For many insurance buyers, placements today seem far more fraught than in the soft market of just a few years ago, when it was a smoother and easier process. It’s a bumpier ride now, and insureds should expect detours and delays. More placements seem to be closing at the last minute, even though a lot of work happens behind the scenes. The uncertainty adds anxiety about binding policies and programs.
Today’s placement process demands more effort from everyone than in years past. However, what hasn’t changed is the value that knowledgeable brokers with expertise and established relationships with markets bring to the table. Conversations with underwriters from leading companies underscore the importance of relationships amid a dramatic surge in submissions over the last two years.
The growing anxiety about placements stems from a confluence of factors, some intrinsic to the insurance industry and others external. After years of mounting losses in the soft market, insurers have been taking a much harder line, cutting capacity, or exiting unprofitable lines altogether. Carriers have become much more selective about individual risks, often taking smaller tranches of larger programs than previously. Significant catastrophe losses from hurricanes, hail, and wildfires have added to that hesitancy. Carriers are putting much greater emphasis on reining in attritional losses, particularly in lines that may have been underpriced in the soft market.
Underwriting discipline is the watchword. Underwriters remain under tremendous pressure to improve results, and decisions on larger placements may require committee review and management approval—adding time and uncertainty. This industry readjustment was already well underway in early 2020. Carriers are maintaining discipline in order to achieve an underwriting profit and offset low investment income returns. Carriers’ investment portfolios are conservative to ensure long term financial stability and claims paying ability. So while the overall market returns in 2021 were strong, carriers will not see that level of return and must achieve profitability through underwriting income.
The rapid spread of Covid throughout the country—and the ensuing shutdowns—led to widespread economic dislocations that have yet to sort themselves out. The sudden resurgence of demand for all goods across the economy in mid-to-late 2020 has snarled supply chains hit by a lack of workers, drivers, products, and shipping capacity. Shortages and price spikes in construction materials, particularly lumber, have hit builders particularly hard. Rising energy prices are reverberating through the economy, adding even more uncertainty. The pandemic also put the brakes on the pace of modeling and pricing accounts in the property market.
Underwriters for major carriers say the last two years have seen the highest submission flow to date for the E&S market. That makes it more critical than ever to provide more complete data to underwriters. Submissions from brokers who successfully identify and communicate real opportunities to underwriters will receive a warmer welcome.
The surge in submissions comes as more insureds have been shopping for new markets. Many buyers have been forced to look elsewhere as insurers have scaled back capacity or have become hesitant to offer limits as large as previously. In this environment, deals may not come through until several weeks ahead of renewal, heightening the last-minute stress.
For best results, the preparation of submissions needs to begin months ahead of renewal or placement. From a buyer’s perspective, the process may seem opaque. After making the initial submission, a buyer may expect a quick answer, which is increasingly rare in today’s market. Realistically, at the time of submission, around 100 days out, the insurer is simply registering the account in its system for further action, which is likely to come about 30 days before the requested effective date. There are, of course, exceptions, for instance, municipal business, that will require a variety of official reviews by the various municipal authorities and boards.
The slower deal flow has knock-on effects. For example, in a market like Builders Risk, lenders may be waiting for the insurance placement to extend financing. At the same time, the builders try to line up hard-to-get supplies such as lumber and other materials. Meanwhile, brokers must assemble a variety of markets for large wood-frame projects since it often takes more insurers to fill out quota-sharing programs involving multiple layers. Those insurers must agree on terms so that the coverage of the successive layers properly follows those below. Because of differences in forms and appetites, one carrier may be unwilling to follow another’s form, so obtaining this coverage concurrency is likely to add more stress and time.
Communication is the key to managing buyer expectations throughout the process, mainly as the renewal date grows closer. Brokers need to be transparent about their progress with the various markets they have approached and develop a written plan that can be shared with the client and updated as frequently as necessary.
Preparation, persistence, and patience are crucial assets to placing business in a challenging market. The soft market favored buyers, who had more options and could use that as leverage. That’s not true in this market, where buyers have fewer choices and carriers are being more selective. A challenging market is where experience shows its value. The process may be more complex and laborious. Still, experienced brokers can help clients create the best submissions, market the placements and achieve the optimum results for even the most complex programs. Contact your CRC Group producer for more information.
- David Pagoumian is the Office President of the Red Bank, NJ office of CRC and is a member of the Property Practice Group.