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NAPSLO Report

E&S Going Strong

Optimism about the opportunities in excess and surplus lines was strong during the NAPSLO conference.
By: | September 24, 2014 • 5 min read
NAPSLO

The state of the excess and surplus lines market is strong, as evidenced by the nearly 4,000 attendees, who networked their way through the annual convention of the National Association of Professional Surplus Lines Offices in Atlanta, from Sept. 15 to17.

“There’s a lot of optimism about the market and [the number of attendees] is a testament to the strength and vitality of surplus lines,” said Brady Kelley, executive director of the national organization, which focuses on networking and education for the surplus lines industry.

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In fact, A.M. Best reported that surplus lines companies “have been extremely successful when compared with the overall property/casualty (P/C) industry.”

Surplus lines now account for about 13.7 percent of all commercial lines direct premiums written, up from 6.1 percent in 1993, according to a 20-year retrospective on U.S. surplus lines released by A.M. Best in September.

“In 2013, 22 of the top 25 surplus lines groups produced year-over-year growth in premium (as measured by direct premiums written) — a testament to what is likely a contraction in the standard market’s appetite for risk and a broad flow of business back into surplus lines,” according to the report.

“A lot of people are optimistic because the economy is still growing and when the economy is growing, it can make up for a lot of foolish decisions.” — Alan Jay Kaufman, chairman, president and CEO of Burns & Wilcox

But the sector is not without its challenges, specifically overcapacity in the market, according to Alan Jay Kaufman, chairman, president and CEO of Burns & Wilcox, international insurance brokers and underwriting managers.

“The market here is soft,” he said. “I think it’s soft in more areas than people want to talk about. … I would not say ‘doom and gloom.’ A lot of people are optimistic because the economy is still growing and when the economy is growing, it can make up for a lot of foolish decisions.”

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E&S underwriting, said Stanley Galanski, president and CEO of The Navigators Group Inc., is “the essence of underwriting. There are no rules. There are no rates. There are no mandatory forms. In E&S, it’s all about your expertise and your judgment.”

To be successful, companies must have underwriters who can bring a “high level of expertise to the risk” and deep relationships with wholesale brokers, he said.

It also requires constant innovation, said Mario Vitale, CEO, Aspen Insurance. “Specialty E&S is tailored for high risk situations. It allows underwriters skilled in these special niches to apply their tools of the trade to help the insured, to help the brokers, with creative risk-based solutions.”

He said Aspen would be releasing some new products in 2015, and noted that there were numerous emerging risks to occupy carriers, including the impact of climate change, nanotechnology, fracking, drones, bitcoin and wearables.

“I believe all of these trends and all of these emerging technologies will bring risks and will bring demands for solutions and underwriter innovations to find them,” he said.

“It’s unbelievable how that [cyber] market is developing so quickly.” — James Drinkwater, president of AmWINS Brokerage

Jeremy Johnson, president and CEO of Lexington Insurance Co., the E&S division of AIG, said in a recent A.M. Best webinar that his organization is designing products to deal with risks from drones, celebrity risk and cyber bullying, and also has “in the pipeline” products to address risks related to Uber and Airbnb.

“If we are not staying ahead of where our customers are going as an industry, we won’t be relevant,” he said.

Bruce Kessler, division president, ACE Westchester, which focuses on the wholesale distribution of excess and surplus lines products, said, “You have to be strategic as an E&S company as to where to grow and where to shrink.”

But, he also noted, the “ease of entry” into the space, which he sees as “healthy and robust.”

“It’s easy for new capacity to come in,” he said, and that has put some pressure on property/catastrophe rates. That softening is “probably the biggest talk of the conference.”

Overcapacity offers one of the industry’s biggest challenges, Kaufman said. “Standard lines companies are aggressively looking to write the gray areas that may at one time have been E&S and now it’s back to standard lines. … You will see companies taking greater risks than they normally have in the past — risks that they don’t understand.”

Jeff Saunders, president of Navigators Specialty, said, “The capital in the industry is looking for a better return than from a Treasury note.”

While the influx of capital has reduced rates — significantly on property and less significantly elsewhere — the company has to compete “no matter what the rate environment is,” he said. That requires E&S insurers to be “agile while rotating in and out of sectors.”

E&S strategies are also increasingly being influenced by predictive modeling, ACE Westchester’s Kessler said. He also noted that he is seeing greater interest in product recall and cyber coverage.

Other experts at the NAPSLO conference agreed that cyber policies were finally taking off.

“It’s unbelievable how that market is developing so quickly,” said James Drinkwater, president of AmWINS Brokerage and one of NAPSLO’s Wholesale Broker directors, during a panel discussion at the conference.

“Companies are getting hit [with cyber attacks] constantly,” Vitale said. “As long as there are more hackers, they will get more sophisticated and we will have to do a better job of staying on top of emerging trends.”

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The opportunities in E&S outweigh the challenges, said Peter Clauson, senior vice president, excess casualty, Liberty International Underwriters.

When LIU excess casualty was established in 1999, he said, the E&S business was about a $10 billion market. “Fifteen years later, we are at $37 billion, and there’s a lot of talk that in five years, we could be a $50 billion market.

“That’s a lot of growth and opportunity,” he said.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at afreedman@lrp.com.
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Column: Technology

Can We Trust Driverless Vehicles?

By: | September 15, 2014 • 3 min read
Ara Trembly is founder of The Tech Consultant and The Rogue Guru Blog. He can be reached at riskletters@lrp.com.

Several years ago, I read a story about a man who purchased a brand new mobile home. One day, while driving along, he decided he needed a cup of coffee, so he set the mobile home on cruise control and walked back to make said coffee.

Needless to say, the vehicle ran off the road and crashed. It turns out this story wasn’t true, but it does reinforce the idea that technology left alone in a moving vehicle may not be a good idea.

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That brings us to the subject of the proposed driverless car, a topic on which I have opined previously.

A recent article in the Wall Street Journal notes that, “Between now and 2016, an increasing number of car makers will offer ‘traffic jam assist’ systems that take over braking, steering and acceleration for vehicles inching along in low-speed traffic. It is a far cry from Google Inc.’s vision for a car that can drive itself in all conditions, but auto makers and suppliers have long taken the view that quantum leaps typically take place one mile at a time.

At first, this seems like a very appealing concept. I was recently stuck in a monster traffic jam on Interstate 95 in South Carolina, and I certainly could have saved a great deal of effort and aggravation over the hour or so that we crawled along if my car simply took over all the stops and starts while I grabbed a nap.

But I also remember that during this mind numbing event there were several times when people, including children, got out of their cars to walk around on the roadway.

Common sense and true concern for the safety of drivers demand that we strike a balance between technology that reduces risk and gadgets that actually increase the danger by removing responsibility and accountability.

Would my “traffic jam assist” recognize that potential hazard? And would the software alert me when the road was clear again? One wonders.

Auto industry executives, the Journal says, intend to offer systems that can robotically pilot a car at speeds up to 40 miles per hour within the next five years or so.

“Meanwhile, federal safety regulators say they are still conducting research on the potential safety and benefits of autonomous technology.”

Well done, regulators. Any technology that substitutes itself for the alertness and judgment needed from a human driver is risky by definition.

Ask yourself how many times your own computer fails to work quickly — or just quits working, necessitating a reboot or some other fix. Most of us have come to accept these glitches as a fact of life, but motoring down the road at 40 mph (and I’m sure it will be faster as time goes on), there would be no time for a reboot.

As I noted in my previous writings on this subject, accidents involving the inevitable failure (even if it is only occasional) of such technology could be a nightmare for insurers who need to assign risk and pay claims.

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Certainly, technology that automatically brakes before my car can smash into anything is a potential lifesaver. The real danger is from technology that allows or encourages human drivers to stop paying attention, because the human brain understands things about risk that a computer chip may not.

Common sense and true concern for the safety of drivers demand that we strike a balance between technology that reduces risk and gadgets that actually increase the danger by removing responsibility and accountability.

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Sponsored Content by Riskonnect

A Dreaming Team

Chris Thorn of Southwest Airlines got creative with his risk management program. Now, the sky's the limit.
By: | September 15, 2014 • 4 min read
SponsoredContent_Riskonnect

Chris Thorn is known as one of the most creative risk managers in the business. After all, his risk management program hit the cover of Risk & Insurance® in March, 2012.

Now the senior manager, payments and risk, for Southwest Airlines is working with Riskonnect, a technology partner that he thinks can take his program to new heights.

“For us, it’s a platform that gives you so many different tools that if you can dream it, you can build it,” said Thorn.

Claims administration

Thorn ditched his legacy risk management information system in 2012 and started working with Riskonnect, initially using the platform solely for liability claims management.

But the system’s “do-it-yourself” accessibility almost immediately caught the eye of Thorn’s colleagues managing safety risk and workers’ compensation.

“They were seeking a software solution at the time and said, ‘Hey, we want to join the party,” Thorn recalls of his friends in safety and workers’ compensation.

SponsoredContent_Riskonnect“For us, it’s a platform that gives you so many different tools that if you can dream it, you can build it.”

–Chris Thorn, senior manager, payments and risk, Southwest Airlines

What was making Thorn’s colleagues so jealous was the system’s “smart question” process which allows any supervisor in the company to enter a claim, while at the same time freeing those supervisors from being claims adjusters.

The Riskonnect platform asks questions that direct the claim to the appropriate category without the supervisor having to take on the burden of performing that triage.

“They love it because all of the redundant questions are gone,” Thorn said.

The added beauty of the system, Thorn said, is that allows carriers and TPAs to work right alongside the Southwest team in claims files while maintaining rock-solid cyber security.

“This has sped up the process,” Thorn said.

“Any time you can speed up the process, the more success you’re going to have when you make offers to settle claims,” he said.

Policy management

Since that initial splash in claims management, the Riskonnect platform has gone on to become a rock star at Southwest in a number of other areas. And as Thorn suggests, the possibilities of the system are limited only by the user’s imagination.

SponsoredContent_RiskonnectWith a little creativity and help from Riskonnect as needed, a risk manager can add on system capabilities without having to go on bended knee to his own information technology department.

In the area of insurance policy management, for example, the Riskonnect platform as built by Thorn now holds data on all property values and exposures that can in turn be downloaded for use by underwriters.

Every time Southwest buys a new airplane, the enterprise platform sends out a notice to the airlines insurance broker, who in turn notifies the 16 or 17 carriers that are on the hull program.

Again, in that “anything’s possible” vein, the system has the capability of notifying the carriers, directly, a tool Thorn said he’s flirting with.

“It is capable of doing that,” he said.

“We’re testing out this functionality before we turn on it loose directly to the insurance companies.”

Carrier ratings

In alignment with the platform’s muscle in documenting, storing and reporting liability and property exposures, the system monitors and reports on insurance carrier financial strength.

If a rating agency downgrades a Southwest program carrier’s financial strength, for example, the system “pings” Thorn and his colleagues.

“Not only will we know about it, but we will also know all programs, present and past that they participated on, what the open reserves are for those policy years and policies,” Thorn said.

“That gives us even more comfort that we have good, solid financial backing of the insurance policies that are protecting us,” Thorn said.

Accounting interface

Like many of us, Chris Thorn didn’t set out to work in risk management and insurance. Thorn is a Certified Public Accountant, and it’s that background that allows him to take creative advantage of the Riskonnect platform’s malleability in yet another way.

With the help of the Riskonnect customer service team, Thorn added a function to the platform that allows him to calculate the cost of insurance policies on a monthly basis, enter them into a general ledger and send them over to his colleagues in accounting.

SponsoredContent_Riskonnect

“It’s very robust on handling financial information, date information, or anything with that much granularity,” Thorn said.

The sky is the limit

Thorn and Southwest are only two years into their relationship with Riskonnect and there are a number of places Thorn thinks the platform can take him that have yet to be explored, but certainly will be.

“It’s basically a repository of anything that’s risk-related, it continues to grow,” Thorn said.

SponsoredContent_Riskonnect“This has sped up the process. Any time you can speed up the process, the more success you’re going to have when you make offers to settle claims.”
–Chris Thorn, senior manager, payments and risk, Southwest Airlines

Not only have Southwest’s safety and workers’ compensation managers joined Thorn in his work with Riskonnect, business continuity has come knocking as well.

Thorn met in July with members of Southwest Airline’s business continuity team, which has a whole host of concerns, ranging from pandemics to cyber-attacks that it needs help in documenting the exposures and resiliency options for.

That Enterprise Risk Management approach will in the future also involve the system’s capability to provide risk alerts, telling Thorn and his team for example, that a hurricane or fast moving wildfire is threatening one of the company’s facilities.

Supply chain resiliency and managing certificates of insurance for foreign vendors are other areas where Thorn and his team plan to put the Riskonnect platform to good use.

“That’s all stuff that’s being worked on by us,” Thorn said.

“They’ve given us the tools, but we’re trying to develop how we’re going to use it,” he said.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Riskonnect. The editorial staff of Risk & Insurance had no role in its preparation.

Riskonnect is the provider of a premier, enterprise-class technology platform for the risk management industry.
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