Markel’s Schauss: Rise in surplus lines coverage indicative of “uncertainty”

The rise in “general uncertainty” and interest in specialty products has driven a spike in surplus lines coverage, which now represents a much larger premium percentage across the P&C industry, according to Mark Schauss, Markel’s executive underwriting officer, small commercial.

“If you look at just surplus lines writings as a proxy for that rise in specialty insurance, you can see that surplus lines writings now represent 11 percent of the total P&C industry, and roughly 20 percent of the total commercial P&C industry,” he told The Insurer TV.

“Both of those are nearly doubled in their market share over the past two decades – so a pretty dramatic rise,” he added.

According to Schauss, this is indicative of a “general uncertainty within the marketplace”, whether due to impacts from Covid-19 or from social inflation.

“I think all these changes create an uncertainty that's moving fairly quickly and that's driving businesses to look for more of a specialty-catered need that more accurately reflects their operations,” Schauss said.

But Schauss pointed out that Markel knows its way around admitted specialty products and is responding to shifting client needs by offering comprehensive solutions.

“We really provide a comprehensive solution for those specialty niches. And we also have a surplus lines option for small businesses, for those really unique kind of 'outside-the-box' type of operations,” said Schauss.

Such niche specialty offerings have become more common, and frequent, since the Covid-19 pandemic, according to Schauss.

Many businesses had to change on a dime to address changing consumer needs. Schauss gave the example of hybrid working, which has blurred the line for workers’ compensation exposures, and also mentioned restaurants and grocery stores, many of whicht have pivoted to delivery models. These operational shifts can present unique loss exposures.

“Maybe it's an increased auto exposure with delivery, maybe it's your Uber Eats driver coming through the back door to pick up the food to deliver, creating a new slip-and-fall hazard. It could be businesses that are changing their operations entirely,” said Schauss.

And many of these adaptations, like virtual learning and paperless transactions, are likely here to stay. So like the businesses they support, Schauss said underwriters must adapt.

“When things are changing at a quick pace, it’s really critical that these underwriting processes recognise these changes, and pay close attention to what these might have, whether that's from new loss exposures, changes to development patterns, you name it.”

To integrate such changes, teams must be proactive, according to Schauss.

“Communication between underwriting, between claims, between actuary, and all the other various components of the organisation of various functions, [is] absolutely critical to understand what's happening, what's changing with these operations, what's leading to new losses that we weren't expecting, what's leading to outsize losses, different than what we historically would have been expecting,” he said.

Risk management is another proactive way to address uncertainty. As Schauss explained during the interview, recent data and analytical advances can be employed to help small businesses assess the uncertainties that are yet to come.

“We're able to identify characteristics that might drive losses and when we identify those, we're able to incorporate those into our pricing in ways that we never really were able to do historically,” said Schauss.

Third-party data integrations can also gather information needed to confidently underwrite policies. But in the end, Schauss considers technology a tool that jumpstarts a “people-powered” industry.

“Especially when we talk about the specialty nature of what we do, it's critical that we have people that are there to respond and address these insureds, whether it's through the claims process or the submission process,” said Schauss.

“We here at Markel feel like that's really the secret sauce to being successful in this specialty small commercial space.”

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