Navigating Casualty Challenges and Opportunities

 

 

 

 

 

US casualty has arguably been the hottest topic in the sector over the last year amid growing concerns over deteriorating loss trends. E&S Insurer talks to Kyle Sternadori, head of wholesale excess casualty at Navigators, a brand of The Hartford.

 

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We are focusing on loss trends, such as rising loss costs, and staying ahead of those trends. As an excess market there are ways to do that: managing capacity and limits deployment across the portfolio; working internally amongst claims, actuarial, data science to stay ahead of that; and using your own data. Staying ahead of the curve is essentially what we're trying to do.

 

It started for us probably even before the market hardened. You saw towers of coverage that used to be maybe three markets and nowadays it could be 10 to 15 markets for similar coverage, with each market minimizing its downside.

 

That's really the biggest impact an excess market can have. With rising loss costs and with what we're seeing with social inflation and economic inflation, it's probably going to be that way going forward, in the near term for sure. Frequency is fairly stable, but severity has been a bit more challenging in some areas and that's what makes it difficult for the excess market.

 

Navigators Wholesale Excess Casualty

 

With long-tail lines it's inevitably difficult to price for future trends and have a crystal ball per se. For excess, how do you manage that? I think it goes back to that limits management approach. That's the biggest area you can have an impact. As the claim severity rises, economic inflation has had an impact on cost of goods and materials and what have you, but then you're seeing social inflation on the part of general damages going up across the board. Limits management and attachment point is an area you always need to look at from an excess standpoint, but as we get into these rising litigation costs it's difficult to manage.

 

Legal system abuse reform is a huge area that I think will have an impact on some of these excessive costs and lawsuits that they're generating. Working with our claims staff and actuarial friends about using their expertise and what they're seeing in terms of what's developing helps you as an underwriter to learn to adapt.

 

Third-party litigation funding is having a huge impact overall. It's a multi-billion-dollar industry in itself and certainly is driving loss costs across the board. Staying ahead of things and being on top of your own data, seeing the trends before they happen... no one can predict nuclear verdicts, but you can certainly see the trends and try to stay ahead of them as much as you can.

 

Reinsurers have taken a harder stance on casualty in the past couple years and in turn that puts more pressure on the primary markets. Excess of loss placements are getting tougher, quota shares continue to have pressure on ceding commission, loss ratio caps are in play on some books that lack historical experience or have had adverse loss experience. On the auto side there's pressure for better attachments. Those terms that the reinsurance market is putting out on these treaties can curb the behavior of the casualty market overall. That probably started one or two years ago and it's not getting any easier as we go along.

 

I think the E&S sector, especially in casualty, remains particularly strong. We're seeing an increased flow of accounts come into this space, so we feel that it's healthy, and it's certainly sticky from the demand standpoint. Maybe some of the growth has slowed down, but there's still substantial growth there, so we see it as a healthy place. As the casualty space becomes even more challenging, I think you'll probably see even more need for E&S and the role we play in risks overall.

 

We've added a significant amount of talent over the past three or four years, and where we sit in the market, we certainly have a lot of leverage in terms of what we can do and our capabilities.

 

The E&S market is meant to alleviate some of these areas where there's not capacity. For us in most cases we're naming our terms and conditions and we're signing on the risks on our own terms and at what we're comfortable with.

 

Even with the challenges, we feel we're in a healthy spot, and we're encouraged about the future for sure.

 

Commercial auto has been a challenged segment of the casualty market for a number of years, and Sternadori said that the accelerating pace of change and added complexities underwriters face daily make it important to come up with solutions.

 

“Our underwriters have to be diligent in risk selection, which includes not only understanding an insured’s investment in telematics, but also how the insured uses that data to improve driver behavior. In additional to telematics, there are other elements of risk selection that our underwriters consider to ensure we are partnering with insureds who are serious about investing in safety from an auto perspective. Those include vehicle maintenance, driver training programs, and creating a strong culture of safety that reaches the professional drivers.

 

“Auto liability has certainly been a challenge amongst the specialty pieces of casualty. What we're seeing today, driver behavior can be difficult to manage. Distracted driving is a huge part of an uptick in frequency or severity claims, so we're seeing that,” he said. The executive added that the availability of experienced drivers is another key area of concern.

 

“We're seeing a lot of risks with large auto exposures, where a lot of them don't have enough drivers or labor costs rise. So the dynamics of the workforce, the availability of experienced drivers, we're seeing that as potential exposure,” he added.

 

Sternadori said that the tail on auto liability is getting dragged out from just a few years, where it had been previously, to more like a GL tail of five or even up to eight years. Time limit demands also put additional pressure on carriers to offer settlements or tender their layers, often with more haste then preferred. This can have a negative impact on the excess layers and the ability to do all the due diligence that is necessary to manage a claim appropriately.

 

 

This general product description is information only and designed for insurance producers. It is neither an offer to sell nor a solicitation to purchase any particular insurance product and may not be disseminated to the general public.  This general product description outlines the coverage(s) that may be afforded under a policy from The Hartford. All policies should be examined carefully for suitability and to identify all exclusions, limitations and other terms and conditions.  In the event of a conflict between any policy and this document, the terms and conditions of the policy shall control.

 

About Surplus Lines Coverage

 

The coverage(s) identified in this general product description may be written on a surplus lines basis. Eligibility for surplus lines insurance coverage is subject to state regulations and requires the use of a surplus lines broker. Surplus lines insurance policies are generally not protected by state guaranty funds. In connection with the insurance offered herein, the broker is responsible for any disclosure or stamping requirements associated with surplus lines policies, and compliance with any declination, due diligence, or record-keeping requirements for surplus lines policies, and collection and payment of the applicable surplus lines premium taxes and any other applicable surcharges owed on each policy and to make any related filings.  Surplus lines coverage is underwritten by Navigators Specialty Insurance Company, Maxum Indemnity Company, Pacific Insurance Company Ltd. (except in CT and HI) and Hartford of Illinois Insurance Company in CT and HI.

 

About The Hartford Underwriting Companies 

 

The coverage(s) identified in this general product description may be underwritten by one or more of the property and casualty insurance companies of The Hartford Financial Services Group, Inc.

 

In Texas, Arizona, New Hampshire and Washington, this insurance is underwritten by Hartford Accident and Indemnity Company, Hartford Casualty Insurance Company, Hartford Fire Insurance Company, Hartford Insurance Company of Illinois (CT and HI only), Hartford Insurance Company of the Midwest, Hartford Lloyd’s Insurance Company (TX only), Hartford Underwriters Insurance Company, Maxum Casualty Insurance Company, Maxum Indemnity Company, Navigators Insurance Company, Navigators Specialty Insurance Company, Pacific Insurance Company (except in CT and HI), Property and Casualty Insurance Company of Hartford, Sentinel Insurance Company, Ltd., Trumbull Insurance Company and Twin City Fire Insurance Company.  In California, this insurance may be underwritten by one or more non-admitted insurance companies (not licensed in CA) and its property and casualty insurance company affiliates. In California, this insurance may be underwritten by one or more non-admitted insurance companies (not licensed in CA) and its property and casualty insurance company affiliates.

 

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