SPECIALTY LINES MARKETS
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This changes everything
By Larry G. France
Our industry had a few weak players prior to September 11. The tragic events of that day will hasten their exit. They are not typical of the majority, who attempted to preserve rating and underwriting standards. Overall, the industry is solid and will be able to fulfill its obligations to the policyholders.
The big, unanswered questions are related to what stance the carriers will take regarding pricing, underwriting guidelines and availability of capacity.
Some reinsurance treaties that took effect in June of this year have been rescinded. January treaties that in most situations would be agreed upon and set in print are moving slowly to completion. Some are just not sure how to approach the next few years with a prudent plan that will protect their solvency and enable them to be competitive.
A few weeks ago, the American Association of Managing General Agents (AAMGA) conducted a teleconference to answer questions regarding the industry's state following September 11. Present were Past President Len LoVullo, President Baron Garcia, President-elect Robert Giles, and Executive Director Bernie Heinz.
Garcia answered the property-pricing question: "At present, large line property increases were at 20% to 25% at a minimum." Over a three-year period, property could reach 50% increases. LoVullo noted that today's property rates are a fraction of rates utilized in the 1980s. Most large property risks will see more than one layer to approach the desired limit. Garcia gave an example of a
$4.5 million property risk recently placed by his firm. Last year, one carrier was involved. This year's renewal took three. Heinz reported that prior to the teleconference, this question was raised: "Are there any lines that won't be affected?" The answer was none; even personal lines will see some ripple effect on pricing and capacity as a result of the terrorist attack on September 11.
Just prior to the attack, some insurers had withdrawn from markets, mostly due to their individual results, not necessarily reflected by the class of business. Others said that they were going to "re-underwrite" their book of business. This would imply that they underwrote it in the first place, as opposed to running to Wall Street with investment dollars. Others completely vacated classes of business altogether.
In last December's Rough Notes specialty article, we listed a 2001 Top Ten List (our apologies to David Letterman). This year's assessment follows.
1. The market is firming in most classes and hardening in a select few.
Now markets have hardened in most classes and some are firm. Property seems to lead the way, followed closely by workers compensation.
2. Our industry is "borderless."
This is more true than it was at the start of 2001.
3. Surplus lines markets will play a larger part in your book of business.
There has been a steady move to surplus markets because Main Street carriers are abandoning classes of business--although not at a grand scale.
4. Some classes of business will move to specialty niche markets as carriers retreat to their business.
There has been a steady flow of accounts to the specialty market. It would appear that recent events would accelerate this activity.
5. Clients will expect more than a policy from their broker/agent.
With current rate activity and a diminishing market for some risks, placement will be difficult for a variety of clients, especially ones with claim problems. The day of the mid-'80s when the question wasn't, "How much is it?" but, "Can you find a carrier to write it?" may have returned.
6. E-commerce will be a greater competitor.
Although the field has narrowed, e-commerce still is a factor to contend with.
7. Submissions will be underwritten more closely.
Underwriters can't afford to accept submissions that have a high possibility of tainting the entire book of business. In some cases, it is easier to say "no" than to take that risk.
8. Waiting until the last minute to market an account could result in losing that account as markets are swamped with submissions.
Influx of submission has greatly increased as carriers withdraw from classes or total books of business. Price increases send agents scurrying to find new homes for their clients.
9. If you were not in the business prior to the mid '80s, find someone who was and "adopt" him or her.
(See number 5.)
10. You will need more tools to achieve your sales goals. The 2002 Insurance Marketplace!
The 39th edition of The Insurance Marketplace accompanies the December Rough Notes for all of our subscribers. This year's edition contains more than 640 coverages, programs, and industry service. Also, 11 new categories have been added. These include convenience stores, corporate executive high-limit disability, retail fireworks, coach's disability, dredging operations, vessel pollution, mergers & acquisitions, professional employer organizations, quick lubes, monoline windstorm, and BOPs.
The Insurance Marketplace also is available online at www.Insurancemarketplace.com and www.Roughnotes.com. It is free, no password needed, no membership required, and you are not being entered into a database for distribution. This is a link for agents and brokers to search markets on a user-friendly Web site. If you can't find your category, call (800) 428-4384 and talk to a real person. Fax (800) 321-1909 free to inquire about available markets. E-mail rnc@in.net and we will assist you in your search.
When accessing The Insurance Marketplace on the Web site, select your coverage, click on the state or country, and markets will appear. Note that the states or provinces in which the markets operate are indicated. In some cases, all programs are offered in all of those territories. If you have questions, contact us for assistance. The Insurance Marketplace is also available on the Agency CD-ROM and Silver Plume. Look for a new feature on The Insurance Marketplace and Rough Notes Web sites. It will be called The Specialty Insurance Bulletin Board and will feature new programs, policy enhancements, company appointment opportunities, plus carriers entering or exiting a market. The Specialty Insurance Bulletin Board will debut early in the first quarter of 2002. *