Longevity prevails in the E&S specialty market

Allied World’s president for North America casualty Joseph Cellura examines the unique opportunities in the rapidly growing E&S market…

Much has been said about the unique opportunities in the rapidly growing E&S insurance marketplace. Business has been moving with greater frequency from standard lines carriers into non-admitted channels and rates continue to rise in response to increased risk.

Significant investments in this space have ranged from new insurance carrier start-ups and risk purchasing groups to MGA underwriting platforms backed by fronting carriers – with reinsurance syndication supporting them.

While the freedom of rate form may allow for greater underwriting flexibility and creativity, non-admitted capacity also brings less regulatory oversight and potential ambiguity in the business model.

E&S risks tend to be higher hazard, more volatile and have longer-tail exposure than admitted market risks. The promise within the insurance contract can be delivered on many years into the future, so an insurance buyer should understand their insurer’s track record, financial stability and long-term commitment to the products they provide. Knowing the underwriter(s), claims team and reinsurer involved in their policy is valuable, although at times difficult when some insurers outsource certain services to third parties.

“While the freedom of rate form may allow for greater underwriting flexibility and creativity, non-admitted capacity also brings less regulatory oversight and potential ambiguity in the business model”

A closer look at the E&S claims model

An insurance contract, like all long-term relationships, involves trust built through honesty, reliability and expertise. How well does a company know the insurer behind its policy? Are claims being outsourced to a third-party administrator (TPA) or are they managed by an internal team of experts with a direct line to underwriting management?

An in-house claims department can foster closer communication between all parties and help to facilitate decision making at the corporate leadership level. When parties are looking to resolve complicated claim matters it can be extremely beneficial to have a relationship with the team handling your claim and work directly with those that were involved in the original contract.

TPAs can be valuable and often bring specialised expertise with a strong track record but it is important to understand that expertise and the TPA’s relationship with the carrier.

What to look for in an insurer

The return on the investment in an insurance policy is in part based on the expertise and competency of a carrier’s claims team and appointed counsel. In an increasingly complex claims and legal environment it can take a decade to move a liability case from beginning to end in the US tort system. With the risk of nuclear verdicts continually on the rise, insureds need trusted defense counsel.

The decision on who handles claims is a significant one. A risk manager should ask themselves if their insurance partner will be there for them throughout the claims process – and regardless of the outcome, be there for them in the future. Do they share a claims philosophy across products and geographies and is there an overall alignment of interests?

“The fundamentals of choosing the right insurance carrier are similar to those of purchasing a home. Would you buy a house without first inspecting the quality of the foundation and mechanicals?”

When evaluating the placement of E&S coverage, an insurer’s investment in their own business can provide insight into their long-term commitment to the market. Have they implemented the highest levels of cybersecurity and achieved the appropriate certification to protect your company’s sensitive data? Do they have a proven operations system and underwriting support to deliver high quality and timely service? Contract certainty is essential to product performance. Additional investments in loss control services and client engagement further reinforce a commitment to longevity.

An insurer’s history of entering and exiting businesses should also be factored in. Are they consistent with their underwriting approach and committed to your line of business in the long run? Can they point to a history of loyalty even in the face of difficult short-term results?

The fundamentals of choosing the right insurance carrier are similar to those of purchasing a home. Would you buy a house without first inspecting the quality of the foundation and mechanicals? Proper due diligence is needed to ensure that you are making the best decision. Pricing is only one of the many factors to consider.

The road ahead

Selecting the right insurance partner can be key to your company’s success. Insurance companies with their own balance sheet, claims team and trusted reinsurance partners can be better relied on when you need them the most. Significant legal expertise both in-house and through panel partnerships can provide an advantage in navigating the ever changing and increasingly volatile tort system.