Independent insurance agents need to find coverage for their clients, but placing certain risks is becoming increasingly difficult. As underwriting in the traditional insurance market hardens, the excess and surplus (E&S) market is taking on a new level of importance. To succeed under these conditions, agents need support navigating the E&S market.
The Shift Toward E&S
Insurance underwriting profits have been squeezed by a host of factors – from high inflation to surging natural disaster losses. The Insurance Information Institute says the property and casualty sector experienced a combined ratio of 105.8 in 2022. That’s 6.3 points worse than the 2021 combined ratio and signals an underwriting loss. Insurers faced another hurdle at the January 1, 2023, reinsurance renewals: Insurance Journal says global property catastrophe rate increases were up by 37%, which is the biggest year-over-year increase since 1992.
These issues are having a direct impact on policyholders. According to the Council of Insurance Agents & Brokers (CIAB), commercial property premiums were up an average of 16% in the fourth quarter of 2022. Survey respondents also reported higher deductibles and more restrictive terms, with 89% saying they had noticed a reduction in commercial property capacity. Catastrophe risks are becoming especially difficult and expensive to insure.
Amid the challenges in the traditional insurance market, many policyholders are turning to the E&S market, as it may be the only viable option in some situations. As a result, the E&S market is thriving. S&P Global says E&S direct premium written in the U.S. surged to $37.60 billion in the first sixth months of 2022. This is an increase of 27.6% compared to the first sixth months of 2021. During the same period, the total U.S. property and casualty market only grew by 8.4%, indicating the E&S market is accounting for a larger share of the total insurance market.
Agents Can’t Afford to Ignore the E&S Market
As an independent insurance agent, you can’t grow your book of business if you can’t place your clients’ risks. In the past, you may have been able to rely on the traditional insurance market. However, as insurance capacity for difficult risks and catastrophe-exposed properties decreases, the E&S market is becoming increasingly important.
To serve clients in today’s environment, agents need to navigate the E&S market, but they may face several challenges along the way:
- Access: Carrier access is a common hurdle for independent agents but accessing the E&S market comes with its own set of challenges. Agents need to be able to place all, not just some, of their clients’ risks – otherwise, they risk losing their clients to another agent who can cover everything. This makes having access to the right carriers, both in the traditional and the E&S market, an absolute necessity.
- Education: E&S policies can be more expensive than traditional policies due to the risks involved. As clients may face sticker shock, agents need to be ready with the right information to educate clients on the E&S market and what to expect.
- Expertise: Agents may need help determining which E&S carriers to approach and how to position an application for success. This typically involves putting together a stellar submission that provides all of the information the carrier needs and tells a story to make the client attractive to the carrier.
Is Your Network Giving You the Support You Need?
Independent agents who are unfamiliar with the E&S market may feel intimidated, but avoiding the E&S market is not the solution. Many of the factors that have contributed to the growth of the E&S market may continue, including natural disasters and economic uncertainty. For this reason, surplus lines will likely remain an important source of coverage in the foreseeable future. Agents need to master this market if they want to win and retain business.
The right network can help – but not all networks are the same. Some networks don’t provide the support that agents need to navigate the E&S market. In addition, recent merger and acquisition activity in the insurance sector has made it difficult for agents to find stable partners.
Heffernan Network is a stable partner with key wholesale relationships. We can direct and support your E&S insurance placements in addition to your traditional insurance needs. Do you need help navigating the E&S market? Contact us.