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SAN DIEGO — The excess and surplus lines sector is facing a critical and growing shortage of younger employees as more business continues to flow into the sector, industry leaders say.
The recruiting challenge was a topic frequently raised by attendees at the Wholesale & Specialty Insurance Association’s Annual Marketplace in San Diego last month.
To address the problem, companies should try to improve the industry’s negative image, establish training programs and fund endowments at universities, they said.
More workers are needed to handle the E&S sector’s growth, as employees age and retire, observers say. Total annual surplus lines market premiums increased 19.2% in 2022 to $98.5 billion, the fifth increase in annual premiums in a row, according to Oldwick, New Jersey-based A.M. Best.
But finding the talent to take advantage of the demand for E&S business is a challenge, attendees said.
The underwriting talent shortage was “the most frequently talked about issue” at the conference, said Tim Turner, president of Chicago-based Ryan Specialty LLC. “The industry didn’t do a very good job” of training new employees, he said.
“We are going to see attrition due to just retirement,” said Rebecca Gitig, Los Angeles-based head of U.S. primary liability at Aspen Insurance Group.
“The insurance industry is losing a lot of talent every year,” said Alan Jay Kaufman, chairman, president and CEO of Farmington Hills, Michigan-based H.W. Kaufman Group.
Intern programs are not enough to address the issue because those individuals are already interested in insurance, he said.
The industry needs to bring diverse experience and candidates into the sector, said Mike Mulray, Warren, New Jersey-based executive vice president and president of North America at Everest Insurance, the insurance division of Everest Group Ltd.
“I think we’ve made progress, but you’re coming off a low base. There’s still a lot to be done,” he said.
There are not enough people to keep up the sector’s pace of growth, said Erich Bublitz, Kansas City, Kansas-based head of excess and surplus for AmTrust Financial Services Inc.
“We probably as an industry fell down a little bit in getting ahead of the problem, but the explosion of E&S has really brought it to the forefront again, and it’s exacerbated by the fact that the industry is aging,” he said.
The question is how to address the loss of headcount and expertise that is going to develop over the next few years, Mr. Bublitz said, adding that while there is no easy solution, the first step is to talk about it.
A lot of people’s mistaken perception about the industry is that it involves filling out forms and sitting behind desks “and that we’re not in a relationship business,” he said.
Ms. Gitig said Aspen has addressed this issue with a trainee program, in which recent graduates “get a taste of our business.”
In September, the company replaced someone retiring at the end of the month with a graduate of the program. The graduate completed a six-month rotation in her unit and later returned to take on the position.
In addition, the insurer has tried to hire people with different perspectives and backgrounds, she said.
Mr. Kaufman pointed to St. John’s University in New York, which renamed its School of Risk Management, Insurance and Actuarial Science the Maurice R. Greenberg School of Risk Management, Insurance and Actuarial Science. The Starr Foundation, of which Mr. Greenberg is chairman, gave a $15 million donation to the university in 2018.
Mr. Kaufman, who has long stressed the need for recruiting in the industry, endowed a professorship in insurance in 2016 at the Eli Broad College of Business at Michigan State University for an undisclosed amount.
Companies are experiencing a worrisome recent increase in ransomware demands.
The increase follows an apparent relative lull in payments related to the war in Ukraine, as cybercriminals in that region appeared to be at least temporarily diverted by the conflict, said executives at the Wholesale & Specialty Insurance Association’s Annual Marketplace last month in San Diego.
“We feel like we’ve got a year-and-a-half reprieve from ransomware attacks,” which may have been because of the focus on the war, said Jeff Kulikowski, senior vice president, professional lines, for Westfield Specialty, a unit of Westfield Insurance Co.
There was “definitely more ransomware in the last quarter,” said Derek Kilmer, associate managing director, professional liability, with Burns & Wilcox in Farmington Hills, Michigan.
Julie Marvel, Indianapolis-based vice president-southeast underwriting manager for Axa XL, a division of Axa SA, said that while there may have been a slowdown, “ransomware didn’t go away.” She noted there have been ransomware issues in the oil and gas, municipalities and education sectors.
Mr. Kulikowski pointed to cyberattacks on the casino operations of MGM Resorts International and Caesars Entertainment Inc. last month and said, “It is hard to tell whether (cybercriminals’) pattern of attacks has completely changed.” The focus recently has been on higher volume, smaller attacks, particularly against small to midsized companies, he said.
“We have to figure out” if this is a one- or two-off situation, or the start of a trend, Mr. Kulikowski said.
Megan Spencer, Atlanta-based senior underwriter, cyber and tech, at Axa XL, said the casino attacks show that companies “must open up their eyes” and that these attacks are a matter of “not if but when” and increase their cybersecurity presence.
Michael Phillips, New York-based cyber practice leader USA for CFC Underwriting Ltd., said the cyber market is “a very unsettled place.” There is continued confusion around pricing, with a number of markets that have responded to ransomware frequency with quick corrections, he said.
“For brokers and buyers, that instability is making it difficult to close the sale,” Mr. Phillips said. “It’s making clients skeptical about the integration of the product when the prices are spiking up and down with a lot of volatility.”
Steve Robinson, Cambridge, Maryland-based national cyber practice leader, executive lines, for Risk Placement Services Inc., an Arthur J. Gallagher & Co. unit, said that in next year’s second quarter, “I envision there being some upward adjustment in rates, perhaps a return to more underwriting discipline.”
There cannot continue to be “higher frequency and lower pricing for so long before loss ratios go up,” and when that happens there must be adjustments to ensure profitability, he said.
The excess and surplus lines industry is being challenged by the turmoil created by this year’s natural catastrophes.
But the sector’s discipline will allow it to address the numerous catastrophes that have affected the market, including wildfires, hurricanes and an increase in convective storms, industry executives said last month at the Wholesale & Specialty Insurance Association’s Annual Marketplace in San Diego.
Wind-exposed property catastrophes were a focus of discussions at the conference, but there was also much attention paid to secondary perils, including wildfires, winter storms, convective storms and tornadoes.
“It’s just the weather-related risk and how the market is continuing to sort that out and provide the right kind of risk transfer solutions,” said Matt Dolan, president of North America specialty at Liberty Mutual Insurance Co. and its Ironshore unit.
“Admitted insurers are trying to right size their portfolios,” so business is flowing into the E&S sector, said Michael Carr, executive vice president and head of E&S property at Axis Capital Holdings Ltd. in Alpharetta, Georgia.
Tim Turner, president of Chicago-based Ryan Specialty Holdings LLC., said there has been much focus on catastrophe risks. “It’s basically pushing more business into the nonadmitted market and creating more opportunities for more carriers,” he said.
“It takes twice as many carriers in many cases to complete the layering opportunities in the E&S market. There’s enough capacity in the market for us to accomplish completing most of these accounts.”
Mr. Turner said that while eventually some business will migrate back into the admitted market, structural changes have modified the E&S market “for the foreseeable future.” He said he expects much of the catastrophe business will stay in the E&S market “because it’s so volatile.”
“There’s no one writing large limits,” he said, adding it is “more disciplined in terms and conditions in the E&S market today.”
It has been a challenging market, said Michael Garrison, Red Bank, New Jersey-based head of wholesale, global specialty, for Navigators, a unit of the Hartford Insurance Group.
Property catastrophes were “historically rated for wind and earthquakes,” he said. “Now, we have multiple models out there,” including for wildfires and convective storms.