Dealing with a Hard Casualty Market

Casualty capacity is shrinking and the market remains challenging.  How are agents, wholesalers, and markets dealing with the hard market?  We sit down with two CRC Casualty specialists to discuss a wide range of issues surrounding the difficult Casualty market.

Featuring:
Vladimir Peraza
Casualty and Property Broker from CRC New York

Stewart Brown
Transportation and Casualty Broker from CRC Seattle

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Transcript

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Dan Wentz: [00:00:00] It's no secret that the insurance marketplace is hardening or has been hard for a very long time. Now we've talked about it with specialists and producers from all over the country in many different disciplines for about six to 12 months now, ever since COVID hit and even before then. So I figured we'd take some time and talk to our casually and transportation specialists about this hard market.

[00:00:23] How'd we get here, how we're dealing with it and what do we have to look forward to? And by the way, how long is this thing gonna last is the placing you first podcast. I'm Dan Wentz and this podcast features news and insights from CRCs vast knowledge base of 2000 plus associates who write an excess of $10 billion of freemium annually.

[00:00:44] And we're giving you insider access. As says to what's happening in our company and the types of insurance. 

[00:00:50] joined by black Brazo, who is a works out of the CRC New York office specializes in property and casualty business. Right. And we've also got Stuart Brown with us from Seattle Washington.

[00:01:03] So basically big cities on either ends of the coast. Stuart is, is mostly into transportation, but can talk a little bit about casualty as well. thank you guys for being here today. We're talking about dealing with a hard market and Vlad and steward here. You guys are living this day in and day out, so I'm sure you've got some great information for us.

[00:01:24]let's start with flat flat on the casually side. What challenges are you seeing for your agents when it comes to a hard market? 

[00:01:31] Vladimir Peraza: [00:01:31] We've been going through a translation, obviously, most of the retailers, if not all have been in, in the prolong and a very soft, prolonged, soft market, they ha they were not able to sell prices to sell increases.

[00:01:48] Well to decreasing coverage, especially in the habitational business, but as the year went by, the renewals pass, of course, I think they started to recognize that the rates have jumped and that was the new norm for us. Increasing premiums, change of rates exclusives. Added to the policy forums. And, you know, they, they, they, they getting adjusted to it, but it has been a very difficult transition, not just for the retail community, but also for us.

[00:02:17] Dan Wentz: [00:02:17] Yeah. And Stuart, are you saying the same thing and transportation right now with your agents? 

[00:02:21] Stewart Brown: [00:02:21] Yes. I would say that the transportation, particularly primary auto marketplace has seen a prolonged, firming of the market, as opposed to a blood was saying with the casualty market, generally being softer.

[00:02:35] And the prior years, probably for about seven years now, we've seen, we've seen some rate increases. I would say overall in the ENS marketplace, they've been moderate and consistent for the last. Several years. the biggest difference we're seeing and the biggest stress on the agents, more to Glad's point is that the standard, the markets previously had, been maintaining sort of the state, Whoa, as long as the account was performing well.

[00:03:04] And recently they've felt a lot of heat on their book from a commercial auto standpoint. And as a result have exited many classes have. Taking increases, I would say on average, 25% and often 40 and 50% on their renewals that is causing a lot of stress with the agents because they're now shopping every account and trying to get folks like myself to, to help them out, but are finding that even with those steep increases in the standard marketplace.

[00:03:36] They're still below. What much of the ENS marketplace is. So again, to bladder point, it's, it's hard on those agents trying to sell that 40% increase is a great deal. When in fact it is a great deal. 

[00:03:48] Dan Wentz: [00:03:48] You can imagine taking that to the insurance buyer, right. And saying, yeah, we're going to increase your rates 40%.

[00:03:55]that's got to go over 

[00:03:56] Stewart Brown: [00:03:56] well. And that can go with, with, with no losses sometimes, in, when I'm talking about this, an auto I'm I'm being general, that could apply to trucking, but often it's applying to things like contractor fleets or business auto accounts, shuttle operations and things like that.

[00:04:12]that is, is, something that they haven't really experienced the trucking industry. it has been getting moderate increases for quite some time. And I think it's a little less surprising for those agents, but more on the commercial auto side   .. It's, it's been, it's been a little bit of a rough ride in 2020 for a number of reasons, but, but just the premium stress being one of them 

[00:04:33] Vladimir Peraza: [00:04:33] by the factors that we, that we are facing, especially on the real estate, The vision.

[00:04:38]it is still difficult to figure out the right placement, for the business that are coming through our doors with the old markets, leaving the marketplace and the new ones fill in the gap. It's complicated to figure out. Where to go, how are we going to handle this? At least the players in their appetites are becoming clear.

[00:04:58] Now, you know, the, the, the first dollars are going to deductibles. In some cases, sir, now assault and battery firearms, exclusives are becoming norm what it's transpiring during this transition. Is just very, a new common denominator or the new norm for our retailers. But even with this, what we're going through now, it's not as crazy as the beginning of the year.

[00:05:28] Dan Wentz: [00:05:28] Yeah. So you're, you're starting to see it calm down a little bit flat, I guess, is what you're saying. 

[00:05:36] Vladimir Peraza: [00:05:36] W I F we feel that it's becoming a little bit more stable because we already know. What the market's not offering. The, the complicated part we had was trying to make the retail, the retail agency understand, Hey, this is what it is.

[00:05:55] This is the, this is the new rate. These are the forums that they offering. We cannot compete with your standard markets, new components coming in and they try to buy the product. And we wouldn't be able to fulfill that void that they looking for. They continue leaving on the soft market, right. And slowly the transition is happening.

[00:06:15] Now they understand that deductible is not a question anymore is what it is, forms it. We live in a metropolitan area in New York   , city. For example, markets are, are adding a, a labor law exclusion. they minimizing a soap and battery limit. It's the adding, weapons in, or firearms exclusions. So those new norms are becoming a, you know, those, this new forums are becoming a norm to our retailer.

[00:06:46] So it's a little less complicated to tell the broker, Hey, you have a, you ha you expiring a 12 cent rate. this is your 25 cent right now. Yeah. 

[00:06:58] Dan Wentz: [00:06:58] So agents are kind of, they know what's going on. they understand the hard market what's going on. When they're talking with insurance buyers, you think the insurance buyers are onboard with it yet?

[00:07:09] I mean, obviously they don't want a rate increase, but. Are they going down the street to try and get a different agent? 

[00:07:16]Vladimir Peraza: [00:07:16] if they have a large scheduled, what they, they smart, they break it in pieces and they utilize multiple carriers, especially if they can do, I direct market. That's, that's how they, they, they play the games, you know, that's how they try to, expand 

[00:07:33] Stewart Brown: [00:07:33] their horizons.

[00:07:34] And we're largely dealing with a very professional group of agents. Most of them are now, you know, understanding of what the market's doing, preparing their clients ahead of time and they are, counseling them now. As you know, that doesn't always mean the client's going to listen and they, they definitely, they definitely will go and check their agent.

[00:07:58] They'll, they'll call another agent. I've definitely received the same submission, a few different times for multiple agents before when I know that the agent that's, the incumbent is a great agent that knows what they're doing, and definitely, is doing the right thing. But yeah, the insureds are doing their due diligence.

[00:08:15]Probably in some ways, not believing what they're being told because it's, it's shocking sometimes, and it's understandable. you know, it's, it's their dollar that's being spent to purchase the insurance and it's definitely their right to do so. but, but I think that they're finding that, typically when they're working with a good agent that agent's going to.

[00:08:36] Already have access the bulk of the marketplace. you know, certainly there's cases here and there were certain agents maybe aren't appointed with certain carriers or, or certain wholesalers. And, and so there could be some, some variation there, but for the most part, you know, the, they ended up kind of running into brick walls everywhere because the agent's done their job and, and marketed it out.

[00:08:55] And, and, and the results are, they are 

[00:08:57] Vladimir Peraza: [00:08:57] our agents. Our agents are, for the most part, pretty much controlling, Controlling the, the accounts they, they understand, they know, well, what we expect, they have the rights. And I think that they've been, grateful enough to educate their clients. The majority of the management agents who sold real estate, the owners, they do believe what they follow from their age and, and, and as difficult as it is, the right arm, 

[00:09:21]

[00:09:21] They, they, they pretty much successful in retaining the risk and gaining the new ones.

[00:09:25]it is difficult when we're competing against specific programs, of course, or when there is a market that we don't have access to. 

[00:09:33]Stewart Brown: [00:09:33] but they, they, they know exactly where they do 

[00:09:35] Vladimir Peraza: [00:09:35] and they know exactly where they go. but the majority of our clients, 

[00:09:39] Stewart Brown: [00:09:39] they, they 

[00:09:40] Vladimir Peraza: [00:09:40] are experts in that discipline. They understand it well, then they know how to sell the product.

[00:09:46] Dan Wentz: [00:09:46] Yeah, so that's great. So what about, you know, that's the agent perspective? That's the insurance buyer perspective, obviously, they're, they're going to try to save money where they can, when their rates are increasing. What about the carriers? How do they view this right now? The hard market in, in this situation.

[00:10:03] Stewart Brown: [00:10:03] Yeah. And I can speak to, not only commercial auto, but even excess auto. the insurance companies have definitely felt the heat, from a loss ratio standpoint in the, commercial auto space that goes for trucking. And that goes for public auto. That goes for, definitely the excess. A lot of that is, is as they've.

[00:10:21] Called them nuclear verdicts, that have been coming out on, on claims. We often see that, five years ago might've been, you know, a rear end accident that caused some injuries and maybe a brief hospitalization. no permanent long-term damage. You know, five years ago that might've ended up a $50,000 claim.

[00:10:44] That's almost automatically a million dollar claim these days. it's just, you know, and, and that kind of pressure is, is squarely on the shoulders of the insurance carrier. And so the things that they're doing to combat that is, is. Data analytics things, things like territory's classes, types of vehicles, where there, you know, lanes of travel and, and trying to apply specific rate increases in those areas, perhaps limit their writings in those areas, maybe change some of the coverages that they're offering or, or the extent of limits that they're offering in those areas.

[00:11:17] And then another thing they're doing is, particularly on the primary, maybe not so much on the excess they're scaling back. some of their appointments of, wholesalers that they're working with. And then I imagine this is true on the retail side as well, and trying to work with more of the experts to make sure that they're getting a better quality account, or at least a better quality submission that their underwriters can review by people that know what they're looking at and know what they're doing and know how to, you know, improve an account.

[00:11:41] I think, one of the things that carriers are doing, in the auto space and this goes for access and primary, is there a. Partnering with some of the data and, video companies for cameras in the trucks, for analytics and data in the vehicles, such as, GPS speed, things like that. they're using that data to combat well, not only to just get data on their clients, but to combat claims when they're faced with, plaintiff's attorneys that might be filing frivolous lawsuits or.

[00:12:15] Maybe exaggerating something that did happen, but, they can, if they have video evidence of that, it certainly has been helping with, some of the claims settlements. because truly if we don't have that or. Tort reform, which is a lot harder to come by. I think that it's going to be a long time before a lot of this improves on the commercial auto space, both on the primary and the access, 

[00:12:36]Dan Wentz: [00:12:36] Vlad.

[00:12:36] How about you, your carriers and how they're dealing with this, how they see this hard market and, and, you know, your interactions with them. 

[00:12:45] Vladimir Peraza: [00:12:45] One thing that we need to remember, at least in the capsule decide when it comes to real estate, especially in even the construction side, a lot of markets have moved.

[00:12:55] So the ones that are able to entertain the business, they have been conservative and they have been consistent. They haven't been successful right in the base because the way they feel that should be written, that there is enough writing careers in the, in the real estate arena. I mean, we do see changes to the habitational business.

[00:13:17]for example, in New York state, when the raid used to be. $225 a unit. Now we're looking at 600, $700 a door. that's a sizeable increase and, they have kept other consistency, pretty, pretty well don't forget. We, we work and the excesses blessed, arena. So we don't compete with direct markets or with stunner carriers.

[00:13:42] So the rates are the rates and they are writing enough business. 

[00:13:49] Stewart Brown: [00:13:49] Successful year, 

[00:13:50] Dan Wentz: [00:13:50] so they've gotta be profitable, right? I mean, it's, it's, they'd look at the data and that's what they go with, essentially. 

[00:13:56] Vladimir Peraza: [00:13:56] It does. It does exactly the, loss, loss, loss history, of course, loss ratio is important and all the analytics that they have done.

[00:14:04] Facultative, you know, re-insurance is a big player. They is not cheap anymore. Now we have to be able to compensate the rate for the exposure 

[00:14:14] Dan Wentz: [00:14:14] hard markets here. Right. We're all in the middle of it. we have put the political season, hopefully. Well, maybe not, who knows. We won't even get into that. but.

[00:14:25]where are the bright spots here? specifically, if you're a retail agent, why should you be hopeful or, Y, you know, obviously the hard market's not going to last forever. Right. So, so what's next. And why should you be hopeful about this? I think transportation's probably a little bit tougher on this one.

[00:14:42] So let's start with, Vlad, if you want to, why should an agent be hopeful right now? 

[00:14:48] Vladimir Peraza: [00:14:48] If I was a retailer and, I'm running my business the right way. I think that the, we do expect the hard markets to 

[00:14:58] Stewart Brown: [00:14:58] stay flow a 

[00:14:58] Vladimir Peraza: [00:14:58] little bit. It's going to be profitable. It's profitable for the retailers. If they continue.

[00:15:04] If the retail community continues to educate their clients, provide the service that they deserve. Partner with a, with the correct wholesale, industry, divisions. I think that their capacity will continue to expand, you know, their abilities to, ride the business the proper way we'll continue.

[00:15:23] Don't forget, us wholesalers. We are responsible. We are obligated as morally and ethically 2% the right terms, the right conditions for the retail. And these guys will continue to present. All those values that we provide the services, the, the right coverage, the right placement. There is no need for retail community to overmarket and account.

[00:15:47] And when they, when they have the right 

[00:15:49] Dan Wentz: [00:15:49] part, that's great. And what, and, and Stuart a particularly tough area for you, right? So why should your, your agents there and transportation? Why should they be hopeful? Why should they be looking. Towards the future right now? 

[00:16:03] Stewart Brown: [00:16:03] Well, I wouldn't, yeah. I wouldn't say it's all doom and gloom part of, part of my point on the, on the stress that the carriers are feeling again, is there, continued partnering with some of these, data and, you know, video logging com companies.

[00:16:17]I think that's going to help, I think also because the rates are where they are. We could start seeing, some additional carriers, jump into the marketplace. you know, there is money out there as we know, the, the capacity issues tend to be in the limits. People want to extend, but not the money available.

[00:16:34] You know, to the insurance companies or to the reinsurers. So I do feel that there could be, you know, increased, carriers into the marketplace. One of the things I think that the retailers are probably seeing and, and a reason to be hopeful for them, not so great for us wholesalers is that, with some of this increased pricing, some of the accounts that I've even seen, you know, that are getting non-renewed because let's say the account was written for, you know, a hundred thousand dollars.

[00:17:02] And, you know, they had, they had losses and, you know, the insurance company said, I don't want to do this anymore. Well, they find out that the wholesale marketplace is going to charge that same account, $300,000 and the retail market, the retailer can go back to their, that carrier sometimes. And I've seen this happen many times.

[00:17:20]and say, Hey, you know, I get it. You can't do it for a hundred grand, but you can, you do it for 200 grand. And when the carrier finds out that they can double their price and still keep the account often they're jumping back in late and doing that again. That's not so great for us wholesalers, but it's good for the clients.

[00:17:33] Good for the retailer. And, we're definitely seeing some of that. It's not certainly an automatic situation and then certainly it's an account dependent situation, but it is something that, that I've seen plenty of. And, I imagine that will continue in some, in some way, because again, you know, part of the problem is they just can't fathom that they can sell.

[00:17:53] You know, a hundred percent rate increase there. They're shocked when they can sell a 40% rate increase. And when they find out that they can, you know, the guilt kind of sloughs away and then they jump in and do it well, the advantage for the, for the client is typically those companies, especially in the auto side, I know it's a little different on the casualty side and real estate and things like that.

[00:18:14] But when you're talking about auto, they typically have broader coverage in the standard marketplace. they typically have better limits. better forms just in general, with some bells and whistles that we just don't have in ENS marketplace. And so in the long run, you know, that that's good for the client.

[00:18:30] And I imagine that somewhat of a stress relief for the retailer after the initial shock of the premium part wears off. Yeah. 

[00:18:37] Dan Wentz: [00:18:37] So let's talk about, let's say, you know, when I, when I go and buy a car or something, I, you know, I go, Hey, ballpark this for me. And I know that's not the final price, right.

[00:18:46] That's not what I'm getting. So. this is a total speculation, but I think people are interested in hearing your opinions on this. How long do you think the hard market is going to last for how long are we going to be talking about the hard market? I mean, obviously this is in a cycle, so total speculation here.

[00:19:02] Don't, don't bet the farm on, on these answers, but what do you guys think based on what 

[00:19:08] Stewart Brown: [00:19:08] I'll give Blatt a little more time to think about it. I, I have, I feel like I have a little bit of an easier answer. I think that in the auto space, primary. Yeah, right on the primary part. I think that we will see, continued moderate increases, and, probably for the next several years, at least two or three, I think, you know, there's like Louisiana, for instance, just had some modified tort reform.

[00:19:34] We don't exactly know what that's going to look like, but I think between that. And, and some of the, you know, cameras and adoption and things like that, we should start to see some improvement in, in claims. And if we do that, then I would anticipate seeing some easing of rate at some point in the excess that one's a little trickier, especially when it comes to auto exposures or transportation exposures, because.

[00:20:00] The rates have definitely gone, gone way up and the capacity has gone way down on a, you know, on a per carrier layer basis. However, I feel like the pricing will probably start to stabilize first and then the expansion of limits being offered would probably follow. I imagine that the pricing stabilization would take place in the next couple of years just because it's been so.

[00:20:27] I don't know if violence is the right word, but, but in some ways violent on the excess side, you know, these guys were getting, you know, $10 million limits there. They're getting that cut down to 2 million and their price going up. You know, and that was a normal occurrence in excess, in, in the transportation world.

[00:20:45]I don't think that that will be, you know, a continuing trend. That was the kind of, of, of a rash correction over the last couple of years that have been going on. so I, I would hope that there's going to be some improvement in that over the next couple of years. All 

[00:20:57] Dan Wentz: [00:20:57] right. Glad you're up.

[00:20:58] How long has, how long has the hard market going to last in your opinion, total speculation. So 

[00:21:04] Vladimir Peraza: [00:21:04] if you, you had asked me that question, say back in January, I would probably say 1224 months. I'm expecting a few extra, Conservative moves by the casualty carriers when it comes to assault and battery firearms.

[00:21:21] So I don't think we going to be seeing any changes within the, you know, probably for another 24 36 

[00:21:30] Stewart Brown: [00:21:30] months. Okay, 

[00:21:31] Dan Wentz: [00:21:31] fair enough. You heard it here first folks, 36 months or less. Hopefully. Thank you very much, Vlad. Thank you very much, Stuart. We appreciate you guys being on the podcast today. If you want to learn more information about them, you can head to our website, CRC group.com.

[00:21:47] Look up all of our producers from all across the nation and they can give you the latest information about the hard market. And what's going on. Plaid Stewart. Thanks a lot guys.