Balance and diversification help meet today’s E&S casualty challenges

If this business was easy, anyone could do it. But E&S casualty is not easy and achieving the desired outcomes is challenging.

That’s why specialist wholesale brokers and carriers are more valuable than ever and why we need to rise to the challenge in an increasingly unpredictable, inflationary and litigious business environment.

In this climate, customers – ranging from property owners to retailers and construction firms – need risk management partnerships that adapt as swiftly as market conditions change. Wholesale brokers need in-depth market knowledge and a keen understanding of their customers’ evolving risks. Carriers need sharp, insightful underwriting to build balanced portfolios that ensure sustainability for customers.

The wholesale casualty markets – both primary and excess – are at an inflection point. The moment demands strong advocacy and insight from brokers and intelligent underwriting by specialty carriers, so we can deliver the elevated specialty solutions and value our mutual customers require. We also must do it with an extraordinary sense of urgency.

It’s like trying to change the tyres on a race car without slowing down.

Market context

The E&S market has grown dramatically during the past five years. In the US the market constituted more than 9 percent of the country's total direct premiums written in 2023, nearly doubling its market share from 5 percent in 2018. S&P Global reports that direct E&S premiums in 2023 were more than $86bn, up from $75bn in just one year. Casualty and liability lines make up more than half of this rapidly growing business.

This expansion clearly benefits wholesale brokers and specialty carriers, but we also face critical challenges.

For example, the growth in E&S casualty lines slowed considerably in 2023, according to S&P Global. In fact, 2023 was the first year in the past five that casualty premiums have not grown at double-digit rates. However, we continue to see an increase in submissions, just not at quite the same pace as 2022.

Casualty lines face ongoing challenges from economic, medical and social inflation. Nuclear verdicts – jury verdicts of $10mn or more – continue to rise, particularly in excess casualty and transportation, as plaintiff cases work their way through the system in the aftermath of pandemic-driven court delays.

A recent Marathon Strategies report shows that 89 lawsuits led to nuclear verdicts against corporations in 2023 – a new record. It also found that massive verdicts are happening in several states across both urban and rural jurisdictions. The median nuclear verdict rose to $44mn in 2023, it added, with the biggest verdict totals seen in Missouri, Texas, Pennsylvania and Washington. Court systems in Florida, California, New York and Illinois are also particularly challenging, according to the Institute for Legal Reform at the US Chamber of Commerce.

This long-term trend of massive verdicts is fuelling social inflation in litigation that is driving insurance costs to rise faster than general inflation. Widespread attorney advertising and promotion of massive lawsuit victories is driving increases in verdicts, settlements, claims and overall insurance costs. The use of third-party funding for plaintiffs’ cases is another factor making the claims environment even more unsettled.

Underwriters under pressure

Carriers are under growing pressure as emerging risks – whether from the legal landscape shaped by social or political factors, or from climate change – threaten the stability of portfolios. In response, the wholesale market is deploying a variety of strategies. Approaches include an accelerated adjustment to rates, terms and conditions as well as a shifting of structures of working layers. There is a heightened focus on determining the appropriate retention levels, now prioritised more than ever as an essential qualification factor as opposed to a pricing option. Underwriters are also enhancing their use of data analytics, employing various reports and metrics in addition to individual risk loss experience, to refine coverage terms for specific areas such as assault and battery liability, liquor liability and construction defects.

At Axis, we are adapting our primary and excess casualty risk appetite, including expanding to classes of business and geographies that we might not have considered in the past. We have a hard-earned reputation with wholesale brokers as a market for tough risks. We take pride in underwriting those risks with diligence and care. To create a more balanced and diversified portfolio, Axis is also entertaining a broader spectrum of primary and excess casualty risks in construction and middle market segments and underwriting risks across the US. In construction, we are actively broadening our portfolio to include a more diverse range of industry classes and product offerings within the sector, be it in the practice policy or in the project and wrap-up space across all geographies. In the middle market segment, our aim is to broaden our reach in different hazard and risk profiles and layer structures, particularly in excess casualty.

Finding solutions

When risk managers and insurance buyers arrive in the surplus lines market, they face challenges and limited options. As brokers and underwriters, it is up to us to respond with ideas, options and fresh thinking.

To me, the daily collaborations that happen between brokers and underwriters in this vibrant market are remarkable and rewarding. Routinely, we create and deliver unique, specialised solutions to challenged buyers, helping businesses grow and thrive.

We rely on our wholesale broker partners to shepherd buyers through the course of identifying the best options. The most effective brokers share similar traits:

Knowing the business and their client. In the E&S market, specialists win. Brokers who specialise in niche business sectors know the risks, the carriers, the claims trends and where to find creative risk management solutions.

Storytelling to benefit the customer. Every business has a story. The most effective brokers help underwriters understand the numbers and the story behind those numbers, so we can create realistic insurance solutions.

Setting reasonable expectations. Effective brokers are fierce advocates for their clients, but they also set expectations for terms and conditions, especially when the market is as dynamic as it is today.

Underwriters also have critical responsibilities in ensuring that we are credible risk management partners for our brokers and our mutual customers. We focus on:

Listening and questioning effectively. A few incisive questions deepen the understanding of the risk and avoid inaccurate assumptions.

Bringing a flexible mind-set. It’s important to look beyond a binary yes/no mentality to consider different structures, attachment points, co-insurance and other options.

Responding quickly and directly. While email and text are extraordinarily valuable, a direct conversation through online video or the phone helps sort through issues in minutes that otherwise might require days.

Top brokers and underwriters understand that the most effective solutions typically flow from open, honest and direct conversations, especially in fast-moving market like this.

Summary

There is no segment of the commercial insurance market quite like the E&S casualty business today. The risks are complex. Businesses need innovative, customised solutions. Brokers must move fast and have a keen ability to match their clients with the right carriers. And underwriters must find the right balance of risk and reward to build a sustainable portfolio.

It isn’t easy but through resilient partnerships and the determination to meet the challenges, this can be one of the most engaging, rewarding and necessary specialist insurance sectors.

By Anna J Tan, head of wholesale casualty, Axis