00:00 - these data centers are not using AI to place their own insurance. You think they would have by now. >> Tornado Alley now has expanded into Dixie Alley. >> I do not believe there are any property risk today that would truly be a non-cat risk. >> [music] >> Hello everyone and welcome to an E&S property insurance special here on Insurance Business TV as we navigate volatility, capacity shifts, and a new risk landscape. The excess and surplus property market, of course, continues to
00:33 - evolve as carriers balance growth opportunities against increasingly complex risk exposures. Now, this roundtable brings together leading E&S property professionals to discuss market conditions, emerging risk capacity trends, and the outlook for one of the industry's most dynamic sectors. Uh joining us today, we have Tom Krause. He is SVP, head of middle market property at Westfield Specialty. Jake Rothfuss, he is CEO at Velocity Risk Underwriters and WKFC Underwriting Managers. And Wes Robinson,
01:04 - National Property President at Risk Placement Services. Uh so, welcome, gents. And of course, after several years of significant rate increases and tightening conditions, what I'd like to know is the E&S property market now entering a more competitive phase? And indeed, how are brokers and insurers balancing growth opportunities with underwriting discipline? Uh Wes, I'll start with you. >> Uh yes, sir. Thanks for having us. Uh I wouldn't say we're entering a phase of more competitive behavior here. I
01:32 - think we've been there for a couple years. Um so, it's been 3 years now since we've had uh notably the largest rate increase environment in in a generation. And so, there was some rebound from that, and that's been happening for a couple years. And it's to the point now where the E&S sector can very actively compete with the admitted market's um single carrier deals, and win those deals. Uh not all of them, but more than I can remember in any distant memory. That's
02:01 - how competitive the E&S market has become. And it's become that way for a few different reasons. There's flexibility. There's creativity that can happen with the E&S world. So, we're very much there to be able to compete with the admitted market now. >> Okay. Given that's a fair perspective, Tom, have the rates and terms been coming down for a while now? >> Well, first of all, thanks for having us. I agree with Wes. I would say for the last year and year and a half,
02:30 - rates have been coming down and terms as well. But, I will say when it comes to growth, I think I think the market is looking at currently where they are. What sort of occupancies and territories are they in today? And then from the growth perspective, do they now go into other lines or other sectors within our business? Do they get into small property, middle market property? And then within the large property um space, you know, the shared and layered, are they are they attaching at different layers where they never did
03:01 - before to help them grow? >> And is it fair to say, Jake, from your perspective that we have perhaps a wider range of risks that we're considering now? >> Yeah. And Paul, again, thank you for having us. This is wonderful. Completely agree with that. At this point, there you know, the proportion of risks that meet our target portfolio returns is coming down, which really means that we have to increase the amount of risks that we look at across the country. We have to get really
03:29 - serious about underwriting efficiency and being able to really review and underwrite a larger subset of the marketplace to find those technical returns that match the portfolio's needs. >> We have to talk about cat losses. They are, of course, occurring, it seems, on a daily basis of late. They continue to rise, but secondary perils such as convective storm, wildfire, flood, severe weather events are increasingly driving claims activity as well. And Tom, from your perspective, how is that
03:58 - changing underwriting strategies and indeed portfolio management decisions as well? >> Well, I would turn around and say, you know, from a secondary peril perspective, that the definition of secondary perils, there are many organizations, including Westfield, we are not looking at flood, convective storm, wildfire as secondary perils. We view them as critical catastrophe perils. Um so, we were always been cognizant of those exposures. We are seeing the market uh where um due to their risk analysis, they're
04:36 - being more cognizant of those exposures. So, we're seeing the marketplace become a little bit more competitive in certain zones. Uh you know, back in the you know, back a few short years ago, there was only what was called Tornado Alley. Tornado Alley has expanded into Dixie Alley. And again, you know, uh we can you can have a catastrophe uh in in any zone. Um and as long as the underwriters are aware of what their aggregates are, uh our industry can um and comply and provide capacity to our insurance.
05:12 - >> Yeah, I like that explanation of how Tornado Alley has expanded. Jake, is it fair to say that uh do all property risks have some catastrophe element to them now? >> Absolutely. Yeah, I do not believe there are any property risks today that would truly be a non-cat risk. And to the earlier points, really, I wouldn't view it as a secondary peril. It's really a question of which perils are have been well-modeled or easier to model versus those that are truly
05:41 - harder to understand and harder to model, such as wildfire or severe convective storm. So, I believe that in our business as an industry, we have a great opportunity to continue to demonstrate that we can provide expertise around the underwriting and the pricing and the modeling of those harder to understand perils such as wildfire. So, we're in a place where if you have made investments in technology, infrastructure, underwriting analytics, and you can underwrite at scale, you can produce your own view of risk as a
06:17 - carrier. And that view of risk is exceptionally powerful and valuable to everybody that we trade with and do business with inside the E&S sector. >> I think everybody is putting me in my place about that term secondary perils, but it's quite fair, isn't it, Wes? I mean, the loss data has really proven how big these risks are now. >> Yeah, yeah, there that's a good point. We may not be using that term in the very near future. You know, companies like Tom's, you know, they
06:46 - started not too much in the distant past, right? They're a modern era E&S division of a larger company, but they came right out of the gate, Velocity as well, knowing that that they don't need to look at them as primary and secondary. They need to look at them as real and potentially devastating. And you're right, the loss data is making people say they're not they're not asking is it a secondary peril like the loss data is proving that it's a primary peril. And so, what
07:19 - that forces all these carriers to do is make risk selection and the analysis of that vitally important because the price is one thing, but if you get the risk wrong, if your portfolio just doesn't look as good as it should, then then that's really the devastating factor that to the carrier. >> I want to come back to the catastrophe theme a little bit later if I can, but first of all, let's focus on property valuations as well if we can. Of course, rebuilding costs remain a major
07:49 - concern for insureds. Jake, from your perspective, how are brokers and indeed insurers addressing valuation adequacy and indeed what lessons have emerged from the recent claims experience? >> Yeah, valuation is absolutely one of the most critical elements that we have as an as underwriting organization around understanding the risks that we're taking on. There's no doubt about that. Uh the last few years of the hardened market really helped us get valuations to a place where they felt uh they were
08:18 - they were correct. They were at the right technical levels. Uh that has really been something that I see the industry continuing to hold on to. Generally speaking, the discipline continues to be there. There are pockets where it's not. But ultimately, those that have the discipline are doing it in a way where they're looking at econometric data, their claims data, internal data, uh third-party data from the industry. They're listening to their broker and carriers uh alike trying to come up with what that right valuation
08:50 - is. And I do see that there's a level of discipline around that conversation that three or four years ago wasn't there. >> And I know this is a subject that you're particularly passionate about as well as you've actually written an article around valuations recently. >> Uh yes, thank you. Yeah, and the valuation article uh really wasn't about how to get the proper valuation. It was kind of a message to the client base to know what happens when you leave the standard market, right? Or a single
09:23 - carrier deal. Uh because the language in a manuscript form or an E&S carrier form might be different. There's different endorsements like the occurrence limit of liability endorsement. There's margin clauses. There's agreed amount. There's blanket. There's a multitude of ways that the that the industry is showcasing the importance of having the proper valuation. All right, so it's up to the insured and the broker to figure out what that is, uh but they
09:48 - need to understand the complexities of getting it wrong, right? And there's cuz there's major consequences to that. Um there's a major reckoning during the hard market a couple years ago, two to three or four years ago now, um because it was such a systemic problem. And there are legitimate claim examples. Um there's probably a large book of those on why it is so important. And so there was a little bit of a of a rebound effect on that. Uh I believe every insured uh was educated
10:20 - properly on the importance of that and for that, like Jake said, like we are now in a much better spot. Uh the one thing I would mention is it seems to be to have been relaxed a little bit the past couple of renewal cycles. Uh but it it's just it's a it's a note to the industry just to always keep an eye on that so that we don't have to do the reckoning all over again. >> I believe there's a message to put across to clients here, Tom. But do you think valuation discussions have
00:10:48 - managed to stay at the top of those conversations with clients? >> I would turn around and say, you know, Wes kind of mentioned it before, you know, three to four years ago during the renewal or the account negotiation, it was oh, the valuation um was always part of the key component discussion. Today, I would tell you that it feels like we are um slipping a little bit as an industry. Uh we're getting away from, you know, talking about valuations. And you know, case in point, um you
00:11:23 - know, we're seeing sometimes that values uh that were expiring are the ones that are being submitted today. So, so we're kind of almost negating any sort of inflation um that that that that we all incur and as carriers. Now, I will say when it comes to valuation, there's different um tactics, if you will, that that carriers can take. They can accept what's presented, move on. They can push back. Uh can they turn around and push for schedules versus a blanket? Um you know,
11:57 - or maybe was that uh with a more than closes as what I signed. Um I had mentioned orderly turnaround and need to different attachment points or change their rate structures um at any capacity uh deployment as well to, you know, to get around that issue. >> Hey well, let's uh let's talk a little bit about tech if we can. Of course, we've seen advances in modeling, geospatial analytics, artificial intelligence. They're all transforming risk assessment. So, how much confidence
12:27 - should the industry place in these tools? And indeed, where does underwriting judgment still play perhaps the most important role? Uh Wes, any thoughts on this? >> Uh well, they're tools, right? And they should be used accordingly. And to the to the underwriting companies out there uh with access, they need to evaluate the cost-benefit analysis of any new tool they introduce to their system. But if they're not using every tool available to them to make their portfolio the best, then they're
12:55 - not doing their job appropriately. Um it's vitally important. Going back to using tools to pick the risk base all those quote-unquote secondary perils, right? And Jake mentioned that, too. Um they're tools. They have to be used in conjunction with the human element, though. And I have uh example one example after another on if you just left it to the modeling or the tools, uh the robots, if you will, then the insured loses that. Uh I've got many accounts that I needed somebody to
13:28 - wrestle an underwriter to wrestle through the issue and come up with the right decision. And if you just left it to the tools, uh that's a loser for the insured at this point. >> Yeah, it's such an important point, isn't it, Tom? We can't let the tools dictate too much. >> Yeah, I agree with Wes 100%. Um again, it is a tool and depending on what model you're using, some tools honestly are just better than others. But I don't
13:56 - think that the underwriting expertise, the individual sitting at the desk analyzing the risk, you can ever take that away. Um at that point, um that's when the robots, you know, to Wes's term before, that's when the robots take over. At the end of the day, uh there are a lot of very talented E&S underwriters at the desk are making very critical decisions for their firms. And I think another point that needs to be made is, well, what is a tool? The tool is only going to be doing uh it's
14:30 - going to spit out a result. Well, what if that's bad data? Somebody wrote a read, uh human error, or just even if a model miss. So, bad data could end up with bad results. >> We're getting a clear message here, Jake. We have to be careful with the influence the these tools have on the decision-making process, don't we? >> Absolutely. You know, the tools are there as Wes and Tom have mentioned to help the underwriters make better decisions, not the other way around. I
15:00 - look at it as a virtuous cycle. So, we deploy tools, we give them to underwriters, we watch what the underwriters do with them, we measure the success of the decision-making, and then we rinse and repeat over and over and over again. And I think that it to me is the right marriage of tools and expert underwriters working together. >> Yeah, and I said I would come back to the catastrophe point and I'll frame it this way. As admitted markets continue to adjust appetite in catastrophe prone
15:30 - regions and challenging occupancies, how is the role of the E&S market evolving and indeed are there risks that should remain outside traditional market capacity? Tom, what are your thoughts on this? >> I will tell you this in in my experience the admitted marketplace when it comes to property catastrophe is at best inconsistent. It's market driven. It's loss driven. Where there's consistency as we've been talking about during this chat is the E&S marketplace. The E&S
16:06 - marketplace has in in my almost 40 years has always been consistent provider of capital for those perils those exposures. Now all these might be with different rate structures, deductibles, but we've always been here and our insureds I think can feel confident that no matter what mother nature presents we can have a solution for them. >> Yeah, I guess that this is one example Jake of the agility of the E&S market really thriving. >> Absolutely. So when you think about
16:43 - something such as complex natural catastrophe perils, agility is the name of the game. The marketplace is changing, the risk profile is changing, and our ability as an industry to really adapt quickly has allowed us to very efficiently underwrite and price those risks over time which has led to the stability that that Tom mentioned. And it also led to a continued inflow of capital into the marketplace in order to take risk alongside the carriers and the other participants in the space. >> The E&S market, where's is it still a
17:23 - relatively small segment overall? >> Overall, it is small compared to the general P&C market, right? So, that that for the first time ever at $1 trillion of premium. And so, the E&S segment is still only a relatively small percentage of that, a little over 100 billion. Uh so, it's much larger than when I started, it was about 90 billion. So, that's obviously a lot larger. And the And the larger it gets, the more you're going to have the fringe accounts kind of going back and forth between the
17:53 - standard market and the and the non-admitted E&S market. Um I think there's always going to be accounts that are that are rooted 100% in the E&S market. And there's always going to be accounts that are always going to be in the admitted market. Um but that that line between E&S and admitted it has grown and will probably continue to grow. Uh and those will be probably the most market-driven accounts, right? Sometimes they're going to be gobbled back up by the admitted and sometimes they're
18:22 - 00:19:28
going to flow to the E&S. That is market-driven, that is loss-driven. Um but I always liken everything to Jupiter, right? So, uh Jupiter is the P&C market with the storm on Jupiter being both in scale and volatility the E&S world. It And it serves a good purpose for all the insureds. It's been fascinating to watch it do its job through all of the volatility that this world has seen, that the US market has seen uh with everything that's been thrown at it in the past 10 to 15 years.
18:56 - Um it it's why it is be as big as it is. So, it can't get too big as a percentage because then it would just be called the market. And I don't think that's what any of us on this um on this presentation want. >> Well, what a fascinating market. And of course, it's always fascinating to look at the future. So, as we look at 2027, I'd love to know what property risk market development or emerging exposure do you think is most likely to reshape the E&S property sector over
19:25 - perhaps the next 12 to 24 months. I'll work through each of you and get each of your verdicts. Look into your crystal balls, if you don't mind. Jake, let's start with you. >> I don't think I have to look too far into the crystal ball. I really believe we're in the midst of it right now, which is around the investments that the industry's making into artificial intelligence. The E&S market in total, it creates value and adds value to the entire ecosystem by being able to make sense of
19:55 - hard-to-understand complex risks. And when I think about the opportunities in front of us through artificial intelligence, it is absolutely aimed at solving or helping to solve that problem. So, I believe that we are in a place where this is the start of a bit of a golden age for the E&S sector in terms of utilizing artificial intelligence and being able to move very quickly in order to utilize it in a way that helps add value for clients, carriers, capital providers, brokers, etc. >> No sure this conversation is complete
20:33 - without talking about AI, is it? Wes, let's get your prediction as well. >> I don't think any conversation's complete these days without talking about AI. I Funny enough, on a on an individual risk basis part of that question, you know, there's data centers, right? And data centers primarily for AI. Like, they are they are so unique from a property risk perspective that you know, each one of them is measured in the hundreds of millions to multiple billions of dollars on a single shot location, right? So,
21:07 - that in and of itself is unique. There are plenty of billion-dollar accounts out there. Uh most of those have a decent spread of risk, right? At least different addresses. Um so, that unique exposure the industry's had to grapple with, and a lot of capital has to be routed and deployed to cover the demand for not just the data center itself. That unique concentrated exposure is one thing, but so is the transit exposure and the EDP exposure and the infrastructure, the water, the water treatment plants, everything else that
21:38 - goes along with it. The industry has to figure out how to how to properly cover that. Well, when capital's being deployed and diverted that way, well, that that kind of leaves the door open for other capital needing to be deployed. So, um most of those risks are standard market retail driven, right? With a little bit of E&S relative to the to the to the greater uh capital, but that leaves the door open for a lot more capital to come in to be deployed elsewhere. Um and ironically, these data centers
22:12 - are not using AI to place their own insurance. You think they would have by now. Uh further showcasing the need for the human element to actually do the job. >> And then Tom, looks like you're nodding along. So, do you agree that AI data centers are the most striking examples here? >> And yeah, I think I think from a from an risk um exposure perspective of data centers, absolutely. But I also agree um a little bit with you know, with Jake and on the AI perspective. I mean, I mean, if we're
22:45 - talking about market developments, uh we've already touched about how, you know, certain carriers are going to have to look at other avenues within the property space. Well, it really comes down to speed to market and helping the individual risk underwriter analyze that account. So, AI is definitely going to be a uh you know, incredible for us in the next, you know, 2 3 4 years. But, I will also say, too, my own personal commentary is that you know, absence a major capital event and/or loss of um a reinsurance
23:20 - capacity, I think our marketplaces is for the next 2 years is probably going to be, you know, kind of consistent and I think we're going to be in this space going forward and you know, we're all going to have to just internally sit down, put our heads together, and we'll get other ways to uh you know, address health for from both perspective, but also, too, when we see something that's um a newly emerging risk, um come up with a solution better. >> Great to uh to get heads together on
23:53 - this call. Great thoughts from everyone, indeed. Huge thanks for your time. Remember, we have a dedicated E&S space at Insurance Business America where you can keep up with the latest market developments, and of course, for more expert insight, keep it right here at Insurance Business TV. >> [music]
