By: Derick Stitik, SVP, National Property Practice Leader
Floods, wildfires, earthquakes, and hurricanes, sure they capture the national headlines for a week or two but in reality, these disasters linger long after the cameras leave. As a whole the E&S market has struggled with claims management over the past several years, it’s been a true trial of fire by both frequency and severity. Overall the industry was not prepared for the frequent multiple catastrophes that occurred in the past three years. As tradition, the preliminary estimated loss reports are calculated shortly after an event, are aired in the industry news , and then set aside. Since 2016 we have experienced a trend where the CAT claims process has become an ongoing open event.
With the capacity surge we’ve seen over the past five years, many carriers have CAT aggregate footprints that have doubled or tripled normal writing in prior years . Capacity “blending” or sharing has allowed for larger lines of business and expansive underwriting appetites. With that, we have seen a stress on the ability to expedite claims efficiently after an event. Severity of event and shortage of available adjusters are just a few issues we see that effect results. Increased cost of construction, short term availability of materials and labor, and claims litigation all play a part in the drag that carriers and insureds are experiencing. In some instances we are seeing claims stay open 18 to 24 months after the event.
With the claims cycle lasting longer, the carriers are feeling an even greater strain on paying out more of a claim than contemplated in the actuarial or underwriting process. The longer a claim stays open the longer additional coverage payments drag on such as Business income. As payments continue, so does the loss ratio and that loss ratio then bleeds into multiple years of reporting. With the recent events we have seen some industry loss ratios exceed triple digits year over year.
There’s been a day of reckoning recently in the E&S property market starting in London and slowly moving domestic. Years of chasing rate, expanding coverage and growing aggregate has stressed profitability during the catastrophic claims cycle . Many syndicates in London have withdrawn from aggressively writing new business while they focus on the severity of the non performing 30% of their loss driven accounts. Domestic markets that ether borrow capacity from London or have had similar organic losses are also taking measures to secure rate adequacy and book balance. Re-insurance pricing and terms are also on the rise, and have both global and domestic carriers reviewing their underwriting platforms and account performance. New modeling systems, greater access to on-line secondary account data, and past loss performance are all going into the new daily underwriting process.
What does this mean for you and your accounts? Sure, there will always be “new capacity” and at times, “program” driven disruption; however, we are seeing the pricing starting to firm in the past quarter. For better performing accounts, flat renewal pricing has become the substitute for years of offering renewal at a 5%-8% discount; while loss driven accounts are seeing renewal rates climb as high as 18%. Deductible structures, limits on lines, and certain coverage enhancements are also changing. Now more than ever, is the time to discuss with your Socius broker the hurdles and options that your upcoming renewals will face in 2019.
We have an expansive partner market network, long standing relationships with senior carrier managers, and we work diligently everyday to uphold our core values that include, “doing what’s in the best interest of the insured”, and “placing the business where it belongs”.
Please contact your Socius producer to discuss available coverage solutions.