The Marketplace Heats Up!
August 2001
Our summer IRMI Update poll on the marketplace
and the need for complete underwriting submissions drew a deluge of responses.
See the voting results and learn how others are coping.
by Jack P. Gibson
IRMI
July and August are always hot in Dallas. This year, it's hot everywhere
if you buy or sell commercial lines property and casualty insurance! My July
24 IRMI Update editorial on the marketplace and the need for complete underwriting submissions
drew a deluge of responses, many of which are reproduced below. The underwriters'
perspective seems to be that they are doing what they need to do for the benefit
of their companies—and, ultimately, their insureds. Agents and brokers are very
frustrated and, in some cases, downright angry. As I said, it's getting hot
out there.
Some of your peers agreed with my statement that the market is not hard yet,
but others think my head's stuck in the sand. Regardless of whether the market
really is "hard," it is certainly more challenging than it has been in many
years. We posted the market poll on the IRMI.com home page for nearly a month,
and 412 people voted. Since June 30, those who responded have seen the following
in their commercial lines renewals
| Decrease: |
17% |
| 0-10% Increase: |
13% |
| 11-20% Increase: |
27% |
| 21-50% Increase: |
22% |
| 51-100% Increase: |
11% |
| 101%+ Increase: |
10% |
As you can see, 21 percent of the participants have seen increases in excess
of 50 percent. I certainly won't try to tell them the insurance market isn't
hard! However, this leaves much more room for deterioration before we reach
the panic level of the mid 1980s. I just hope—as one of our readers said so
eloquently—that the industry doesn't shoot itself in the foot. Alternative market
options aren't the alien concepts today that they were 15 years ago.
Several key conclusions for surviving your next renewal become quickly evident
from the reader responses you are about to read:
- Start your renewal process early—at least 60 days before your renewal.
- Even if you plan on placing the business with a standard market, consider
involving an E&S broker early as a contingency plan.
- Provide complete underwriting data—fill out the application in its entirety
and include at least 3 years of currently valued loss data.
- Provide a very good narrative description of the insured's operations,
safety program, and any unique exposures or large losses that may otherwise
concern an underwriter.
Keep these points in mind as you read the reader comments below. In some
cases, these are excerpts from much longer messages. Unfortunately, space limitations
required some trimming and minor editing to improve readability. We did our
best not to present any comments out of context (if any respondent objects to
these edits, let us know at My Views and we'll gladly
change or delete your quote). We've grouped the responses under three subheadings:
The number of new business submissions has tripled in 2001. Our underwriters
have needed to increase our prescreening criteria substantially. The poorly
prepared submission that lacks sufficient info often gets zero consideration.
Those that arrive with a short time fuse are automatically declined. Accounts
that bring in a second broker after receiving the expiring carrier's renewal
terms are easily identified and seldom receive favorable consideration.
What will receive favorable consideration are accounts that are submitted
by the controlling agent/broker, with substantial lead time, supported by a
detailed narrative account history, list of past jobs, financial data, currently
valued loss runs and an indication of payment terms flexibility.
—Bill Robert, Regional Underwriting Manager
St. Paul Construction, Mid-Atlantic Region, Baltimore,
MD
Use narrative descriptions of the applicant's operations including the parameters
they operate in. A complete submission should always include a fully completed
application: answer all of the questions, fill in all of the blanks. Provide
loss runs for a minimum of 3 years for all lines to be considered. Insured's
Web address, if they have one, should also be provided.
—Dave Calhoun, Branch Underwriting Manager
Harleysville Lake States Insurance Company, Peoria, IL
As an underwriter for a property & casualty insurance company, one thing
I find helpful is a narrative letter sent with the submission explaining more
about a risk than what you can find in the application. This is most true an
unusual exposure. I also look for Web sites. Knowing if there is one and the
address is very helpful.
—Donna R Shepard, Commercial Underwriter
United Fire & Casualty Company, Lincoln, NE
As an underwriter, not only do I need to be more selective regarding risk
selection and pricing but my relationship with the agent is crucial. We gravitate
toward key agents that respect our time by providing complete submissions (apps
for all lines, 4 or 5 mature years of loss runs, driver schedules, narrative
on operations, etc.) and can tell us what our genuine opportunities are on the
account. In other words, if the agent is not going to the trouble of trying
to sell me the account, I will not quote it for them. We will decline the price-shoppers
in favor of those accounts that are relationship and service sensitive and will
always work those risks first.
—Robert W. Gilhool, CPCU, CIC, Senior Marketing Underwriter
Amerisure Companies
As an underwriter, there are two items that save me a tremendous amount of
time: first, a narrative of operations. Something that tells you what the organization
does, where they operate, background, special operations, etc., and the second
is a premium and loss summary by line by year with comments on large losses.
Anything that saves time researching an account is usually beneficial. An underwriter
can't underwrite without information.
—Donna Rademacher, CPCU, Vice President
Underwriters Group, Inc., Ridgeland, MS
I'd concur with your observation. The phrase I like best is "No COPE, no
hope." The other issue is lead-time. Obviously the more, the better, especially
if a loss control visit is needed. I'm sure we've declined accounts because
the lead-time just wasn't there.
—Bob Medeiros, Property Practice Leader, Corporate Underwriting
Royal & SunAlliance, Charlotte, NC
For those who don't know, underwriters do actually work this way—they sort
the applications first and then work down the stack from the simplest (i.e.,
it will be quick and easy to process) to the most complex (i.e., app.s requiring
additional information or documentation, research on the history of the risk,
statistical info., looking up or discussing the interpretation of particular
manual rules, etc.). If an app. even looks incomplete, it is not going to get
any attention until it absolutely has to, which may take the underwriter quite
a while. As an agent later on in my career, I was constantly astounded by the
lack of understanding of other agents without underwriting backgrounds. I did
my best to educate my peers, but I always had an advantage and excellent relations
with my underwriters.
—Adam Stohlman, Risk Manager
B&B Manufacturing, Inc.
I would like to point out that even providing all of the above does not guarantee
that you will receive your quote in a timely fashion. They are all swamped with
submissions and sometimes it requires a couple of phone calls before they will
pull yours out of the stack. Most carriers have a central clearing system that
is handled by the underwriter's assistant. They clear the account and request
data before the underwriter has even looked at the account. Then it is put on
their desk and sometimes will stay untouched until the broker calls. I have
been told by some underwriters that unless I call them and tell them I need
a quote on a particular account, they won't even bother picking it up.
—Jackie Tilley
Security Insurance
During the soft market, brokers started to get very "sloppy" in preparing
submissions because, as the insurers, we were happy about every submission we
could put our hands on. We highly recommend that they put more effort in preparing
submissions, especially for receiving umbrella quotes. The 7/1 renewals showed
that a lot of very interesting information surfaces, sometimes even information
that could have been to the benefit of the insured a long time ago. In the defense
of the big brokers' employees, I should state however that mergers and acquisitions
led to tremendous downsizing in workforce and a high turnover in people, so
that most of those employees who stayed could not cope with the workload. A
lot of them sometimes just called us and gave us new sales information over
the phone.
—Ute Prevost
Insurance Corporation of Hannover, Chicago
With the cutbacks in training in the last 15 years and "computer underwriting,"
the actual underwriting art has practically become extinct. If our industry
is to get back to making an "underwriting profit" and restoring "underwriting
integrity," we must get back to the basics of proper underwriting and dumping
the "cash flow/market share underwriting mentality."
—James S. Kahn, CPCU, ARM, Risk Manager
Lackawanna Casualty Company, Wilkes-Barre, PA
"Thus, those who take the time to prepare well-organized submissions that
provide all the data the underwriter will need (preferably in a format s/he
can easily use) will beat the competition." No. This is not true. "Underwriters,"
as a rule anymore, do not underwrite. They look to see if the submission fits
into the box. They are becoming very good at square pegs in square holes. Heaven
forbid a round peg!
It was easier during the hard market of 1985-87 than now.
—Jack J. Maniscalco
Jack J. Maniscalco & Son, Ltd., Washingtonville, NY
Underwriters today are less skilled in "underwriting" than their brethren
in the mid-1980s. This creates other challenges. For those insureds that are
not well prepared to properly explain their risk profile. Well, this is not
going to be pleasant!
For those that have well-organized proposals, it is a major plus. However,
it is not a guarantee you'll be considered. This is where the lack of skilled
underwriters can potentially hurt the insureds. A good underwriter is capable
of understanding most risk profiles. This is done by asking the right questions
and using experience to guide them along in industries and business that they
are not familiar with.
I can't help but feel that the less experienced underwriters are not likely
to consider your risk if they don't know the business you are in. I'm guessing
that it is because of comfort levels. However, this is where a good, knowledgeable
broker will show some value. Depending on relationship or influence, they can
help get the submission in more friendly hands.
—Sonny Chan, Director of Risk Management
Blyth, Inc., Greenwich, CT
We find it effective to now work 60 to 90 days in advance where, in the past,
we could place the account "at the last minute" if the standard market would
not handle the risk. I recommend that producers involve their E&S broker early
on in the marketing process even if they intend to place an account with a standard
market carrier. If the standard market underwriter fails to come through, then
the E&S broker will be in a position to respond immediately to the producer
and his client's coverage needs.
—Tim O'Neill, Branch Manager
Trinity E&S Insurance, Santa Maria, CA
It is most important to get the full underwriting info to the underwriter
on the first pass. I have a system of templates for schedules, loss data, etc.,
that is part of a set of specifications I use with my consulting clients. We
use the templates as a guide to assure that we don't miss any critical data.
—John F. Dudziak, President
John F. Dudziak Insurance Consulting, Inc., Manchester,
NH
A very helpful item is a narrative about the account that is in detail and
can help the underwriter get a better overall picture. With today's electronics
once done and stored are now easy to update on an annual basis. Sending financial
statements also gives the "experienced underwriter" better insight.
—Kent Sprague, UNICO Group, Inc.
Without a doubt underwriters are underwriting once again. In addition to
adequate information, I am receiving more requests for Company Specific applications,
shying away from accepting a generic or a competitor's application. In addition
to detailed underwriting and LOSS information, the next higher hurdle is time.
The absolute minimum is 45 days for commercial, 90 being the most often needed
number of days. Well tied-down submissions submitted well in advance of the
X-date are very important if you want to attract the better markets.
—Richard L. Beeckman
R. L. Beeckman & Co., Saginaw, MI
I agree that we are not in a hard market. Are we ever going to get into one?
I hope not.
Underwriters are definitely looking to get complete information, and in this
world of the information highway, more information is available. For instance,
in the past we would send a product brochure to underwriters if they asked;
today we can send Web site addresses.
What I find very disappointing is the inability to communicate electronically
with the carriers. It would be nice to send submissions directly from our agency
management system and receive quotes or inquiries from the carriers. Though
e-mail is nice, we should be able to share underwriting information much more
efficiently. I lay most of the blame on the carriers in as much they have not
gotten off the mark in defining the universal protocols that agents, insurers,
and clients can use.
—Damian Testa, President
Kaye Insurance Associates, New York
Yes, we are in a hard market—pricing increases, reduction in coverage, more
stringent underwriting—if we're "not in a hard market yet," I'd hate to see
what's in store! We're finding the hardest hit classes presently are trucking,
construction, logging /lumbering, heavy property accounts.
—Jackie K. Anderberg, Assistant Vice President
KPD Insurance, Inc., Medford, Oregon
Our company operates in both the United States and Canada, with our head
office and major operations in Canada. We just went through our May 1st renewal
in Canada, which ended up having to be extended for 30 days because of additional
information required for the United States and their slow response due, I'm
sure, to having so much data to review. We are looking at our October renewal
for the U.S. property coverages to be no easier.
—Rose-Lynne McDougall, Risk Manager
Minto Developments, Inc., Minto Builders, Inc.
Not only are the rates going up with no real rhyme or reason since they were
based on "what can we get the business for" logic in the first place, but the
unending trivial questions are being raised by "underwriters" who are still
wet behind the ears. Where are the upped premiums to come from for a 501c3 whose
revenues are way off due to, at least a perceived, down economy? It would be
helpful if a few more CPCUs were at the top of the heap!
—Philip Weymouth, Jr., CPCU
Yes, I feel we are definitely in a hard market. The underwriters are back
to asking for tons of info. We find that if we start getting the account prepared
for marketing at least 3 months ahead of time, which requires retraining our
clients' timeframe, this helps. We are getting complete copies of safety programs,
financials, etc., to submit to the underwriters with the applications. Many
of these tools were not necessary in the soft market until after an account
was bound. Several companies are even going back to running loss control prior
to quoting an account.
—Donna Hunt
Hibernia Rosenthal Agency, Baton Rouge, LA
I just voted on the premium percentage increase we have seen recently. Who
has seen a decrease? Were they kidding? In Ohio, a decrease is out of the question;
we're happy with 15 percent increase in most classes of business; others are
up to 75 percent, particularly for heavy auto.
—Brian Hoagland
I am most frustrated with the current changing property and casualty market.
I have no problem with carriers looking for rate/premium increases- if the client/insured
deserves to incur a 10-20 percent or more rate/premium increase. When my clients,
with no losses or claims for the past 6 years or more have to take more than
a nominal 5 percent rate/premium increase, I become angered and think that antitrust
actions should be taken against the leaders of the rate increase pack. Let those
insureds who have had claims and losses be the ones to pay back the industry.
It is those insureds who have had losses and claims who have gone from carrier
to carrier during the past 10 years or so. With each move to a new carrier those
unprofitable insureds were able to continue to reduce their insurance costs.
Those insureds who have been profitable and remained loyal to their carrier
received a couple points reduction on renewal, if their broker was diligent.
Are the corporate/commercial accounts being hard hit with undeserved and nonsensical
rate and premium increases? Where are the advocates for those profitable insureds
who do not deserve the treatment they're getting? Do you think agents and brokers
will raise their voice and complain to the authorities? Absolutely not. They
are laughing all the way to the bank with bloated commission income.
The leaders of the carrier pack are making more money today than ever with
their rate and premium increases. And yet, we read profits are down and net
income is down—nonsense I say. Until such time as the equity markets/stocks/bonds
collapses totally, these current rate and premium increases are completely unfounded,
unjustified, and against public interest. Increase rates and premiums for those
accounts that deserve the increases. There ought to be a law...
—David J. Skolsky, CPCU , Principal/Consultant
Insurance Analysts & Consultants, New City, NY
I was a commercial lines underwriter for large six figure casualty accounts
back in the 1970s. This cycle is not new to anyone who was around. I just hope,
as I did then, we can stop shooting ourselves in the foot. Price shifts are
one thing to sell, but underwriting philosophy changes are not.
When a carrier has underwritten the exposure for 8 to 10 years, and there
are multiple lines involved; overall account loss ratio and profitability should
and must still be viewed in the underwriting process and not some guide or the
new buzz word, "it does not fit our risk appetite." It did yesterday, and guess
what? They (the carriers) will be asking for the same business within the next
year or two, but it will be too late as a bulk of these "key accounts" are going
by way of associations or other group-type programs. (Wow, what a novel idea,
huh!!!)
So, yes, we do see the benefits of the carriers doing what they should have
been doing right along, but too many of these so-called underwriters, many of
whom have not been around the industry long enough to even begin to understand
the cycle theory of the business, are calling the shots. They have little or
no clue why they are asking for the types of information that management is
telling them they need to evaluate the risk. Many of these individuals were
not there when these accounts were placed on the books and do not know how hard
the agency/broker community worked to maintain the accounts with their companies
during the "easy pricing times."
—Stephen Puntasecca, CPCU, President
Charles F. Heidt Inc.