Letter from The Broadmoor: business (almost) as usual

There is no doubt that the P&C insurance industry rapidly adapted to the challenges of operating through Covid-19, with a swift and largely successful transition to remote working that could reshape working practices as the pandemic finally recedes.

But even as some companies have returned to hybrid in-person operations, there has been a hankering for the resumption of larger-scale meeting opportunities with clients, counterparties, intermediaries and peers.

A couple of months ago this publication wrote a comment piece reflecting concerns among some industry participants about the prospects for the fall conference season in the US as the Delta variant of Covid raged.

The Council of Insurance Agents and Brokers (CIAB) Insurance Leadership Forum (ILF) event in Colorado Springs was seen as an acid test of the P&C sector’s willingness to return to attending large-scale in-person events.

Despite a number of high-profile cancellations from carrier and broking organisations, the CIAB forged ahead with its in-person event, as well as an online program for those unable to attend.

And the last few days at The Broadmoor demonstrated the resolve of the industry to send a message that it is returning to “business as usual” and the invaluable benefits of face-to-face interaction.

Mask at the ready, this publication recorded uniformly positive feedback in its interaction with delegates that had cast aside any reservations they might have had to attend.

There was praise for the safety protocols implemented by the CIAB, and for the intimate nature of this year’s event that allowed for a different kind of engagement and in many cases more meaningful meetings than the “speed-dating” that is typical at a full-scale ILF.

A smaller attendance was augmented by the presence of several firms not seen at previous meetings, and many attendees said that changes in schedule as a result of some ILF regulars pulling out meant that they had been able to meet with new contacts and forge relationships that could lead to new opportunities.

Several senior executives told The Insurer that in their mind it had been critical for them to come this year not just for the valuable meetings they would have onsite but for the message it would send to their employees and the wider industry about moving on from the experience of the last 18 months.

The event came at a time when many companies have been in the process of encouraging employees to return to the office on a more regular basis.

And recognising that flexible working practices are likely to be the norm going forward, almost all leadership executives are adamant that regular attendance in the workplace and in-person interaction is vital to their businesses and the development and performance of their colleagues.

“This industry is an apprenticeship,” said one executive, highlighting the importance of learning skills and gaining experience first-hand from peers and mentors, as well as face-to-face interaction with clients and counterparties.

Commenting to this publication, Ken Crerar, CIAB president and CEO, said: “We knew that ILF would be different than it had been in previous years, but we saw it as an opportunity to create a really special event for our members who were able to attend, while also allowing for those at home to engage with our content.

“We set out to create a safe, productive forum for our members to do the business that is critical to their firms, and I’m extremely proud of our team and partners for how we adapted our programme,” he added.

The feedback given to this publication in its scheduled meetings and random encounters around The Broadmoor was in line with that of David Becker, 2021 CIAB chair and CEO of Cottingham & Butler.

“What I’ve heard from our members, and what I experienced myself, was that a more intimate event led to longer, more in-depth conversations with business partners,” he said.

“A lighter schedule also meant that I had the opportunity to have an impromptu conversation and meet with organisations that I hadn’t before. Of course we’re looking forward to 2022 when we’re back together in full force, but this event was extremely valuable in ways I hadn’t originally anticipated.”

The other takeaways

For all the palpable sense of positivity around The Broadmoor as friends, counterparties, peers and competitors were reunited and new contacts made, there was plenty else to talk about of course.

For us, there were no real surprises in the topics that took centre stage, but there was arguably a slight shift to greater bullishness around the longevity of the still relatively hard market conditions across most lines of commercial insurance business.

The widely followed public pricing indices – including the CIAB’s quarterly survey – have shown a moderation of rate increases in 2021, although the market is experiencing rate on rate, and in many cases rate upon rate upon rate.

But conversations with carriers and brokers appeared to be aligned around expectations that 2022 will see no meaningful change in the market that would indicate a shift towards a softer phase of the cycle.

The reason is that in many lines of business the factors that have driven the hardening of the last couple of years have not gone away, and in some instances are being amplified.

The business line that arguably took top billing at the ILF was property, amid a growing acceptance that the heightened frequency and severity of cat losses against the backdrop of climate change (or climate volatility as some couched it) could indicate a permanent shift that calls for a revised view of risk.

This has been a drum beaten by some reinsurers for a number of years, but the recent activity is beginning to cause a change in behaviour at primary carriers as underwriters grapple with the challenge of trying to reshape portfolios and manage volatility.

Several carriers said they were not only looking to push price further in property but also continue to address other levers in their underwriting, including deductibles and terms and conditions – as well as their exposure to geographies that have been particularly hard hit.

After five years where underwriting losses have become the norm, property underwriters are realising price alone won’t cut it.

The frequency of severity – particularly involving secondary cat perils such as the flooding in Europe – is also leading to a rethink from reinsurers.

While several reinsurers have been addressing climate change at the tail for large peak-zone cat perils by cutting PMLs, they have continued to be stung by the spate of medium-sized events that have been burning through low-attaching, low return period layers on cat programs.

There was anecdotal evidence at CIAB that some cat reinsurers are communicating to brokers and clients that they will significantly cut back capacity from lower layers across their portfolio regardless of actions taken by insurers to address volatility and the prospect of meaningful rate increases.

At the same time there is an expectation that other reinsurers will be willing to step in and fill out layers at higher rates.

The E&S market has been at the front line of the hardening and there were expectations that E&S property rates will begin to accelerate again as a result of Ida losses following Winter Storm Uri earlier in the year.

And the broader momentum in the E&S market shows no signs of letting up, both in terms of pricing and the volume of business flowing through the wholesale channel.

Senior broking executives continued to talk about the toughest market they had seen in placing high hazard risks and the unrelenting pace of submission flow, which has fuelled record growth for them and for the amount of business being written by surplus lines carriers.

There was also a strong focus on the different kinds of inflation that are driving up loss costs and adding further wind to the sails of pricing momentum.

With Ida now broadly seen as a $30bn to $40bn industry loss, there was commentary from several companies about the scarcity of information around claims quantum coming from insureds.

Although some expect at least 70 percent of the total loss to come from personal lines business, that still leaves a commercial loss that could run into the low double-digit billions of dollars.

But to date there have been few significant commercial lines claims that run beyond the tens of millions of dollars.

The great unknowns are the development of flood losses and the impact of inflation – both of material and labour costs. Some underwriters believe that could account for 20-30 percent of the total industry loss.

Primary carriers and reinsurers are also laser-focused on social inflation – broadly viewed as the impact of the changed make-up of juries on verdicts, which has led to ever more extreme awards in recent years.

For all the commentary around pricing adequacy and rate increases staying ahead of claims trends, there was an acknowledgement from several senior underwriting executives that the industry is a long way from knowing its true loss costs in casualty for the last couple of years at least.

The closure of the courts has led to a pile-up of cases and there is concern among primary carriers and their reinsurers about the potential for adverse reserve development and a significant surge in loss costs when the courts eventually reopen.

And in the absence of tort reform, there is no sign that the recent phenomenon of social inflation – after its Covid pause – is going anywhere anytime soon.

There are also concerns about the potential impact of other sources of inflation, including medical inflation, on loss costs in the near term.

In this environment, it seems unlikely that the pressures that led to the fundamental changes in underwriting approaches by carriers – including dramatic shortening of limits – will reverse in the next year or two.

Several carriers told The Insurer that limit management would remain as the cornerstone of their underwriting strategy – and some added that resolve will be strengthened by concerns that there is plenty of pain to come from the last few years of the soft market before they started tightening capacity as claims from policies written on an occurrence basis come to light.

The shortening of limits across multiple lines of business means that syndication will continue to feature prominently as brokers are required to access a greater array of carriers to fill placements.

In turn that will continue to add pricing momentum, especially on larger programs.

With continued momentum in underlying pricing in casualty and professional lines, some reinsurers believe that the upcoming quota share renewals are likely to be relatively stable after conceding ground on cedes to insurers over the last year to reflect the improved economics on the business coming through.

Pricing married with shorter limits and tighter terms and conditions has received support from reinsurers at more favourable cedes, but reinsurers are likely to make the case that the uncertainty over potential loss deterioration means that they should not give up further ground.

Some reinsurance sources suggested that there could be downwards pressure on some accounts where there are greater concerns.

Concerns around cyber capacity were ubiquitous with insurers shortening limits even as pricing surges and reinsurance capacity tightens.

There were several MGAs with a cyber focus at the event and talk of pivots to employ captives or other forms of alignment with reinsurers and other capacity providers.

The event also coincided with the announcement by Coalition that it had bought Attune to create a $500mn+ MGA.

Inevitably consolidation remained a strong topic of conversation.

Since the last ILF there has been further large-scale consolidation in the wholesale space, with Ryan Specialty Group’s acquisition of All Risks and Amwins’ deal to buy Worldwide Facilities.

But the retail segment remains the most active as private equity-backed consolidators keep up the pace of recent years.

Several of the largest aggregators were not at The Broadmoor this year, but there was an expectation that recent combinations of platforms – including the Alera-Propel deal – are a precursor to a broader trend for consolidation of the consolidators.

Another topic of conversation was the rapid growth of the MGA and programs sector – including the continued arrival of insurtechs on one hand and the wave of hybrid fronting carriers on the other.

Perhaps unsurprisingly, there was a degree of cynicism among traditional insurers as well as some reinsurers about the prospects of a sector they view through the lens of history, after the pain inflicted on some capacity providers and the implosion of a number of program carriers and fronting vehicles of the past.

From others there was a recognition of the significant changes that have taken place in the underwriting of the business, including through the use of technology, and the greater transparency hybrid fronting carriers say they can provide reinsurers on the performance of programs they support.

And last but by no means least the war for talent was also a common theme in conversations. High-profile moves in the insurance and reinsurance broking space continue unabated, with the strong demand from challenger firms to hire and the need of the big three to continue their growth trajectory bidding up the cost of human capital.

But there was also an urgency around the need to find ways to attract new talent into the industry, which faces a crisis of demographics.

There was hope that some of the challenges and opportunities facing the industry – evolving working practices, finding solutions to help counter climate change, addressing ESG requirements, and the role in helping society address the protection gap – could draw in the next generation looking to balance career opportunities with the greater social good.