Alliant P&C Podcast: Insurance Market Insights and Predictions for 2023
Kevin Kenny and Alex Littlejohn, Alliant, explore marketplace opportunities and challenges business leaders should be prepared to navigate as we move forward in 2023. The duo discuss the behaviors, strategies and tools available to minimize risk and maximize value during turbulent markets.
You're listening to the Alliant Insurance Podcast, dedicated to insurance and risk management solutions and trends shaping the market today.
Kevin Kenny (00:09):
Hi, my name is Kevin Kenny with Alliant Insurance Services. I'm pleased to welcome today Alex Littlejohn. We're both senior leaders within Alliant Insurance Services. We also have client-facing responsibilities and have had a broad experience in the industry itself. We're here today to talk a little bit about the marketplace and the trends that we see. Alex, your team and our marketing group recently published a market trends piece, which was particularly insightful and offered some ideas with regard to what is driving the macro-marketplace, but even more specifically, some very hot areas of insurance, property, commercial auto and excess liability. Love to hear your thoughts on the broad influences out there and maybe begin to drill down into the property line, in particular, to start us off. Welcome, Alex.
Alex Littlejohn (01:03):
Hi, Kevin, thanks. It's great talking with you today and hello listeners. So let's just take it from the top, what we are looking at in way of 2023, it's going to be a very tough road. I don't think there's going to be a product line or an industry that's going to go unscathed. So we have to be prepared. We need to make sure that our clients are prepared. We need to be sure that we're early and we're active, to deliver the best that we can possibly deliver through the marketplace and its challenges. From the standpoint of our industries, our top end of the house, from the standpoint of property, you know, there are things that we are looking at in low ends, 5% to 15%, and on our top ends 20% to 30% plus, in way of rates. So these are shocking, they're surprising and we can go deeper, Kevin.
Kevin Kenny (01:53):
Yeah, it's been a rough ride for a number of clients depending on the class of business and/or where they're located in the property marketplace. But we do hear a lot about insurance to value today and the expectations that the underwriting community has to establish accurate valuations on the statement of values. How can a client better serve themselves by addressing that important underwriting concept and is there room to partner with the insurance company, as we try to help them mutually reach a point where the values are correct and the risk is fully understood? What's the strategy there for a good, smart client?
Alex Littlejohn (02:34):
Yeah, so this started a couple of years ago. It was sort of the entrance into the hard market and I would say that the market might have thought this correction would help alleviate some of where we are today. But clearly the catastrophes and other things that have hit the market have prevented that. So, we're still going to be overall hit in way of rates, but preparedness is key. Valuations are critical to the underwriter because it's the basis of rate. So if the valuation is off, the rate might be right, but the premium could be too low, or the premium, if it's overvalued, which I don't know if I've seen one of those in a long time, but if it's an overvalued schedule, then the premium is too high and we're forcing rate reductions or trying to find rate reductions, which we know in a market like this is just impossible to gain.
So how do we combat it? One, get out early and have a conversation with your underwriter and say, how are my values looking? But, the good news is there is an incumbent on every single one of our clients' risks. So it's not new to them. The risk isn't new to them. They would say, okay, you are in the 80th percentile, 60th percentile, 30th percentile, of what we see in good valuation. We work very hard to get to as close to 80% to 100% of where we should be insured to value. That would be a goal, that would be something that our carriers, our clients' carrier partners are going to be ecstatic to see. We look at the overall schedule, we identify those through the schedule that are at the lowest valuation point and work first with our clients to get those valuations up. How do we do it?
We've got several tools we can use our valuation tool, which helps them understand how far off they are. So, it's a preemptive strike to going into the insurance company and asking them, being prepared, proactive, right? The other area is that we can talk about stepping up valuation. A lot of our carrier partners, our clients' carrier partners are interested in getting there. It may not be able to happen in the first year, especially if there's a deviation in some of those lower percentiles. The carriers will work with us on a plan to get to an escalation of valuation over time. That helps our clients in budgeting. It helps us remain sort of in relationship with that particular carrier because going from one carrier to another to avoid a valuation increase is not going to happen. Every single market is looking for a valuation increase. The most punitive is to do nothing.
Doing nothing is actually going to return a restriction in coverage. It could require scheduled limits, or scheduled locations 'a la limit', which would be horrible and terribly restricting. So, for us, I think our best advice to our clients would be, let's have that conversation early. Alliant and our client, together, put a plan in place where we can escalate that valuation and then have our carrier partners agree to that strategy. The doing nothing, is only in our worst case scenarios where we just can't get there, the client cannot get their end valuations and they can't show that progress. We'll try to combat the best case wording possible and avoid any type of limitations.
Kevin Kenny (05:45):
Excellent advice, and I love the notion of conversation and building a partnership. That's the way to get the solution desired by both parties. Let's shift for a second to the commercial auto side of things. Whether that be a business that has an extensive fleet of private passenger vehicles or commercial trucks and delivery vehicles. A lot has been written about distracted driving, nuclear judgments, social issues that are driving claims up. Where do you see the commercial auto market going and what are some of the things that are impacting it and clients can do to manage those factors in their favor?
Alex Littlejohn (06:27):
Yeah, and again, another trend, unfortunately, Kevin, that has been hitting us over the last several years, it has been a struggle from the very start of reactions from the market, which quite frankly were pre-COVID. The nuclear verdicts were just starting to happen pre-COVID, then COVID hits and what happens? Everybody gets off the road. It's a false sense of better performing risks. But those that were over-the-road, the long haul trucking, over-the-road construction, big heavy kind of vehicles were still on the road, less to collide with, but they were still on the road. So we were still seeing activity happen. The problem we have today is that we've got all of this backlog. There are cases that are still sitting in the courts, being assigned. There's so much backlog now. I haven't yet had the opportunity to look at exactly what cleared out of 2022, but let's go with that in 2022, we still thought there was 18 months worth of backlog.
So these verdicts that had started to happen pre-COIVD and now obviously what we saw post-COVID, last year, really when the courts came back and these nuclear verdicts that were turning out, that's another 18 months worth of trials, that are on the dockets, that are being scheduled. Some will get to settlement, some will be able to pull out, some will settle for much less. But I don't see anything lifting in this market. Again, preparedness is key. If you're the client with the auto exposure, there should be nothing you aren't investing, to make sure your vehicles, whether they're private passenger, medium heavy, extra heavy vehicles, whatever your clients do for a living, they should be investing where they can to make sure that their drivers and their vehicles are safe to get on that road. Even when dockets are cleared, I don't see this as something that the carriers are going to say: "Hey, this is easy."
In fact, what we're seeing is that carriers want to offer less limits. Remember, the way that auto insurance works is on a per occurrence basis, there is no aggregate in auto. So you have one loss after another, loss after another loss, and your carrier is continuing to step up and step up. And unfortunately, in the nuclear verdict world, or even the semi-nuclear verdict world, your umbrella carrier is picking it up every single time and it's not exposed to aggregate. So, carriers are going to start offering less. That's going to put a lot of pressure on the lead umbrella and where are they going to come, come into play? So, we're looking at options to be able to find on the real heavy duty auto exposures. Is there ways of building buffer capacity? Is there reinsurance that we could entice our clients' carrier partners to buy to help us bridge that gap? I think for the easiest of risk, this will be something that will be manageable. I don't think we'll see lots of rate reductions in 2023, but I think you can see low-end, best-in-class risk, you know, at minor single digit increases. But on the high end, you know, it could go 25%, 30%, 40%, and it's all going to be about preparedness, communication, doing all that we can do and then the structure of the program, Kev.
Kevin Kenny (09:34):
Yeah, it sounds like to be considered a best-in-class risk, if you have a heavy commercial auto exposure, the client needs to take and own a lot of responsibility for risk management measures. And that can range across a long list of activities and attention and investments. Telematics has come into our world and we see in dash cams, external, internal, we're starting to see underwriters require an investment in that type of technology and post-incident analysis, better driver training. Is this a have-to-have in the commercial auto sector, in your opinion?
Alex Littlejohn (10:13):
Well, I think if you are in the, you know, and I'm air quoting "transportation business," right? But if you have your vehicles over-the-road, long haul, short haul and any level of passenger transportation, I do think that, in order to open the market as widely as you can, I think you're going to have to have a lot of the tools that they're looking for. Remember the market shrank considerably pre-COVID, as the market verdicts and as claims continue to roll in, the market started to contract. It didn't open back up, maybe slightly, maybe opportunistically, but I think in the end, we're going to really need to be best in class, if it is the significant exposure within your business, I think it's the responsible thing to do. I think that when it comes to a jury, the people sitting on the juries are 'see-ers', they want to see it, right?
You know, think about it, you know, our jury pools are made up of people that are on the phone a lot of the time, and so they're a visual group of people. They see things on social media and that's how they make and determine things. So having cams, having the ability to track and understand where the vehicle was when it happened, are all going to lend to a really good defense. And unfortunately it's going to be about defense. Hopefully it helps drivers be as armed as possible to be the best drivers as possible. But accidents happen and it just becomes a matter of how we're going to be able to manage it post-accident.
Kevin Kenny (11:36):
Yeah, so, let's talk about the fact that accidents happen because even the best run businesses in the world, will likely have an event, that may be of a serious nature. And you touched earlier on the fact that losses are beginning to penetrate the primary GL and auto limits, and that puts the excess liability program or umbrella as it's often referred to as exposed, right? What is happening in that market? Once again, it seems to have presented a lot of very difficult challenges for many clients. And what can a client do to better construct their excess liability program? So they're not lumped in with their peers that may be having losses, but the mere fact is they just might, so they need to be prepared.
Alex Littlejohn (12:26):
Well, I mean, look, it seems to be always first line of defense. The more that we manage the risk down low, the better that we are going to have results in that umbrella access tower that we build. So the more risk management that we put into place in the primary program, whether it's auto or general liability, the better we believe the result would be in the lead umbrella access. So, that's first line defense, doing all the things that we just talked about doing. Unfortunately, the umbrella and excess market, kind of follow the market around, right? It's a catastrophic cover, it's meant to be there, which is why when I talked about automobile previously, those nuclear verdicts, those semi-nuclear verdicts, the fact that $2 million is not really containing losses when they happen, when that big auto accident happens, it's not sitting in that primary. And that makes that lead umbrella used more towards a primary position than it would what it was intended to do in a lead position.
It's all about structure and it's all about sort of how we can contain losses within that primary program. So, the most we could do is structure our bottom program well, so that our lead umbrella and our excess towers aren't as affected. They're really supposed to be there for that catastrophic claim. Nuclear verdicts and runaway verdicts that we've been seeing, were really never intended to be, you know, a $2 million valued auto claim, that's now $28 million isn't what an underwriter in the lead umbrella excess environment plans for. So there has been a lot of conversation and a lot of retraction, and I think a lot of smart ideas put on the table as to how we can restructure programs that have a little bit of a meteor exposure, more benign risks. I think, where there isn't heavy manufacturing, there isn't a lot of over-the-road auto, I think they're going to fare really well in the lead umbrella and first excess liability towers. I think they'll be on the low end of any kind of a rate increase, and I think there'll be a lot of capacity out there for it. It's just, as you know, the clients, depending on what sector business that they're in, they could be seeing, you know, more dramatic restrictions and coverage or pricing as it relates down the road.
Kevin Kenny (14:37):
Yeah, thank you, Alex, very thorough analysis. As we bring our conversation to a close, you know, a couple of times you've noted that insurance is there for when it's needed, which is really the perfect description of why it became the product that supports businesses in the first place. But in this market, it seems important through all of your remarks that a united approach to risk management at the risk level is critical to protect, right, the business in the first place and some of those underlying layers of insurance and to present the right perspective on the business. If you could offer us some closing remarks on how a client can best present themselves in concert with their broker, to things like senior executive engagement, support for some of the risk management techniques and investments that you've mentioned. How do you wrap it all up and say, you know, "Ms/Mr client, you know, these are some of the keys to success in negotiating a sustained and successful and fair insurance program?"
Alex Littlejohn (15:40):
Yeah, Kevin, I think that from a broker's perspective, we need to advise our clients early to help them be as prepared as possible with their information. We like to believe that we've got best in class ability to execute through the market on an open platform. So, we find whatever the best solution is for our clients with a respect to our incumbents, our incumbent markets, to have probably stuck with our clients through challenging times. I think that if we expose our clients, and kind of hit the nail on the head here, expose our clients to the underwriting community, especially if they've had a tough year. You know, there are clients out there that have the benefit of insurance being something that they haven't had to tap into and probably because they have spent time internally understanding their operations, they understand how their people, their assets, how they operate, and they've had the ability to withstand any loss.
They haven't had that problem yet. Those kinds of clients need to continue to do what they're doing. The clients that are in tougher classes where it's not necessarily the things that they're doing, it's what's happening around them, right? We need to show those clients how we can access them in front of the market, get them in front of senior people, help to drive decision making, so that they're actually, even with tougher risk or tougher exposure or an unfortunate loss year, we're explaining it, we understand it, our client is in the game with it, they get it. It's all about engagement and activity, making sure that we are showcasing our clients at the top of the pile. There's a lot of markets out there and lots of competition out there, lots of choices out there. And I think that if we prepare ourselves and we prepare our clients, we'll be able to tackle a lot of the challenges that we're going to be faced in 2023.
Kevin Kenny (17:32):
Alex, it's been a pleasure to chat with you today and gain your insight. We are very proud that Alliant is in a position to advise our clients, advise our team members on some of these mega-trends and we hope our listeners have found this discussion helpful. If you'd like to access more information in this format, you can connect with alliant.com and on behalf of our colleagues, Alex, thank you very much, and our clients, thank you very much. We appreciate your insights.
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