The construction sector might be booming, with some projecting it to be among the fastest-growing industries in the US over the coming years, but that doesn’t mean it’s free of risks. For one, a shortage of skilled labor due to a workforce that’s retiring and leaving behind newer employees opens up construction projects to potential issues.
“When you mix an aging workforce with an influx of less experienced employees, you have construction defect issues, you have workplace issues associated with action over the type of injuries that can impact the primary carrier and the excess carrier,” said Jeff Kilmartin, senior vice president of excess casualty for Venture Underwriters, whose risk appetite includes contractors, as well as manufacturers and owners, tenants and landlords. “You also have a lot of fluctuation in some of your general contractors, meaning that if you look at their historical exposures, you don’t see discernible trends. You’ll see where five years ago, they had $5 million in receipts, and two years ago they were $11 million, and this year they’re $3 million, so we have to ask what is happening? What is driving that and is it that you are losing business, gaining business, or changing operations, and is there an evolution in what you’re doing?”
In the last five years especially, those fluctuations in recent exposures make it challenging for carriers to determine where the insured is going. On the excess E&S side, the catastrophic potential for loss is what worries Kilmartin since you don’t have the law of large numbers working for you.
“The losses that a few insureds will experience are funded by the premiums of the many,” said Kilmartin. “On the excess side, because I’m dealing with capacity, meaning I’m going to be putting up potentially $5 million or $10 million, I’m writing a much smaller number of insureds with much higher limits of insurance and I’m getting much less premium relative to a primary carrier. Consequently I can’t rely on the law of large numbers principle to underwrite my book.”
Excess underwriters have to understand the specific story of each risk, and can’t apply a box underwriting approach – meaning that if it’s in the box, you write it and multiply it by your exposure to determine pricing, and if it’s outside of the box, you stay away.
“What we need to do on the excess side is we need to look into the individual risk – does the individual deal make sense for us?” explained Kilmartin. “Are we able to get our heads around it, do we understand the narrative around that individual risk, do we understand what the placement strategy is, why are we seeing it as opposed to somebody else, do we have a relationship with the broker, and do we understand what the broker’s relationship is with their retailer?”
To protect their business, Venture Underwriters prides itself on an agile response when brokers put risks out to market.
“You have to be very agile, meaning you have to respond and look at it very quickly. If you don’t meet that urgent need, what will happen is you’ll end up seeing business that somebody else picked over because a competitor is going to embrace that urgency.”
That’s where Venture Underwriters thrives – the company can make a decision immediately to change its direction, whereas some carriers are bogged down by bureaucracy. Starting in 2009, the excess industry also saw a lot of change as carriers entered and exited the market.
“We were stable and we didn’t withdraw from the marketplace – we stayed where we were, we kept our finger on the pulse of legislative changes, we changed what we needed to, but we never broke that trust relationship with our distribution,” Kilmartin told Insurance Business, adding that the company isn’t going to change its underwriting stance once a broker places business with them. “Brokers know that they can trust us.”