Making Sense of a Market in Transition

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Two top execs offer an insider’s take on the hard-to-place property space

There’s plenty happening in the hard-to-place property segment. Just ask John Moran, CPCU, president of North Light Specialty Insurance Co., and vice president of Allstate, who’s leading Allstate’s entry into the Excess & Surplus Lines marketplace. As the person responsible for strategy development and execution as well as all operational aspects for NLSIC, Allstate’s new E&S carrier, he oversees product development, pricing, risk management, distribution, claims, marketing, technology, and profit-and-loss accountability. Here he talks trends and issues in the hard-to-place property market.

Q. What tendencies are you seeing in the hard-to-place property market? Do you see new, developing trends or exposures in the marketplace?

Moran: We continue to see increased demand for hard-to-place risks with supply varying, depending on the market. Each market differs, even when facing similar exposures. Last year was a difficult one for the industry, especially on the property side. Record catastrophe losses were recorded affecting large parts of the country, as well as across the globe. Coastal property has typically been a mainstay of difficult-to-place risks. But now we are even seeing a big increase in business coming from inland areas. This can range anywhere from properties exposed to tornado and hail events, wild fires, severe winter storms, and freeze events.

Q. What exposures do you see as the most challenging for agents today? What makes them so challenging?

Moran: From my perspective, coastal property continues to be the leader among risks with which agents have difficulty placing coverage. It’s also hard for them to find stable, financially strong companies that can write this business. Coastal capacity is constantly changing, and managing portfolios that are exposed to hurricanes and other weather events can be challenging. Capital requirements, reinsurance, hurricane models, and other influences continue to change how the business is viewed and the returns necessary to take on these risks.

Q. How do you see the insurance marketplace responding to these needs?

Moran: The insurance market is responding, although the extent of their response varies. Some markets are healthy and have a lot of capacity; other markets continue to need more capacity and solutions. Also, in some markets, not all the solutions measure up. I think agents need to partner with strong wholesalers as well as insurance carriers that have strong balance sheets and that are going to be there for the long term. We see more and more carriers that are in for a couple years, then suddenly they can’t find a way to stay in this business. We continue to discuss with agents the importance of dealing with financially strong partners that want to be in their marketplaces for the long term.

Q. What benefits do wholesalers bring in writing hard-to-place risks?

Moran: I think wholesalers continue to be an integral part of the solutions developed and brought to the marketplace. They are a critical resource to most agencies because of their ability to find the right solutions for a risk. Oftentimes, retail agents don’t have direct appointments with the carriers that focus on higher-risk properties and they need a strong partner to assist them in placing this business. Insurance carriers also benefit from working with the wholesaler because of their knowledge of the local marketplace and their underwriting experience. Oftentimes, new product ideas and enhancements to existing coverage are developed out of the carrier/wholesaler relationship.

Gary Tiepelman, senior vice president of underwriting at Scottsdale Insurance Co., has been an integral part of the company since 1987. Scottsdale Insurance, in partnership with Burns & Wilcox agents, provides creative underwriting and quality servicing of excess & surplus insurance and specialty property and casualty insurance. The company opened its doors in 1982 and today is 1,400 associates strong, with annual sales of more than $2 billion in premium. Here Tiepelman sheds light on the dynamics he sees shaping the hard-to-place segment.

Q. What tendencies are you seeing in the hard-to-place property market? Do you see new, developing trends or exposures in this segment?

Tiepelman: Hard-to-place is certainly a relative term. In reality, it is hard-to-place at the current pricing. Capacity to write this business is still there; however, the reinsurance support does, in fact, cost carriers more. Those costs, in turn, should be and need to be passed along to the ultimate buyer. Actually, the marketplace appears to be very similar to what it has been for the last several years, with one exception: There seems to be significantly more optimism about the market, with more of our traditional E&S business finding its way back to us and with that more responsible pricing of risk.

Q. What exposures do you see as being the most challenging for agents today? Why are these exposures so challenging?

Tiepelman: Technology exposures are the most challenging due to the rapid pace of change. Keeping up with demand and knowledge of niche products is tough on agents in order to avoid E&O complaints.

Q. How do you see the insurance marketplace responding to these needs?

Tiepelman: The industry can respond through educational classes and simplification of policy language in order to avoid legal ambiguity.

Q. What benefits do wholesalers bring in writing these hard-to-place risks?

Tiepelman: Wholesalers bring the risks needing placement together with the appropriate markets. Their knowledge includes the risk, the environment in which that risk exists, the markets, and the competitive state of the marketplace. The wholesalers perform the appropriate match of all these variables.