Every submission tells a story

Dislocation creates challenges and drives opportunities for small and mid-sized business, according to Axis Capital’s head of wholesale lower middle market Britt Smith.

One of iconic rock performer Rod Stewart’s most memorable hits is “Every Picture Tells a Story”, in which the chorus builds to a fast-paced crescendo, repeating the title lyrics over and over. It’s one of those lines that sticks in your head for hours after you hear it.

It is also a fitting analogy for the furious pace of change and dislocation in our wholesale markets today. Insurance may not make for compelling rock lyrics, but every submission does tell a story.

The submissions pouring into the Axis lower middle market team tell stories of dislocation and a struggle to find insurance protection in the standard market. Our experience supporting smaller businesses demonstrates that it’s not just large organisations facing the dislocation challenge, but also the small businesses that are the backbone of the American economy.

Our team focuses on E&S property, primary casualty and excess casualty insurance, and it’s our job to help these businesses find the coverage solutions they need, so they can continue to grow and thrive. They value the peace of mind from knowing they are protected in the event of an insurance claim.

Challenging claims environment – rising legal, medical and social inflation

While the headline number for inflation, the Consumer Price Index, has declined substantially from its peak two years ago, the underlying claims cost drivers that have plagued the system in recent years have not gone away.

The claims cost drivers for property insurance include the rising cost of materials and labour as well as the influence of climate change, new state laws and insurance fraud. Florida’s and California’s residential insurance challenges are well documented, but those issues factor into the “loss creep” that commercial insurers are experiencing not just there, but in other states with significant exposure to wind and other natural perils.

The casualty claims environment has been pummelled by years of rising legal, medical and social inflation with no immediate relief in sight. Small and medium-sized businesses are now beginning to experience some of the pain that major corporations have felt for a few years. As the Insurance Information Institute has said: “Analysts believe social inflation is the combined product of socioeconomic, legislative and litigation factors that spark more frequent, sizable and sometimes unnecessary claim payouts.”

The institute’s recent report added: “Whatever the primary drivers, social inflation is shifting loss ratios for insurance and disrupting forecasts, rendering cost management more challenging.”

The cost creep of social inflation seems inexorable. States and jurisdictions like Georgia and Pennsylvania that were once stable are now rising to prominence as troubled jurisdictions.

In this environment of increasing loss frequency and severity, even a modest settlement or verdict against a smaller business can leave the owner on the outside looking in when seeking to renew their insurance coverage.

Best practices: partnering with wholesale brokers

Wholesale brokers are key partners for insurance buyers struggling to find coverage, and they have always been entrepreneurial and innovative. Their skills are being tested as more and more risks move into the E&S market.

The dramatic growth of the past five years is eye-popping. Research from Standard & Poor’s shows that E&S premiums surged 117 percent from $34.6bn in 2018 to $75.5bn in 2022. We saw similar momentum through 2023 and into 2024.

The pressure on our broker partners is enormous. There are a handful of best practices that help achieve balanced outcomes in this pressure-cooker environment.

- Telling the story– Brokers that can quickly and clearly share the company’s story help the underwriter put the customer and their risks into context.

- Focus your submissions– Sending dozens of unqualified submissions to carriers reduces a broker’s chance of success. Successful brokers do a great job of understanding the risk appetite of their key carriers and what it will take to win the opportunity.

- Establish a predictable risk appetite– For carriers, being clear with brokers about risk appetite and avoiding surprise shifts provides benefits at every phase of the market cycle. Consistency in financial ratings and claims support is also vital.

- Respond– As underwriters, we can get harried at peak renewal times. Still, the best underwriters win business because they respond in a timely way. Ghosting a broker and their customer is never acceptable.

What to expect in this market

Brokers and carriers are seeing an ever-expanding variety of small and mid-sized companies seeking coverage in the E&S market. In just the past few weeks, Axis has written coverage for agriculture, entertainment, specialty commercial construction, specialty vehicle fleets, and property risks like private school buildings.

Among the risks we find most desirable right now are commercial contractors, product manufacturers, distributors, warehouse operators and service companies, such as landscapers. Additionally, companies with vehicle fleets – from plumbing contractors to propane delivery – have been finding it challenging to secure coverage. We have delivered excess liability solutions for many of them in recent months.

For example, we recently moved quickly to help a pool company in the Southeast stay on the road servicing customers. The company needed new coverage ahead of a weekend policy expiration. Our team worked with the broker to evaluate the company’s story and delivered fair terms and a new policy in less than 24 hours.

While there is dislocation in the E&S small and mid-sized business market, Axis sees our role as providing specialty solutions to our wholesale broker partners that fill gaps in the market, rather than disrupting it. We recognise there are many established carriers in this space and we respect the trading relationships our wholesale partners have with those carriers. We want to add value by offering our customers an E&S carrier that can serve their insurance needs across the broad spectrum of business sizes through an elevated level of predictability, financial security, underwriting acumen and claims expertise.

Telling the story

To paraphrase Rod Stewart, every submission tells a story. In every case, the submission tells a story of a problem: a problem finding coverage for a business that wants to keep moving and keep growing.

As E&S carriers, it is our job to help our broker partners and ultimately our insureds with a coverage solution. When we are at our best, we dig in to understand the story and create a balanced and fair insurance response. Given the growth of this market, it is clear that the E&S market is getting it right more often than not.