The findings of this year’s PIA Market Trends Survey have indicated that the insurance industry is in a hard market cycle.
Now, let’s look at how the professional insurance agents who took the survey responded regarding changes in insurer and underwriting behavior, and the shift we are seeing in placement of excess-and-surplus lines of insurance.
Independent insurance agents across PIA Northeast’s footprint (i.e., Connecticut, New Hampshire, New Jersey, New York and Vermont), participated in the survey, which is a clear indication that we are in the midst of a hard market that is forcing insurance producers to think differently about how they protect their clients and place insurance lines.
According to the survey results, insurance producers are finding that they must remarket their business. In fact, approximately 22% of survey respondents answered that they are having to remarket 11-15% of their business; with approximately 21% of respondents stating that they must remarket 16-25% of their business. And, astonishingly, approximately 30% of respondents stated that they have to remarket 26% or more of their business. This is an almost 80% increase over the last time the survey was conducted, which was in 2018.
Tighter underwriting guidelines may be a cause
Survey respondents indicated that underwriting guidelines have become 33-45% moderately stricter across personal auto, personal homeowners, commercial property, and commercial liability lines of insurance. They also indicated that underwriting guidelines are approximately 23-34% significantly stricter across those same lines.
Another indication of the hard market is the increase in nonrenewals and cancellations of policies. Those responding to the PIA Market Trends Survey indicated that there has been a moderate uptick in nonrenewals and/or cancellations of approximately 21-31% across personal auto, personal homeowners, commercial property, and commercial liability lines of insurance.
According to the survey findings, almost 53% of respondents stated that they have seen an increase in the percentage of their book of business that is placed through a wholesaler.
What does this mean?
With the hard market forcing insurance producers to look elsewhere to place business, there are some important things to consider, especially if the business is placed in the E&S market.
What to look for in an E&S carrier
Although you may not have excess- or surplus-lines authority and you may have to place E&S business through a wholesaler, you still owe a duty to your client as the originating producer. Therefore, when working with a wholesaler and seeking an E&S carrier for a client there are several things to consider—such as whether the E&S carrier is adequately capitalized, and whether it has a strong reputation and rating. The carrier’s leadership, history, and management of the classes of business being written also are important to consider. It would be helpful to consider how the E&S carrier manages and handles claims, as well as any litigation in which it has been involved.
Good-faith, certification efforts
As a baseline requirement, most states require that the originating producer has first made a good-faith effort to place a customer with an admitted carrier before turning to an E&S carrier—sometimes with up to five admitted carriers. To prove a good-faith effort, a producer must complete an affidavit or certification attesting to such efforts, and at a minimum should include the names of the insurers contacted, representatives of the insurers with whom the producer spoke, and identification of the reason for declination of coverage. These will be some of the first things requested by regulators when auditing E&S activity.
An exception to this general rule to attempt to find an admitted carrier before turning to the E&S market is to check a state’s list of specific lines of coverage of which the state has acknowledged there is no adequate admitted market—often called an exportable list or white list. Although the E&S market is not regulated the same way the admitted market is, please note it is critical for producers to be aware of the rules in the state in which they are placing the E&S business regarding imposed limited financial solvency supervision and deposit requirements on E&S insurers.
Once a relationship has been created with the proper wholesaler for the proper product, there are some additional things the originating producer needs to keep in mind. Once you receive a quote from the wholesaler for your client, it should include the limits, deductible, premium, and basic terms and conditions. It is of utmost importance that you also crosscheck the quote with what originally was requested by your client.
Most of the time when working with an E&S carrier, there already is a time crunch as the E&S market tends to be one of last resort. Be mindful that the wholesaler is the agent of record—so the originating agent most likely has zero rights in binding coverage unless given explicit authorization by the wholesaler. If a quotation is accepted and coverage requested is to be bound, notify the wholesaler in writing immediately.
Premium payment terms may be more stringent than in the admitted market, so originating agents need to be careful to heed special payment terms—if they do not, they risk cancellation of coverage.
Disclosures to the insured
Most states require disclosure to the insured about the following disadvantages of the E&S market:
- The policies are not filed or approved by a state regulator.
- There may be different terms and conditions than would otherwise be allowed for an admitted carrier.
- Generally, they will not be afforded guaranty fund coverage in the event an E&S insurer becomes insolvent.
Although one may be just the originating producer, when dealing with the E&S market, it may be helpful to adopt an elevated standard of record keeping for E&S business, as well as keep up on state regulations regarding commission sharing and fees due to the nature of working with wholesalers.
PIA Market Trends Survey results indicate that now may be the time to explore the E&S market. Despite it having an entirely different set of considerations than that of the admitted market, during a hard market, it may be a valuable tool to help not only maintain, but to expand your book of business.
Danielle Caswell, Esq.
Danielle Caswell joined PIA Northeast as associate counsel in the Government & Industry Affairs Department in 2023. She earned her bachelor’s degree from New York University and her law degree from Brooklyn Law School with a particular focus on intellectual property, information, and media law. Prior to joining PIA, Danielle was an associate at a law firm in New York City where she focused primarily on intellectual property and entertainment-related transactional and litigation matters.