HARDENING THE EXCESS MARKET

TRANSCRIPT

[Bruce Silverman] Hey everybody, welcome once again to another episode of "Managing Risk for Tomorrow, Today."  I'm Bruce Silverman, along with Henry Laville. Henry, we've had other conversations we've talked about the trucking market. Now we're going to talk about hardening the excess market. Before we even get into that if you need to get in touch, want to get in touch, you should want to get in touch with Henry, that number is 225-317-4265. His email address is hlaville@eliterisk.com. And the website is eliterisk.com. Hardening the access market, take it away.

[Henry Laville] Sure, it's a big problem in our industry today, you didn't use to see rates like this, you didn't use to see excess as a cost leader for certain industries, it absolutely can be now. And it's a significant issue for business owners because they already have enough fixed costs built in that are cut that's cutting away from their margin. Primary autos, a big loss leader here property is a big loss leader in the southeast as well. So another hit from the excess liability market is something some businesses may not be able to stomach.

[Bruce Silverman] That becomes a problem. Especially you talk about just from a cost analysis standpoint. And when you're budgeting you budget a then you get into locking in your rates for the following year. And the price is big.

[Henry Laville] Right? Absolutely. Absolutely. A lot of times for these businesses, when they get their renewals last minute, they're getting it day of day prior week prior and they may blame their broker, they may blame their agent, they may be right in that assessment that that can be the case sometimes. But the carriers are all in a race to the bottom to see you can be cheaper. We call it the money game. We don't like the money game and business owners don't either, although they do. They do push it they do perpetuate it. But the carriers want to be the last one to offer a quote. So a lot of times the business owners will tell you as they get the they get their options late with no other options and no time. So it's right we have large check today at this premium finance rate or you're out of business tomorrow your trucks are off the road, your doors are shut whatever the case may be. It is a big problem.

[Bruce Silverman] Let's talk about the fact that there's no longer a working layer.

[Henry Laville] Right. So excess was referred to a nonworking layer until recently and and what that means is that underwriters and carriers would look at it as a layer that they knew there was going to be no losses, they knew they were going to pay anything out. Every dollar in that came in the door was margin beyond their fixed costs like reinsurance, payroll, etc. But they weren't paying losses. And they didn't expect to if they did, it was every once in a blue moon. That is not the case anymore. There's a lot of factors behind that liberal tort liability environments where there's large payouts, slow claims service TPAs, having issues, inflation of medical costs, and just good old standard inflation are all things that impact that it's it's a diverse problem. There's a lot of nuance to it. But the certainty is that it's bad. And the certainty is that it's not going to get better from the standard carriers and the standard options anytime soon, we're in what a lot of people call a generational hard market. That is to say, I'm 33, my daughter who's 18 months if she gets into the insurance business, I expect the excess market may still be very hard when she's old enough to go put in a hard 40 in an office somewhere.

[Bruce Silverman] Let's let's unpack that, there's a lot to unpack with that. Let's just start with with excess it was often 20 Excuse me, 12 25% of the primary cost lines. Now it's what?

[Henry Laville] Now it's very significant. You can see rate online, go between 10 to 20%, sometimes higher in severe cases. And just to back into that a bit rate online can be best explained or most simply explained is every million dollars of cover you buy if you're at $100,000 a premium that's 10 points online, if you're at $1,000. It just goes from there. So $100,000 is 10 points online, that's very expensive. $200,000 is 10% rate online for a million bucks. That's not things you'd see before I've been an insurance for 11 years now. In the last few years, this has been in development and something that can be expected for excess liability. You get some really, really emotional tough renewal meanings out of that. If you're on the retail side, you get some very, very desperate exasperated calls from producers. If you're on the wholesale side. It it didn't. It didn't used to be like that, but it's it is and it's going to be a perpetuating continued trend.

[Bruce Silverman] I've had conversations with both Adam and Jeff in the past about how the insurance industry is becoming a very, very creative business used to be as you talked about in a previous episode, I think where or the math could be done on a bar napkin. That's simply not the case. Now, there are so many factors and to make it work and to keep some businesses just in business, you got to be creative.

[Henry Laville] Absolutely. That's I mentioned this in another episode. But that's how I got to Elite Risk. So when you see somebody spinning $500,000, for $5 million of coverage, or two and a half million dollars for a $3 million occurrence limit, they have to look for what's better. And every year the producer is going to get the same question. Is there not anything better? Is there any way I can control this, I didn't have any losses, I didn't get any money back, is there anything better and it comes down to just one word that's control? At Elite Risk, that's, that's really what we're after. That's really what we want to, but what we want to provide for our clients, and that's, that's what we want our clients to be offered after if they're going to be a fit for us. So what we allow in terms of creativity is participation in the risk. So they'll participate in some losses up to a certain level and only what's feasible for them only what makes sense, actually, rarely and based on their risk tolerance. But because they do that they get to participate in underwriting profit. So whereas you see a risk spinning 10% rate on line $100,000 for every million dollars of coverage, and they're buying $5 million of coverage, spending $500,000 in excess only spend, never had losses, it's a great opportunity for them to get some money back and get some money back in a tax efficient manner as well, although that's something I'm sure Adam will touch on. And as already touched on in his other episodes.

[Bruce Silverman] Let's close out this episode talking about something that you hinted about a little bit earlier. And that's inflation, between loss, inflation, and inflation and the actual inflation.

[Henry Laville] Sure, so the actual inflation is pretty straightforward. $1 is not what it used to be, it's getting higher every year. And we're at record inflation. That's that's a big impact. Insurance carriers are also impacted by that because some of their margin would come from investments for their portfolio not unlike banking. When the economy is hurt, everybody's hurt. Insurance is a big part of that insurance is generally a very safe investment. But that is where some of the margin comes from inflation for medical costs is a big deal as well. Medical providers have to be paid more after the pandemic, that's been an impact, a huge impact. I've got numerous family members, who are nurses working 96 hour shifts, and standard hospitals who are now travel nurses working shorter shifts for three times the money. So there's, there's just an inflation in medical and health care. So if you have an injured party on the other side of a claim a claim and a plaintiff, etc. And they're bringing suit, they're they're looking for indemnification on their damages, that's going to mean more dollars, it just plain pans out to more dollars period, almost anywhere you go. So that's that's one universal issue that's going to impact every state.

[Bruce Silverman] Again, it just goes back to how much this industry has changed over the last few years. How creativity is really the key for businesses, the more creative businesses can get, they can minimize their risk, they can maximize their profits, but they have to work with people that are creative and know the industry. And that's where elite risk comes in.

[Henry Laville] Absolutely. I think solutions like ours have existed in the past and continue to exist, but it's for the large market risk. So it's risk where if you're spending $2 million per line, you begin to have access to those solutions. Single Parent cap is fronted captive solutions, hybrid fronted captive solutions where there's a quote, a share of standard standard in risk transfers, what a lot of folks would call standard insurance. And then at $2 million, you're at the low point, they really want to see you get to 5 million in the next 18 months. And some of the solution providers there are going to want to story on why you're increasing. And kind of what's your journey to the top going to look like we are scaling those down, we are bringing those to the small, large market as well as the large middle market, we found a niche there that really works and our models, what makes it work around our collateralization model. Now that is again, Adam's territory, so let Adam touch on it. But it is something that's really unique to us. And we do it very well. We offer pretty standard cover there. And we allow our clients to pick a lot of their cover within their captive reinsurance layer or within their reinsurance layer. So they have what we would refer to as a pin to a certain extent they can write in some of their own cover. There's not a lot of solutions like that and it's been well received.

[Bruce Silverman] If you're in business and you have a business that does have risk and you need somebody to really work with you and take care of that risk. Elite Risk is the company to work with. He's Henry Laville, his phone number 225-317-4265, His email is hlaville@eliterisk.com. The email excuse me, not the email, but the website is eliterisk.com. The name of the show is "Managing Risk for Tomorrow, Today." He's Henry, I'm Bruce. Henry. We'll see you on future episodes. Keep rockin and rollin my friend.