The U.S. Excess & Surplus (E&S) marketplace is experiencing substantial growth due to high demand in the hard market. From 2018 to 2022, the market has increased from under $30 billion to almost $100 billion in direct written premiums. This represents around 9% of the total P&C industry.
While Liability lines lead the growth, the Allied and Fire lines of business have also increased by almost $9 billion during the same period. Additionally, this business appears to be more profitable than standard business, with combined ratios under 100% for property, casualty, and the industry as a whole in 2022.
However, navigating the E&S market can be challenging for many agents, as it is essential to understand its limitations and concerns. Therefore, if you want to seize the opportunities in this growing segment, learning more about the marketplace and its intricacies is crucial.
Common concerns with E&S?
Property exposures in disaster-prone states are driving much of the growth in this market; in 2023, growth increased by 31.8%. However, other markets are also finding opportunities in E&S. The overall hard market and rising reinsurance costs have driven agents and brokers to look for more options.
However, non-admitted markets do have their concerns. In most cases, these policies have not been approved by the state’s regulatory body. In addition, and perhaps more importantly, this typically means guaranty funds do not back them. Should these companies go insolvent, there may not be a system to pay outstanding claims. But with many admitted markets turning away business, E&S provides a viable alternative to being self-insured.
Addressing These Concerns with Insureds
Most states have requirements to access the non-admitted market. Some require three declinations from admitted carriers, and some only need one.
If your clients compare a previously admitted policy and a non-admitted renewal option, clearly define how these markets work and the policy differences. For example, in some cases, the premium on non-admitted policies is fully earned when the policy is bound, so a mid-term cancellation would not result in any of the premium being returned.
In addition, it helps to be aware of the financial strength of any E&S carrier being used. If the carrier is not included in a guaranty fund, its strong financials are even more important for the client’s security.
And as a reminder, these policies still have some state regulation. Surplus lines offices also review company and financial data for these carriers, helping to ensure that “bad actors” are not writing policies in their state. In addition, “stamping offices” provide a partnership between surplus lines carriers and state regulators.
These entities serve as a clearinghouse for E&S policies. They “stamp” the policies to make it abundantly clear that they are not an admitted and state-regulated policy.
Leveraging the Marketplace
Options are critical for your insureds, especially in a hard market. The E&S market may allow you to find the risk appetite your standard carriers no longer offer. One of its primary benefits is the flexibility a non-admitted option can offer.
This process can help you in multiple ways, including showing renewing clients what else is available. If they’re given a clear depiction of the E&S differences and why these are the “best” options available, they’ll be able to make a more informed decision about the amount or risk they are willing to bear for their coverages.
If they have an admitted option at renewal, be clear with any concerns you see about them re-entering the admitted market if they choose to move to a non-admitted option for some time.
The E&S market can be an advantage for independent agents and their clients. Helping them navigate it is another critical role that agents play.
References
+DATA FROM FITCH RATINGS
++DATA FROM STAMPING OFFICES PER INSURANCE BUSINESS AMERICA
