Cyber, other tough risks prove difficult to place

Cyber risks, climate-related losses such as wildfires and freezing temperatures, transportation risks and property exposures, including Florida condominiums, present underwriting challenges to the excess and surplus lines market, in addition to pressures created by the COVID-19 pandemic.

The market “will continue being difficult for a while longer, but I think there are certain classes that will remain difficult even when other classes are softening,” including cyber liability, said James Drinkwater, New York-based president of Amwins Group Inc.’s brokerage division.

The frequency of ransomware claims and their cost have increased exponentially. “The numbers are staggering,” said Scott Meyer, senior vice president of Chubb Group and president of Westchester Surplus Lines Insurance Co., its excess and surplus lines unit.

“Cyber is just a mess,” said Joel Cavaness, president of Rolling Meadows, Illinois-based Risk Placement Services Inc., a unit of Arthur J. Gallagher & Co. 

“Some of the largest losses have been for event cancellation over the past year,” much of which is probably in the excess and surplus lines market, said Bruce Ballentine, vice president and senior credit officer at Moody’s Investors Service Inc. in New York.

Event cancellation coverage of any kind “is very hard to get,” and pandemic-related coverage “is just not available,” said Dave Obenauer, CEO of CRC Group, a unit of CRC Insurance Services Inc., in Mendham, New Jersey.

Property “continues to be a difficult (line), particularly coastal property in Florida,” said Alex Bargmann, CEO and co-founder of Pathpoint Inc., a San Francisco-based digital excess and surplus brokerage.

The Surfside, Florida, condominium collapse in June led to underwriters taking a closer look at overall rules and guidelines and what is acceptable in terms of engineering and up to code, said Kyle Burnett, New York-based head of E&S property at Axa XL, a unit of Axa SA.

Florida “has turned into its own unique animal” since the building collapse, with capacity pulling back and underwriters taking a long time to consider the risk and the limits they will offer, said T.J. Krzmarzick, Chicago-based deputy head of U.S. excess casualty at Aspen Insurance Holdings Ltd.

David Bresnahan, executive vice president of Berkshire Hathaway Specialty Insurance Co. in Boston, said, “Anything where there’s a significant amount of auto exposure for transportation risks is still a very difficult risk,” with few insurers writing the business. 

New York City construction business also continues to be a very difficult risk because of New York labor law, he said. 

Meanwhile, the pandemic’s course remains unknown. “If you’re writing business affected by the pandemic, all bets are up in the air,” said Alan Jay Kaufman, chairman, president and CEO of H.W. Kaufman Financial Group Inc. in Farmington Hills, Michigan.

Mr. Bresnahan said he is concerned about reports that jury awards are even higher than they were before the pandemic began, now that the courts are reopening.

The pandemic “gave liability underwriters a bit of a breather” but may also have “resulted in a bit of a false sense of security,” he said. 

There are also continuing concerns about catastrophes, including named windstorms and earthquakes, and rising inflation is top of mind, said Cliff Hope, Atlanta-based head of property for Lexington Insurance Co., a unit of American International Group Inc.