Agents can be hesitant about engaging with excess & surplus (E&S) lines, but if they shy away then they and their customers could be missing out on a booming market, a wholesale insurance practice lead has said.
“If agents are avoiding the E&S market, they’re missing out on opportunities for their clients, but they’re also missing out on revenue for their agency, because the E&S market continues to grow, and it’s going to continue to grow in 2023,” said Bill Gatewood, Burns & Wilcox corporate senior vice president, national personal insurance practice leader. Gatewood spoke at Burns & Wilcox’s P&C Market Outlook: 2023 online event.
The E&S market saw a record year in 2021, with surplus lines direct written premiums hitting $82.6 billion, according to AM Best.
Agents feel financial strength hesitancy
Agents, though, can sometimes be “hesitant” to wade into the growing market, Gatewood said, and some have shared lingering concerns around the financial strength of the cohort.
Agents “sometimes believe that surplus lines means carriers that don’t have a lot of financial strength, and they just started yesterday, and that’s just not the case”, Gatewood said.
“You’ve got a great deal of financial strength in the surplus lines space and all you have to do is look at the number of financial impairments on the admitted side versus the E&S side in recent years – I mean, it’s not a contest, right? –, there’s no financial impairments on the E&S side and several on the admitted side.”
Burns & Wilcox is seeing “a lot” of agents looking to fill holes in books they had previously held with a carrier that was B-rated, or undercapitalized, or insolvent, according to Gatewood.
“Nobody should be hesitant about coming into the E&S market because of financial strength,” he said.
Rate increases challenges for admitted market
With carriers on the admitted side having a difficult time getting rate increases approved through “various” departments of insurance, now could be as good a time as any to look towards E&S, according to Gatewood.
“It’s [taking admitted carriers] a very long time to get them approved and they can’t always get the amount of rate that they are filing for, so when you have an unprofitable industry that can’t get the rate that it needs when it needs it, that just exacerbates the profitability issue,” he said.
Agents should look to the E&S market as a “safety net”, but there are further benefits, Gatewood said.
“We’re seeing a lot of admitted companies flipping over and using E&S paper because they can get the rate … and I think sometimes agents will view that as a negative,” he said.
“But really the alternative is, those carriers call up and send a letter around, saying ‘we’ve shut off business’, and so this is a way for the insurance market to continue to progress.”
What positives should the E&S market deliver for agents and clients?
Agents should expect to communicate with an expert when approaching the E&S market, Gatewood said.
“Most of the business that comes into the E&S market comes here because it’s a challenge, and so you’re working with people that have a great amount of knowledge and expertise in placing those challenging risks,” he said.
“In my space, whether it’s a very high value home, it’s right off the coast, it’s a high-profile individual, it’s somebody that’s had some problems with their insurance in years past,” Gatewood said. “Whatever it is, you’re going to deal with an expert that knows how to solve that problem and knows how to navigate the market and find that solution.”
Do you agree with Burns & Wilcox’s Gatewood that the E&S market offers opportunities for agents and customers? What has your experience with the market been like? Drop us a comment below.