancillary coverage lines, he said. Documenting when coverage is rejected is key, too.
“It all matters when lawsuits come out,” Ebert said. “We’ve gone through quite a few of them. They look at us with a fine-tooth comb. You better
have done all of your due diligence.”
Slips and falls drive claims in the senior living industry. Wound care and wound claims are also claim drivers, Thurber said. Ebert also pointed to heatstroke that can lead to death, as well as choking incidents and more that can lead to potential nuclear verdicts.
Carriers are cautious in defending elder abuse cases in court due to nuclear verdict and social inflation influences in the legal system, said Heffernan’s Watson. That has led to a rise in mediated settlements, which are becoming more and more common. That can frustrate insureds in claims scenarios where it is felt allegations are frivolous or defensible, Watson added.
Worker Shortage
As the U.S. population ages and the demand for senior living facilities increases, challenges over worker shortages will persist at nursing homes
and other care facilities.
The American Health Care Association reported in March that 99% of nursing homes currently have open jobs, including 89% that are actively trying to hire for open registered nurse positions. Seventy-two percent of nursing homes said their current workforce levels are lower than pre-pandemic staffing levels, and more than half said their workforce situation has stayed the same or gotten worse.
“Our updated State of the Sector Report demonstrates clearly what nursing home providers across the country already know: the ongoing labor shortage is nothing less than a crisis for our sector,” Mark Parkinson, president and CEO of AHCA, said in a press release.
The labor shortage challenges will continue as the demand for senior living facilities grows. According to recent U.S. Census data, the number of Americans ages 65 and older is expected
to grow from 58 million in 2022 to 82 million by 2050, while the total percentage of the U.S. population 64-and-older is projected to rise from 17% to 23%.
Heffernan’s Watson said the senior living facility industry has had challenges in attracting and maintaining staffing levels due to wage level competition from other sectors of the economy and the challenging but rewarding aspects of the caregiving vocation.
From WPPG’s perspective, the caregiver shortage is very real, Ebert said. He said that the labor shortage in the sector has not recovered to pre-pandemic levels, adding that all his clients in this sector share that struggle: They can’t find enough caregivers, he said.
From an underwriter’s perspective, the labor shortage is a concern. “That means folks with inadequate capabilities are employed at these places,” Ebert said. “Which creates higher risk across the board.”
‘Even
owner/operators that have a good licensure and litigation history are facing renewals where liability deductibles and premiums are under upward pressure.’
Claims and Risk Management
When it comes to claims mitigation and working toward reasonable verdicts and settlements, Whipple explained that the team at CAC Specialty works to integrate themselves into the culture of the operators to coach and train them on being as defensible as possible.
“We know operators are going to face litigation. It’s not if, but when,” he said. “So, preparing them to be as defensible as possible is a strategy that we cannot emphasize enough.”
Documentation is the leading issue that drives lawsuits, CAC’s Thurber explained, highlighting the importance of documenting in a timely and accurate fashion and responding to issues raised in health care charts. It’s also important that a file demonstrates progressive interventions on a regular basis regarding what’s being done to mitigate a resident’s propensity for falling, developing wounds or elopement.
AI as a Management Resource Thurber believes artificial
intelligence can be an effective risk management resource. It can aid predictability and care of residents by providing real-time alerts to deviations in behavior, he said, enabling staff to respond in a timely manner to changing conditions.
AI can also provide for a “much quicker and a more sophisticated collaborative decision-making process to address resident conditions more efficiently,” Thurber added.
Medication analysis done through an AI program, for example, can help senior care staff assess whether a combination of medications is driving certain conditions, or if there’s a health risk associated with the combination, according to Thurber. The AI could flag
those risks and enable the professionals involved to respond quickly and accurately.
AI-enabled “nurse on a stick” technology allows nurses to enter vitals data immediately and uses artificial intelligence to compare that data to historical vitals data on the resident. It flags significant changes that could require immediate intervention or analysis. This can help health professionals address issues before they become problems, Thurber said.
As nurses enter other health care observations into files, current AI technology can quickly analyze the input against prior inputs and can identify and bring attention to issues to help nurses, doctors and facilities catch and address
potential problems before they result in hospital and emergency room visits.
“A couple clients that are already using these kinds of tools are reporting back that it is reducing the number of hospitalizations in their environment,” Thurber said. “It’s helpful for them to be able to provide better quality care that is more timely and efficient,” he said.
“Does it eliminate the issues and claims?” Not completely, Thurber noted. “But it certainly helps mitigate that and provides a more defensible position should the ultimate matter end up in a lawsuit or a claim. We’re doing the best we can with what we have, and we’re getting more and more of these tools all the time.”
Special Report: Young Wholesale Brokers
‘No’ Is Not an Option for E&S Brokers Managing Through Busy Times Young E&S Professionals Share Their Views on Surplus Lines
By Jahna Jacobson
Wholesale insurance teams are up for a challenge, and they need to be. Rising rates, shrinking appetites, hurricanes, wildfires and increased demand mean those working in the excess and surplus (E&S) sector are facing a unique set of hurdles and a random mix of risks.
“As a wholesale broker, saying ‘no’ isn’t an option when a client approaches me for help on a placement,” said Katelynn Pankhurst, a broker at CRC Group who has been working in the business for three years specializing in commercial property, stock throughput and inland marine placements. “When all direct avenues have been exhausted, they’re relying on me to bring a solution
to the table. I enjoy the challenge, and it requires me to consider all available options and think creatively to find a customized program for the insured.”
Carrier creativity can be the makeor-break, said Joey Shapiro, senior vice president, casualty, at Amwins. “We are constantly trying to find unique ways to address complex risks, and if the opportunity makes sense, you’ll see E&S carriers step outside of their comfort zone to provide solutions on classes of business that sometimes aren’t even within their appetite.”
Ariel Bach, property broker and vice president at
CRC Insurance Services, takes “last resort” as a personal challenge.
“When all else fails for a risk, I take great satisfaction that I can provide a solution,” said Bach, who began her insurance career in 2012 and moved to E&S in 2017. “Using the flexibility of the E&S marketplace to find homes for difficult risks can be challenging, but being able to do so makes it that much more rewarding.”
More Business, Conservative Carriers, Higher Rates
Shapiro, who has worked in insurance for six years, said the biggest challenge in today’s market is the increased flow of business into the E&S channel. “Not only are we seeing significantly increased submission counts, but our carriers are understaffed, and each quarter is a new record for submission count for most underwriters,” Shapiro said. “There have been countless carriers that have been created since I started. In 2019/20, it started with an influx of new excess
Katelynn Pankhurst
Joey Shapiro
Ariel Bach
liability capacity, and now we are seeing new entrants on the primary liability side.”
With so many new entrants, Shapiro says it’s important to be cautious when placing business and to understand the financials and forms of newer MGAs and carriers.
Social inflation is driving more nuclear verdicts in problematic venues making it very tough to get insurance in places like New York, New Mexico, Pennsylvania, Chicago and California, said Joe Carlson, vice president/ broker — healthcare, social services at Amwins, who began his career after college in 2013.
“Insurance carriers are being more conservative with their limits than ever before, and pricing is a lot higher in my industry segment,” said Carlson. “It is challenging to get a full $5 million in limits on any given account — historically, towers were built in $10 million limit chunks. Insurers are limiting capacity, so you have to balance market relationships and not be reliant on a handful of select carriers.”
Carlson said some of the biggest challenges in today’s marketplace are recreating the limit structure that insureds previously had for a reasonable cost, and with adequate limits and coverage for sexual abuse (and molestation liability coverage) and HNOA coverage (hired/ non-owned auto).
“The legal environment and market availability for sexual abuse coverage is a minefield, and insurance carriers are experiencing significant losses on this line of coverage,” he noted. “Insurance carriers are often reducing their offerings, amending terms to be restrictive, and charging significant premiums to include the coverage. … The admitted marketplace wrote these risks on an occurrence form — for very cheap — for years, and now that has caught up to them from a claims perspective, which has led to dramatic marketplace changes.”
Even with new market entrants in various areas of the industry, overall the
market continues to be challenging, said Justin Milhollan, vice president of casualty at Amwins Insurance Brokerage.
“Liquor liability and hospitality in general has really flipped on its head over the past two years,” said Milhollan, who has worked in wholesale for 11 years. “Whether admitted or non-admitted, carrier appetites are shrinking, and coverage forms are becoming more limited as losses continue to trend upwards in this space,” he said.
binding/MGA business and open market brokerage appetites.
“Residential construction — especially new residential for multi-family — also has become increasingly difficult,” Milhollan added. “The marketplace is relatively slim on the primary and excess lines, making underwriter relationships more important than ever.”
CRC Group broker Julia Davis said that since she started her wholesale career seven years ago, the market has only become “harder” with steady rate increases on both the property and casualty sides. “A ton of churches and daycares are flooding the markets,” said Davis, who specializes in binding and small business. “These used to be almost exclusively admitted placements.”
For those working with clients in catastrophe-prone areas, the challenges are multiplied. CJ Nash, a broker with CRC Group New Orleans since 2019, said finding competitive markets for property accounts in Louisiana is his biggest challenge. Property placements between $2.5 million and $10 million are hard to place because they fall in the gap between traditional
The submission count into the E&S property marketplace has been growing exponentially year over year, especially with the hard market over the last few years, said Andrew Grieco, executive vice president of property at RT Specialty. “We have been seeing all types of risks across all different geographic regions — the types of accounts include habitational portfolios, builder’s risk, manufacturing, warehouse/distribution, hospitality, energy, healthcare, and more,” said Grieco, who joined the insurance industry in 2015. “A lot of our risks are locations in heavy CAT areas, inclusive of severe convective, coastal windstorm, earthquake, flood and wildfire.” He added that throughout the hardening market, he’s viewed many admitted carriers “broadening their definitions of what constitutes a higher CAT exposure.” The property market is stabilizing, but E&S brokers continue to see “a wide variety of risks on our desk.”
Kevin Hahn, senior vice president at Jencap Specialty Insurance Services, is seeing the most significant rate hikes in the habitational real estate space, specifically in New York. “Carriers are exiting the space, which has the market continuing to harden,” said Hahn, who has been in insurance since 2011 and wholesale since 2020, specializing in construction and real estate. In today’s market, his insureds are paying 10 to 50 times more for the same
Joe Carlson
Justin Milhollan
Julia Davis
CJ Nash
Andrew Grieco
Kevin Hahn
Tim Collado
Special Report: Young Wholesale Brokers
continued from page 33
coverage, Hahn said.
A lot of carriers are cutting capacity down to $5 to $10 million from $15 to $25 million and increasing minimums, added Tim Collado, vice president of casualty at Amwins Brokerage of Texas Inc. Collado has been in the industry since 2012 and specializes in energy, construction and habitational. “Primary on habitational has also changed a significant amount in the last couple of years,” Collado said. “Due to a couple of key markets exiting the space altogether, it is much harder to find a clean form with a low retention.”
Managing Expectations
Admitted markets pulling out of certain sectors or geographical regions has led to an influx of business in the E&S space, and carriers are taking a hard look at items such as valuation, update information and protections, CRC Group’s Pankhurst said. Managing insureds’ expectations when moving from the admitted to non-admitted market has been imperative.
“In addition, with numerous carriers
exiting the California marketplace, State Farm, for example, we’re starting to see risks we typically wouldn’t, such as commercial housing and high-valued homes,” she said. “The wildfire exposure limits the direct options available, and the economic feasibility and coverage restrictions have been a challenge for insureds.”
Young Brokers Share a Few Keys to Success
Finding success in the excess and surplus lines sector means building relationships, finding a specialty, putting in the work and getting creative in both hard and soft market cycles, young wholesalers say.
“Technical knowledge is important, but 95% of the work is about our agents knowing they can trust us to get the job done,” says CRC Group broker Julia Davis. “Be willing to learn, get as much exposure to your carrier underwriters as possible, and go to every event that you are able to. Your success in the business relies heavily on the relationships you create.”
Justin Milhollan, vice president of casualty at Amwins, recommends finding a specialty. “Being a generalist in wholesale is becoming increasingly antiquated,” he said. “(Grow) competence within your specialization. You don’t have to be the smartest person in the room but should strive to be the most curious.”
Kevin Hahn, Jencap Specialty Insurance Services, says that achieving success in the wholesale sector has a lot to do with a person’s mindset. “When I look at top performers within my own company and around the industry, it appears to me that the ‘hard workers’ always seem to rise to the top. So first and foremost, it’s work ethic.”
Success comes down to tenacity, says CJ Nash, CRC Group. “For every win we have, we can have twice the number of losses, and that can be quite a burden on your confidence as a broker/underwriter,” he said. “It is hard to bounce back, but you put yourself in the position to succeed by not being afraid to hear ‘no’ again and again,” he said.
Pankhurst added that “aside from the normal CAT-driven or distressed/unique risks, we’ve started seeing a large uptick in religious and educational institutions in convective [storm]-prone areas.”
Bach, who specializes in property, said finding affordable coverage for California clients, especially in the E&S sphere, is her biggest challenge. The increase in wildfires and the standard markets’ caps on pricing increases (due to statutory regulations) has led to many standard markets non-renewing accounts. She has seen surging prices, reduced capacity, and even changes in the definition of “wildfire” from multiple carriers.
“Many of our new clients are those who were previously covered by the standard markets who could no longer entertain a risk due to unfavorable characteristics (properties aging out of underwriting guidelines or high loss frequency/severity) or pulling out of the sector entirely as they’ve found the class in question to be unprofitable,” Bach said.
“Entry into the E&S world is often met with shock at significantly increased pricing and reduction in capacity/coverage,” she said. “It can be quite challenging for us to properly educate our clients regarding the state of the marketplace while empathetically managing their expectations.”
A Shifting Market
A shifting market in 2024 with more sta-
bilized pricing in some areas hasn’t meant a drop in business for the E&S sector, the young wholesale brokers interviewed for this report said.
“Over the course of 2024, we have seen a stabilizing market with the amount of new capacity in the markets,” Grieco said. “There were new entrants into the market, more capacity put behind MGAs, and higher growth goals for the London and domestic market,” he said. But while the market is stabilizing, the influx of submissions into the market has not slowed down.
CRC Group’s Nash said when he started, property rates were low and aggregate was plentiful. Now, it’s difficult to secure terms of risk under $10 million in value.
“When I started in the industry five years ago, this space was filled with many MGUs that were sadly underpriced and were hit very hard by the numerous CAT losses in the last few years,” he said. While today’s market has seen minimum premiums, deductibles and attachments at more appropriate levels for risk, the costs can be unaffordable for small businesses that aren’t flush with equity/financing, he added. “That may be turning the corner soon, but I fear it will be a race to the bottom of rate rather than an equilibrium.”
The liability space will likely continue to see rate increases for at least the next three to five years, predicts Shapiro, who specializes in hospitality and real estate.
“Cases that had been stalled in the courts due to COVID have started to trend and develop, and the issues that caused the hard market to begin are still very much present,” he said. “I anticipate carriers will continue to pull back on classes that are running hot, and excess carriers will maintain strict limit management in lead or low attaching business.”
Shapiro says as these trends push premiums higher and higher, insureds will continue to draw back on coverage and purchase less limit overall.
Talent will continue to be a concern for many in the E&S sector, as well. Nash predicts a lot of reshuffling on the carrier side. “Retailers and wholesalers have been reinventing and working hard to build systems, teams and companies that are able to surf the waves of a changing market,” he said. “Carriers are having difficulty retaining talent, securing their systems, and following the movement of the market’s needs.”
Brooke Leadbetter, senior vice president of property and inland marine at Amwins, said her team’s biggest challenge is staying on top of the rapidly changing marketplace with fluctuating capacity, appetites and emerging markets.
She said the market has changed drastically since she started seven years ago. “I started in an extremely soft market where we were providing large rate decreases on every renewal. The last couple of years have been extremely challenging, and now we are starting to see the market stabilize.”
Still, “weather patterns will continue to change, and we will continue to see more natural disasters year over year,” Leadbetter said. “However, I do believe that technology will continue to advance, and modeling will be able to predict outcomes more accurately.”
Barring no major CAT events this year, Pankhurst is optimistic that there will be continued stabilization in the property market.
“Carriers, both domestically and in London, have significant growth goals in 2024. This has created competition in the marketplace and has been a sign of positive trajectory in terms of rate and capacity,” she said.
Collado said the trends will depend on class of business and line of coverage.
“I do see the XS (excess) space continuing to harden,” he said. “Especially if there is an auto component to the underlying. I think this will only drive more and more business into the E&S space.”
Brooke Leadbetter
$43,295
What used to be the 100-year hurricane will now happen every 25 years, according to a report by Deep Sky Research, a Montreal-based carbon removal project developer. The report analyzed data within the U.S. via its Hurricane Rainfall Model to examine how hurricane risk is changing due to climate change. The company’s research also projects losses of more than $450 billion (USD) in the next 5 years across Gulf and South Atlantic coast states due to hurricanes.
The amount in back wages and damages the Southlake, Texas, location of a national childcare provider must pay to settle a case alleging the company retaliated against an employee for reporting concerns about unsanitary and unsafe conditions in the facility’s kitchen to Texas health officials. The Southlake childcare center is a subsidiary of the privately owned, Little Sunshine’s Enterprises Inc. in Springfield, Missouri. The Occupational Safety and Health Administration also ordered the company reinstate the employee and pay $5,500 in attorney’s fees.
25%
New Jersey has raised the cap on fees for attorneys handling workers’ compensation cases from 20% to 25% of settlements, with the passage of a measure passed by the state’s Assembly (54-20) and Senate (27-9). Proponents of the increase claim it is needed to assure that injured workers obtain quality representation. The New Jersey Business and Industry Association (NJBIA) opposed the increase, which it said will raise costs for employers and reduce awards for injured workers.
$400,000
The amount the Gull Lake Country Club, near Richland in Kalamazoo County, Michigan, has agreed to pay to settle allegations that it wrongly obtained a loan through a federal program during the COVID-19 pandemic. U.S. Attorney Mark Totten said the golf club was not eligible for a loan. A whistleblower filed a lawsuit against the club, and the federal government joined the case. The lawsuit names other Michigan golf clubs.
Declarations
Critical 911 Access
“We understand the importance of having critical access to 911. We’ve resolved this matter and are committed to keeping our customers connected in times they need it most.”
— An AT&T spokesperson said after the company agreed to pay $950,000 for failing to deliver 911 calls to emergency call centers and not notifying officials during an August 2023 outage. The outage, which occurred during the testing of portions of AT&T’s 911 network, impacted calls in parts of Illinois, Kansas, Texas and Wisconsin. AT&T had failed to deliver 911 calls and to timely notify 911 call centers, a Federal Communications Commission investigation found.
‘AI Fakes Don’t Care’
“AI fakes don’t care if you’re famous. … AI frauds and deep fakes affect everyone.”
— Said country singer Josh Abbott during a Texas Senate Business and Commerce Committee hearing on the use of artificial intelligence. Abbott said he’s concerned AI could be used to replicate his voice and generate new songs that get distributed on Spotify. During a nearly four-hour hearing, the committee heard a wide range of concerns about the potential risks of AI, including the spread of misinformation, biased decision-making and violations of consumer privacy.
Coney Island Cyclone
“At Luna Park in Coney Island, safety is our number one priority and ride maintenance, and thorough testing happens daily before Luna Park opens and throughout the day as necessary. … The Coney Island Cyclone is a 97-year-old roller coaster that is meticulously maintained and tested daily.”
— Reads a statement issued by Luna Park in New York City after its Coney Island Cyclone roller coaster was shut down indefinitely after coming to a stop mid-ride. The wooden roller coaster was on an ascent in late August when it was taken out of service due to a damaged chain sprocket in the motor room. Several people were removed from the Cyclone without injury.
Lyft, State Farm Lawsuit
“Because State Farm has not met its burden of proving that Lyft is exempt from the Georgia Motor Carrier Act’s definition of motor carrier, it was proper for Barnes to directly name State Farm in her lawsuit.”
— Reads the opinion of the Georgia Court of Appeals third division, which found the ride sharing service Lyft is considered a motor carrier under the wording of a 2015 statute. The decision gives the go-ahead to Aundray Barnes, who was injured in a collision with a Lyft driver, to sue the driver’s insurance company, State Farm Fire and Casualty Co.
Sports Marketing
“We find sports marketing benefits Shelter and our Agents because the events attract great audiences. … It’s also an opportunity to support student-athletes through the partnership. We got our start as a company in Missouri and it’s still our largest state in terms of number of agents and the number of people we insure.”
— Shelter Insurance President and CEO Rockne Corbin said in a statement about the display of its logo on the 25-yard-line of University of Missouri’s Faurot Field during the Tigers football team’s season opener. A revised NCAA rule allows sponsorships directly on a football field. Equipment Share, another Missouri-based company, also sponsored a 25-yardline logo.
Wildfire Impact
“Our results suggest that property values have been more adversely impacted in recent years by being close to past wildfires than was the case previously.”
— Economists Leila Bengali, Fernanda Nechio and Stephanie Stewart wrote in a paper published on the website of the Federal Reserve Bank of San Francisco, Bloomberg reported. The study found California’s wildfires are weighing on home prices more than in the past, and insurance availability does little to help in areas considered to be at higher risk. It warned that the pattern may grow “if residential construction continues to expand into areas with higher fire risk and if trends in wildfire severity continue.”
Idea Exchange: Excess & Surplus Lines
The Wholesale Insurance Evolution: From Consolidation to Innovation
By Tom Ruggieri
‘When retail agencies own wholesalers, it can lead to situations where retail producers feel pressured to only use affiliated wholesalers.’
By Tom Ruggieri and Mark Smith
In a decade defined by disruption, the wholesale insurance market has adapted and evolved to meet the demands of an increasingly complex risk environment. The industry has been remarkable in its ability to pivot, innovate and consolidate in ways that have reshaped its very foundation in recent years.
Between 2010 and 2020, the wholesale insurance market underwent significant changes, reshaping broader industry dynamics and altering business operations. Before 2010, retail insurance agencies predominantly avoided leveraging wholesalers, opting instead to go direct, losing out on access to excess and surplus lines (E&S) markets. However, as loss ratios increased, this strategy proved unsustainable. In response, retail agencies began to leverage wholesalers, particularly for access to E&S markets most accommodating to evolving and emerging risks.
As a result of this shift, major wholesalers began advocating for retailers to consolidate their business to a select few wholesale partners — a revolutionary strategy that transformed the industry
and ran for the next decade. At the same time, private equity (PE) firms started acquiring and consolidating retail agencies to streamline operations and enhance profitability, effectively compelling the retail agencies they purchased to centralize their wholesaler relationships.
Small and mid-size business risks have become more complex and increased in size, resulting in the need for specialized insurance policies that standard carriers won’t cover. The E&S market — which has always been more responsive to complex risks — has expanded rapidly, growing much faster than the admitted market.
According to S&P Global, the E&S market saw double-digit, year-over-year growth for four consecutive years, from 2018 to 2022. In the early 2010s, when retail insurance agencies were avoiding leveraging wholesalers, there were only about four to five wholesale-only insurance companies in the United States. Now that number has surged to 50-plus.
Facing Major Evolving Risk Challenges
In recent years, the wholesale business insurance market has navigated numerous challenges with creative product and
and Mark Smith
capacity solutions for risks including a global pandemic, social inflation, supply chain disruptions and the escalating impacts of climate change. These events and associated risks have underscored the importance of specialized coverage.
Some highlights of specialized coverage include event cancellation coverage playing a sizable role during the pandemic and supply chain disruptions highlighting the value of business interruption coverage. Climate change, reflected in the increasing frequency and severity of natural disasters like hurricanes and wildfires, has reinforced the critical role of property catastrophe insurance. As technology develops and cyber risks become more complex, specialty coverages have become more essential for business. In addition, social inflation has put new pressures on casualty insurance, making it increasingly costly over time.
From an overall market perspective, this all speaks well to the health of the industry and its ability to adapt and refine products in response to trends. The growing need for flexible insurance solutions has shifted the focus from the admitted market to the E&S market, generally considered the nucleus of the wholesale insurance industry.
In many cases, these challenges help to drive the industry’s evolution, broadening the classes of businesses served, filling coverage gaps, expanding geographic reach and deepening specializations.
Massive Consolidations
Today, the wholesale insurance market is undergoing significant market consolidation, mainly driven by mergers and acquisitions (M&A). According to Marsh Berry, transaction activity of delegated authority enterprises and wholesale brokers hit an all-time high in 2023 (181 transactions) with M&A activity essentially remaining flat since an earlier spike in 2021.
This trend has created three distinct categories of wholesalers: smaller firms struggling to compete, medium-sized firms thriving due to niche expertise, and colossal entities dominating the market. Given current market dynamics, only the medium-sized and colossal wholesalers are
set up to survive long-term.
Within the wholesale insurance market, the brokerage business is now approximately 95% consolidated. Over the past two decades, the largest wholesalers have acquired most independent wholesale businesses. Binding Authority/Coverholder business is about 50% consolidated — driven by big retail agency roll-ups opening up wholesale and program wings and buying out smaller competitors.
While consolidation has created opportunities for large players to access more customers, products and carriers, it has also introduced significant conflicts of interest. When retail agencies own wholesalers, it can lead to situations where retail producers feel pressured to only use affiliated wholesalers. This translates into fewer choices for retailers and legitimate concern over conflicts of working with a competitor’s subsidiary, as well as insurance companies being concerned about adverse risk selection.
Consolidation also strips away the personalized approach to servicing brokers and their unique risks — arguably the very thing that made those entities so valuable to begin with. This has led to some dissatisfaction among wholesale producers at consolidated firms, who often feel constrained by the lack of flexibility and the inability to grow because the market is crowded with their own companies’ other employees. It can also call into question whether clients are receiving the best the marketplace has to offer, or the service support being received.
What’s Next for Wholesale
Looking at the next five years, two key trends will shape the wholesale insurance industry’s future: the integration of advanced technologies, particularly AI, and the use of third-party data and sophisticated algorithms to enhance underwriting and portfolio management.
Even in 2024, insurance operations are primarily manual — new technologies, specifically Web Service APIs, bring opportunities for efficiency through connectivity. While traditionally cautious with technology adoption, the wholesale insurance industry now has an opportuni-
ty to streamline operations through better system connectivity, such as implementing APIs and web services.
Harnessing third-party data intersected with proprietary client data and analyzed by AI will also enhance risk assessment accuracy, streamline underwriting processes, and lead to more personalized, responsive insurance products that meet — and even anticipate — the evolving needs of clients. The industry is well-positioned to capitalize on these advancements, with expected growth in the program space, particularly with the rise of managing general underwriters (MGUs) and hybrid fronting companies.
A major risk facing the wholesale insurance market today is the increasing trend of retail agencies trying to own their own wholesalers. As top wholesalers grow and increasingly integrate with retail agencies, their independence — and thus their ability to offer the best solutions for clients — could be compromised.
Domination by the biggest wholesale firms is yet a different challenge. Will small retail agencies get their attention, will their producers remain satisfied with internal competition and will they provide the resources to provide best-in-class service are all questions in the market.
Also, as the industry continues to expand, there may be regulatory challenges in the E&S market down the line, particularly if the market softens.
The coming years will be defined by both opportunities and challenges, driven by ongoing consolidation and the integration of advanced technologies like AI. Preserving the independent structure of wholesalers will be vital to maintaining the specialization and personalized service that define the E&S market.
At this inflection point, the wholesale insurance industry has a proven business model and significant growth potential. By leveraging the unique strengths of the E&S marketplace and fostering innovation, the industry can continue to address emerging risks with tailored, entrepreneurial solutions and products.
Ruggieri is the CEO of XPT Group and Smith is president of XPT Specialty.
Idea Exchange: Agency Management
A Fresh Take on Commission: Envisioning a System That Supports the Agent, Carrier and Consumer
Iconfess that for a guy who has made his living largely on commissions for decades, I don’t like the concept. It’s not that I don’t like getting paid — I do — but I find the commission system in our business has a number of flaws. It could be improved to the benefit of agents, carriers and consumers.
By Tony Caldwell
Insurance companies build their business models around a contracted distribution system. The contractual system allows insurers to estimate the costs of distributing their product as they plan and forecast results. Fixing those costs as a percent of sales, which is what commission does for them, is a simple and predictable means to do just that.
But this business model is problematic not just for the agent receiving the commissions, but for the companies paying them and the consumers buying the products and services.
Breaking Down a Broken System
The commission system fails to reflect the cost of doing business.
Agencies have both fixed and variable expenses. Accounts on the low end of the price spectrum may not cover costs on traditional commission structures. Often, I find carrier representatives in my office are looking for us to sell accounts that are marginally profitable or even loss producers. Occasionally, a carrier will offer incentive compensation to move these products, but those incentives are usually offered in a vacuum. The carrier does not take into account the financial picture of the agency. In a true market economy, the agent could solve this problem by simply charging the client more money. Unfortunately, we don’t have a true market economy — certainly not in the insurance distribution system — and charging fees
while collecting a commission is generally not legal. Another option for the agency would be to refuse commissions from the carrier and accept only fees paid by the carrier. While this approach does work for some larger organizations that focus on more complicated and highly priced accounts, it is an impractical solution for the vast majority of agencies who focus on personal insurance and small business.
We should view this as a system of distribution pricing, rather than distribution compensation. We need to change the mindset of how an agent should think not only about their carrier relationships, but their value proposition in the marketplace with respect to insurance consumers.
The lack of flexibility in terms of distribution pricing leaves compensation for agents largely fixed and anti-competitive. This concept is similar to problems reported in real estate sales. Fixed insurance company commissions to the agent are potentially as detrimental to the consumer as real estate commissions. The commission system is anti-competitive and anti-consumer.
‘[W]hat
is not good for the consumer — fixed commis-
sions — is also not good for the agent.’
Perhaps my biggest problem with insurance company commissions is that they prevent the agent from truly competing on a value proposition for their services. While carriers offer essentially
a commodity product, agents do not. Of course, I recognize carriers differ when it comes to claims service, loss control or other value-added services, but most policies are basically identical for a given class of risk. However, there is a wide variety of capability and quality related to delivery of services by agencies, but compensation doesn’t reflect that varying value. This is essentially anti-consumer. This practice disincentivizes agents from seeking to constantly improve their service offerings.
Consumers recognize this, which is why they view the entire insurance product, including agent service, as a commodity when it often isn’t. So, what is not good for the consumer — fixed commissions — is also not good for the agent. Related to this are views by consumers which are unrealistic, potentially unfair, and certainly uninformed regarding who is responsible for the costs of insurance. Frankly, insureds don’t understand what agents actually make from an insurance sale. I believe this is particularly true in personal insurance, which is the bread and butter of the majority of independent agencies. This is a source of constant friction between consumers and agents and ultimately interferes with agents’ desire to be respected and viewed by their customers as a trusted advisor. This is particularly true in challenging markets like the one we have been experiencing for the last couple of years.
The commission system is also detrimental to carriers.
It’s true as I’ve said that commissions allow carriers to fix their costs with distribution. But it interferes with their ability to seek excellence in their distribution
partners. Yes, carriers pay profit sharing, which gets at this issue indirectly. And it’s true they pay bonuses to some agents, but that’s generally for production, not quality of service. But in all, fixed commissions do nothing to ensure quality agent service which is, I would argue, the most controllable component of their retention.
Carriers, in the most recent decade or so, have recognized the critical value of policyholder retention where even one point can have huge margin implications. Yet, they don’t seem to understand that agent service quality, which is directly impacted by agent marginal profitability, is an area that could move policyholder retention significantly. I look at it in the same way distributors of tangible products look at last mile costs. They are often the ones with the most potential for moving the profitability needle. Unfortunately, in our industry, we ignore this.
A New Way Forward
So, is there a better way? I think there is and it’s one that has been brought up from
time to time and then, rapidly discarded, out of fear. The better way is for carriers to strip out commissions and sell their products net. This way agents could compete in the marketplace based on their own value propositions and with full disclosure to consumers of how they are paid for their service.
This is not, and likely never will be, a popular idea because humans are always resistant to change. Change represents risk. And changing to a customer-paid feebased system would potentially be a huge risk for some.
Those at risk would likely be those who only know how to sell insurance by being the cheapest. These agents represent some of the worst in our industry who fail to focus on understanding client needs.
A commission-based system is not focused on creating excellence in service and these systems continue to perpetuate the idea that insurance, as a part of either individual or corporate risk management, is nothing but a commodity, which it doesn’t have to be.
I believe, under a customer-paid feebased system, good agents — those who sell based on client needs and provide exemplary and continually creative service to their customers, while also meeting the real needs of insurance company partners, would benefit tremendously. This is true, in my opinion, because consumers are smart and would rapidly see the difference that competitive differentiation based on service makes in bringing business their way.
Yes, there would be losers. But they would be those who deserve to lose. Those who don’t provide the quality service clients seek.
Good agents would win as would their carriers. And the biggest winners would be consumers, closing the value circle with agents and carriers in a virtuous, constantly improving loop.
Caldwell is an author, speaker and mentor who has helped independent agents create more than 250 independent insurance agencies. Email: tonyc@oneagentsalliance.net. Website: www.tonycaldwell.net.
Idea Exchange: The Competitive Advantage
Strategic Planning
Idon’t expect most insurance agencies to possess formal, in-depth strategies. Many are too small and focused on the next sale or the next renewal.
By Chris Burand
Even many medium sized agencies are focused on the next sale, and provided they make sale after sale, their business won’t be optimized, but they’ll do fine.
Insurance companies, however, are in a different league. Around 35,000-40,000 independent insurance agencies (and who knows how many captive ones) exist while there are only about 1,000 property/ casualty (P/C) carriers. And ultimately, it is the carrier who pays the claim and is beholden to the insured.
Good strategic plans always evaluate the competition in detail. I’ve seen very few insurance entities complete this part of a strategic plan at any depth. Although, I am positive one carrier has done it because their success is so significant they are putting their competitors out of business.
Most strategic plans I’ve seen focused on one of three factors: increase sales, decrease expenses, and for carriers,
improve loss ratios. But to what end?
Those are tactical goals, not strategic goals. To what end does reduced expenses get an agency or a carrier? Higher profits? Not usually because these tactical plans in my experience never consider collateral effects.
Carriers
For example, it appears a majority of commercial carriers decided uniformly to “strategically” grow their small- and medium-sized enterprises (SME) book. They built plans involving their products and their pricing, and they made brochures and gave strong marching orders to their marketing people to write SME business.
But SME products only possess a small bandwidth of differentiation, so competition became price focused. The demand by carriers was great and not enough SME business existed. Demand exceeded supply and the industry’s loss ratios versus growth rate suggest the carriers growing their books most quickly are doing so by sacrificing loss ratios. Therefore, profits may not increase.
A true strategic plan considers what the competition is also doing or is likely going to do. At least with my analytics, this is
predictable. It was obvious to anyone in the field what was happening and how demand was going to exceed supply. Knowing this, the strategic plans should have been changed. If everyone crowds into the same fishing hole, the supply of fish does not increase. The odds of success obviously decrease. This simple analogy should be part and parcel of every strategic plan.
A strategic plan is not to hire a producer or cut expenses.
Therefore, if the SME market is still the strategic target, and the ability to differentiate on a product level is limited, then what other tangible differentiation factor, other than price, can be designed into the product, product delivery, claims, or whatever other competitive advantage? I haven’t seen any evidence any carrier has thought this through. In other words, their strategic plans are evidence of going through the motions of knowing they should be doing strategic plans, but not willing to think through and execute difficult transitions to make a difference.
Carriers by and large can coast to the point of executives making good paydays. They just go through the motions of planning because everyone agrees that it is important to be seen going through the motions and maybe even executing on some level.
But a few carriers are different. They have accepted that in their markets, price will be the differentiator and to that extent, they have reduced their expenses significantly, enabling them to offer a lower rate while simultaneously increasing their profits. In fact, my research proves there are a few carriers who are growing far faster than normal while simultaneously making higher profits. They are indeed putting their competitors out of business.
A true strategic plan also looks not only at the goal, but also at the collateral effects. In other words, if expenses are cut, what happens to growth?
One carrier cut their underwriting expenses by paying their underwriters less than market wages. The good ones do not seem to be staying, but the bad ones are. Agents are no longer placing their good accounts with that carrier.
Successful strategies and companies are built by analyzing the entire picture
and executing based on the entire, holistic situation.
I don’t see this kind of thought being put into strategic plans. One smart carrier’s publicly stated strategy is fascinating, and I don’t think many of its competitors are considering this company’s success or goals into their own strategies. This carrier is growing by more than $7 billion annually. Only about 15 carriers, out of 1,000, have $5 billion in total premium! And this carrier is extremely profitable, i.e., they are not buying their growth. This means this carrier is slowly putting carriers out of business through the death of a thousand cuts. Each carrier loses a little and they don’t really notice it, until they’ve waited too long.
Agencies
The same goes for agencies. A strategic plan is not to hire a producer or cut expenses. An agency’s strategic plan varies by size. I’ll use a larger agency, a $10 million revenue agency. That agency has competition from many angles. It has risks from many angles. Not only might its plan be to hire a producer, but it had better have a plan to enhance that producer’s probability of success. Furthermore, the financial
analysis should be on an ROI basis. And that includes identifying the weaknesses of key competitors rather than developing a producer and telling them to go and find sales wherever they can find sales. This most common latter approach is a critical reason producer failure rates are so high.
Agencies had also better be identifying which carriers can support their growth in this market because not all can. Growth resources are always finite. Optimal use of market resources separates winners from also-rans.
No one goes into an athletic game without analyzing the opponent. But insurance companies and agencies build “strategic” plans without ever analyzing their competition. Worse, they don’t think through the collateral effects or logistics of what is truly required to achieve their strategic goals. This is likely to worsen with AI because the Siren song of AI for many is the guilt-free abdication of having to responsibly think.
The most important logistical consideration in building a strategic plan is consideration of the requirements to execute the plan. In particular, the strict accountability of achieving each task and sub-goal. It’s wonderful to have a plan to grow by 15% and you’ll do so by hiring two producers. Who is responsible for hiring the producers? Who is responsible for developing the producers? What is the penalty for failure? What is the reward for success? This level of execution responsibility is sorely lacking throughout this industry and the winners are clearly taking advantage of this reality.
A high-quality strategic plan therefore requires fully thinking through the plusses and minuses. It requires superb data and analytics. It requires execution accountability. And the couple of carriers cleaning everyone else’s clocks are checking all three boxes. I know of maybe six brokers doing the same. In each case, they are taking advantage of their competitors who are just going through the motions. In today’s state of the industry, a true strategic plan may very well be the difference between sinking and swimming.
Burand is the founder and owner of Burand & Associates LLC based in Pueblo, Colorado. Phone: 719-4853868. E-mail: chris@burand-associates.com.
Idea Exchange: Is It Covered?
Logic & Language and Forms &
Facts
Plumbing Water Damage Claims Revisited
Looking back at my Insurance Journal columns over the past 5 ½ years, I found that I wrote at least one column a year about water damage claims.
By Bill Wilson
So, before this year runs out, I guess it’s time for another, especially because of a commercial property water damage claim that was recently brought to my attention. But before we get to that claim, let me provide a quick update about water damage claims. In my April 6, 2021, column, I provided some statistics about water damage claims. The numbers haven’t changed much. Many people think of property insurance as “fire insurance” when the reality is that the leading cause of loss to
property is wind and hail, followed by water damage.
And even though the frequency of wind and hail claims is higher than that for water damage, the severity of water damage claims is higher. In that earlier column, I mentioned three recent, at the time, plumbing leak claims, one totaling $540,000 in damages and another with over $200,000 in damages. These may be outliers but the average water damage loss involves five figures in damages, according to ISO.
Most property policies cover water damage arising from a plumbing system leak as long as the damage has not occurred over a period of weeks, months or years. In other words, repeated seepage and leakage is typically not covered, though some policies may cover hidden water
damage if the loss is reported promptly upon discovery, proof, once again, that insurance is not a commodity. Regardless, coverage for these types of sudden leakage claims is usually not disputed, though the amount of damage and what needs to be repaired or replaced may be.
But the most common type of plumbing system claim that raises questions about coverage itself involves water damage from a plumbing system that doesn’t involve seepage or leakage. These claims typically result from backup or overflow of water and, in the case of drains and sewer lines, waterborne “debris.” Claim disputes most often involve whether there is backup or overflow and coverage depends on the precise wording of the policy in question.
For example, in my December 7, 2020, column, we examined whether water
damage from an unattended running toilet was backup or overflow. Virtually all property policies exclude backup of sewers or drains but overflows are treated differently by some policies. To illustrate, consider the following backup/overflow exclusions in three ISO forms, all of which provide coverage on an open perils (named exclusions) basis:
• ISO HO 00 03 (Coverages A & B open perils homeowners form):
“Water or waterborne material which backs up through sewers or drains or which overflows or is discharged from a sump, sump pump, or related equipment.”
• ISO BP 00 03 (BOP policy):
“Water that backs up or overflows or is otherwise discharged from a sewer, drain, sump, sump pump or related equipment.”
• ISO CP 10 30 (Special Causes of Loss form):
“Water that backs up or overflows from a sewer, drain or sump.”
Do you see the coverage difference between the homeowners form and the commercial property forms? All of these forms exclude backup and overflow, but they differ in what kind of plumbing equipment is involved in either type of event — backup or overflow.
The homeowners policy only excludes damage from an overflow of a sump, sump pump, or related equipment. Like the homeowners form, the two commercial
property forms exclude overflow from sumps, but they also exclude overflow from sewers and drains.
That being said, the overflow of water and debris must originate from within the sewer or drain lines. For example, if a bathtub or sink faucet is accidentally left running and water overflows and causes damage, this is not “overflow” as intended by these exclusions.
The reason this type of claim is covered by these open perils forms is that the water or debris causing damage never enters a drain or sewer line. There is no reverse flow from these parts of the plumbing system. As my earlier column indicated, the same is true for most toilet overflows.
The Commercial Property Claim
This brings me to the commercial property claim I mentioned at the outset of this article.
There is no disagreement between the insurer and insured as to the facts of the loss. A kitchen sink faucet was left running overnight in a church kitchen. The sink drain was reportedly blocked by dishes in the sink, specifically a food storage container and/or an aluminum pan.
The running water never entered the drain from the sink; again, an undisputed fact. The problem is, the damage amounted to over $100,000 but the adjuster limited coverage to $50,000 — the limit of the Water Backup and Overflow Coverage endorsement attached to the policy.
The policy in question is an American Association of Insurance Services (AAIS) form Building and Personal Property
Coverage Part CP-12 with causes of loss provided by the AAIS Special Perils Part CP-85 form. The CP-85 form is an open perils causes of loss form, meaning that anything not excluded is covered.
In the adjuster’s letter denying coverage for any damage beyond that covered by the Water Backup and Overflow Coverage endorsement, it states that this is “a specified peril insuring agreement rather than an all-risk policy.” According to AAIS, however, the CP-85 form included in the policy provides coverage on an open perils basis.
The letter asserts that the definition “Specified Perils” says that water damage means “the sudden or accidental discharge or leakage of water or steam as direct result of cracking of a part of the system or appliance containing the water or steam.”
This does not make the coverage named perils. The purpose of the “Specified Perils” definition is to extend coverage for any listed peril if damage arises from certain exclusions that make an exception for ensuing loss due to those perils. This is the same approach used by ISO in the CP 10 30 Special Causes of Loss form.
Unless I’m missing something, the adjuster appears to have a misunderstanding of the application of the CP-85 open perils form, specifically the purpose of the “Specified Perils” definition.
Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of six books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes.” Email: Bill@InsuranceCommentary.com.
My New Markets
Allied Health
Market Detail: Program administrator ISC (Integrated Specialty Coverages) offers coverage and service options for the healthcare industry. The underwriting team at ISC understands the liability exposure associated with Allied Healthcare risks. We offer coverage solutions to meet the needs of your clients. This program is available to appointed wholesale brokers. Program coverage: medical professional liability - claims made; general liability - claims made and occurrence options; employers benefit liability. Optional coverages: additional insured; administrative coverage for medical directors; sexual abuse and molestation; hired and non-owned auto; HIPAA reimbursement coverage; media event reimbursement coverage; evacuation reimbursement coverage. Target classes: allied training schools; allied health staffing; dialysis centers; home healthcare; hospice; imaging centers; medical laboratories; mental health counseling; non-physician telehealth; pharmacies; physical or speech therapy; x-ray.
Available Limits: Professional liability limits up to $2 million/$4 million primary; $2 million/$2 million excess.
Carrier: Not disclosed.
States: Available in all states plus District of Columbia.
Contact: Hadar Raz; info@iscmga.com; 866-716-7242
Custom Bonds
Market Detail: Tokio Marine HCC-Surety Group writes customs and transportation related bonds. U.S. Customs Border Protection requires all importers, specific workers and businesses operating in and around ports of entry to post a customs bond. These bonds guarantee the payment of any import duties and taxes and ensure compliance with all the laws regulating entry into the United States, in addition to related services involving storage and security. Find more information www. tmhcc.com/surety.
Available Limits: Not disclosed.
Carrier: Tokio Marine HCC.
States: Available in all states plus District of Columbia.
Contact: Sylvia Chang; schang@tmhcc.
com; 800-486-6695.
Commercial Earthquake Market Detail:
Catalytic Risk Managers offers earthquake property policies on an admitted and non-admitted basis. We write earthquake business exclusively through regional and national wholesale brokers to insure commercial property owners with our own or pre-agreed manuscript forms covering the following: buildings; business personal property; tenant improvements or betterments; business income; rental value; additional property. Coverage for flood (available in certain areas), earthquake sprinkler leakage, ordinance or law and mold clean-up and removal is offered on an optional basis. Catalytic has the ability to underwrite risk on a first loss (primary) and excess of loss (excess) basis.
Los Angeles and San Francisco. E-mail submissions to: clearance@catalyticrisk. com. Submissions can be cleared no earlier than 90 days prior to effective date. Has pen; appointment required.
Available Limits: Maximum of $125 million per risk.
Carrier: Admitted; rated A- (Excellent) by A.M. Best.
Target accounts include: ground up, primary, excess and quota share accounts; small and middle market accounts with TIV’s ranging from less than $1,000,000 to multi-billion dollar schedules; national accounts earthquake and flood exposure can be considered on an individual account basis; commercial habitational (condominiums and apartments); we do not target soft story, tuck-under parking or unreinforced masonry; office buildings and real estate; hotels and motels; retail; hospital and healthcare; restaurants; light manufacturing; smaller public entities including government, municipal and school boards; other occupancies are also eligible. Catalytic is happy to offer full limit quotes for accounts with TIVs below $50,000,000. All business is subject to our underwriting guidelines and per risk capacity may vary by territory and account characteristics.
Demand for our earthquake products is particularly strong in California, the Pacific Northwest and the Mississippi basin. Crucially, we have the capacity to cover peak concentrations inherent in major cities exposed to this peril, such as
Market Detail: Sage Program Underwriters offers a Specialty Contractors Insurance Program — a dedicated general liability and excess insurance solution for specialty commercial contractors acting solely as subcontractors for various classes of business including crane and rigging; equipment rental; scaffolding; concrete pumpers; steel erection and more. Appointment required.
Available Limits: Not disclosed.
Carrier: Not disclosed.
States: Available in all states plus District of Columbia.
Contact: Ken Helmick; ken@sageuw.com; 833-724-3111.
Idea Exchange: Perpetuation
Selling an Agency: Plan Early for Peace of Mind
Agoal without a plan is just a wish. Successful agency owners strategically plan business operations thinking ahead several years. Yet how many owners consider the end game in those plans? Are you building an agency to sell? If so, here are a series of questions to start asking yourself.
By Rick Dennen
How Do I Prepare to Sell?
There are many steps in preparing to sell your business, but the process doesn’t have to be daunting. Breaking it down into manageable pieces and delegating as appropriate make the process easier.
Identify what you want from the sale. Some owners want to sell and walk away; they’re ready for retirement or a different career. It’s becoming much more common, however, to have phased sales, where the owner transfers ownership and responsibilities gradually. It’s important to take the time before you start to consider this question and consequences carefully, as it will impact the kind of buyer to seek. The most important thing here is to be honest with yourself as to what you are looking to accomplish with the sale.
Streamline operations. Few buyers are looking for a fixer-upper business. They want a solid business with little to no problems. Take a hard look at your agency to identify any red flags that would cause a potential buyer to look elsewhere. Is the office technology out of date and causing
productivity to suffer? Is there a staff member undermining morale? It’s best to deal with these issues before the sale rather than hoping they go away or that potential buyers won’t notice.
Keep financials in order. The business will need clean financials for the previous three years, along with evidence of appropriate compliance with all applicable industry regulations before entering into a sale. Don’t wait until after a potential buyer is identified, as this should be done regardless of whether you sell or not.
Do an agency SWOT. Make an inventory of the strengths, weaknesses, opportunities and threats (SWOT) for your business. Does the agency have a strong reputation in the local area? Does it focus on a particular industry niche? Are those strengths or weaknesses? Remember what
you consider a weakness or threat could be opportunity. For example, buyers are looking for ways to get into new growth areas, either based on geography or coverage type, and could be interested in an agency already established in those areas.
‘After
years of providing reliable service to others,
selling your agency doesn’t just mean maximizing the price.’
Get a solid valuation. One of the more challenging parts of any sale is coming to a sale price. Sellers can have more confidence in their price negotiations if they’ve established a solid valuation first. For businesses, such as insurance agencies whose assets are primarily cash flow rather than physical items, valuation often starts with EBITDA (earnings before interest, taxes, depreciation, and amortization). That figure is adjusted (subtracting expenses unlikely to continue after the sale and adding in revenues that will increase) to come up with a pro forma EBITDA. Many agency owners find it’s worthwhile to hire an outside consultant to help determine a valuation for their business.
Talk to potential lenders. Many business sales today involve the seller holding some portion of the debt, and that may involve the business owner needing help with financing. It’s never too early to talk with potential lenders about upcoming plans for selling. Even if they do not end up providing financing, lenders with experience supporting independent insurance
agents can be a valuable source of information and may know of potential buyers.
How Do
I Find a Buyer?
It may seem like a challenge to find a buyer, but there are some good options for business owners who do not have an identified successor.
Networking. Talking with associates at conferences and business events is one way to learn about people in the market for an insurance agency. It’s a bit hit-or-miss, however, as it only spreads the word as far as one’s professional network extends.
Working with an industry specific investment banker or broker. An investment banker rooted in the industry can help you present your agency in the best light for a buyer, solicit targeted buyers, negotiate the structure and price, and bring you options. A business broker for the insurance industry can serve as an agent, connecting sellers with potential buyers. However, the number of potential buyers is limited by the size of the broker’s network. In addition, brokers charge a commission depending on the size and scale of the agency, ranging from 1% to 5% of the sale price. Paying these fees can be frustrating because it minimizes the profits from the sale of the agency. However, the expertise of an investment banker or broker can translate into a higher sale price for your agency than you could negotiate on your own. Thus, your overall profit is higher, and the fees can be recovered.
Using a business exchange. A business exchange is a site that connects buyers and sellers across broad geographic areas. It allows people who would not otherwise know one another to identify businesses for sale and buyers in the market for an agency. Many business exchanges, especially those operated by business sale lenders, operate without a fee. Users post only the amount of information they want to share, so they are a safe way to test the market.
After years of providing reliable service to others, selling your agency doesn’t just mean maximizing the price. Don’t forget to focus on what’s right for the management team, your customers and you. Following simple guidelines and seeking advice from other professionals can make the sale process go smoothly.
Dennen is founder and CEO of Indianapolis-based Oak Street Funding, a First Financial Bank company, with customized loan products and services for specialty lines of business nationwide.
Closing Quote
Financial First Responders
By Jerry Theodorou
In recent months the dynamic markings for voices asserting the insurance industry is not up to challenges posed by climate change have gone from mezzo-piano to mezzo-forte.
Endorsing a proposal by Rep. Adam Schiff (D-Calif.) to create a federal reinsurance facility, Consumer Watchdog founder Harvey Rosenfield declared that “it is increasingly clear that the insurance industry is unwilling or unable to serve the needs of consumers … and for that reason government intervention is necessary.”
Former California Insurance Commissioner Dave Jones opined that “we’re steadily marching toward an uninsurable future, not just in California but throughout the United States.”
The anti-fossil fuel organization Insure Our
Future maintains that insurers contribute to climate change. Insure Our Future is backed by the Connecticut Citizens Action Group, whose mission statement is to “actively engage the residents of Connecticut in altering the relations of power in order to bring about environmental, economic, and social justice.”
The “uninsurable future” crowd is mainly on the left but needn’t be. Our research has shown that the severity of natural catastrophes — especially flooding — has increased, even after normalizing for an increase in the built environment. Natural catastrophes are non-partisan — they destroy Republican homes with the same fury as they strike Democratic homes. Analysis to determine whether the future is uninsurable presupposes we know what the future will hold. We don’t. But there is data to support the contention that, whatever the future brings, it does not constitute an existential threat to the insurance industry.
Insurance & Alternative Capital
The property and casualty
insurance industry had $2.7 trillion in assets at year-end 2023. It incurred $627 billion in losses in the year. The reinsurance industry has an additional $670 billion of capital, $108 billion of which is “alternative” capital in the form of insurance-linked securities, mainly catastrophe bonds. It is important to note that the volume of alternative capital backing insurance virtually doubled from a decade ago. This means that third party investors and asset managers, seeking diversification in their investment holdings uncorrelated with capital market swings, are increasingly comfortable with insurance risk. And importantly, whereas a decade ago liability risk and cyber risk were considered not fair game for ILS products because there were no models to inform pricing, today there are cat bonds for all manner of risks once considered uninsurable — liability risk, cyber risk, nuclear risk and wildfire risk.
As insurers obtain data to inform projections of losses, they are willing to insure risks that were once considered “uninsurable.” Not many decades ago, insurers would not touch earthquake risk because earthquakes were considered unpredictable “acts of God.” Today, earthquake insurance, reinsurance and ILS products actively take on earthquake risk.
Historically, when insurers got a black eye from unexpected catastrophes, such as the great liability crisis of the 1980s, the 9/11 terrorist attacks, the $81 billion (adjusted for inflation) in hurricane losses in 2005, the year of hurricanes
Katrina, Rita and Wilma (KRW), insurance markets were disrupted only temporarily, and insurers responded creatively. New third party capital supported the formation of liability insurers in the 1980s. In the wake of 9/11 and KRW new reinsurers with clean balance sheets were formed. These responses demonstrate that insurers have been resilient in the face of challenge. That’s what insurers, financial first responders, do.
Not Here to Help
The unsupported assertion that the insurance industry is not up to the task of insuring risk exacerbated by climate change may be a stalking horse for efforts to introduce federal insurance and reinsurance entities, as proposed by Rep. Schiff’s INSURE Act. This seeks to create a federal catastrophe reinsurance entity, backed by the U.S. — $5.4 trillion balance sheet and $50 billion in startup capital.
The federal government has already botched its management of two insurance programs — federal flood insurance and crop insurance. Instead of burdening taxpayers to whom risk would be socialized, if the ILS market were to attract just 5% of the $35 trillion in retirement assets, adding uncorrelated risk to investment portfolios, that would bring another $1.8 trillion to the P/C balance sheet. Private markets can handle the challenge. Let not the feds stand in the way.
Theodorou is the director of the Finance, Insurance and Trade Policy Program at R Street Institute.
INSURANCE INDUSTRY CHARITABLE FOUNDATION
Helping communities and enriching lives, together.
Insurance Industry Charitable Foundation (IICF) is a unique nonprofit that unites the collective strengths of the insurance industry to help communities and enrich lives through grants, volunteer service and leadership. IICF is celebrating our 30th anniversary of serving as the philanthropic foundation of the insurance industry, having contributed nearly $50 million in community grants along with 340,000 volunteer hours served by industry professionals across the US and UK. Join with us as #insurancegivesback!
Register as a team or individual volunteer for the IICF Month of Giving and sign up for projects near you at: volunteer.iicf.org
Month of Giving
October 2024
Be a Part of Something Greater
Since 1998, IICF has hosted the longest ongoing volunteer initiative in the industry and this year we are expanding to the Month of Giving. Join with colleagues in giving back as we celebrate insurance industry volunteerism throughout our 30th Anniversary year!
