Everest Insurance® Head of National Accounts for Excess Casualty Andreas Graham explains how the U.S. casualty space is facing a structural gap between what is available in primary markets and what is required by the umbrella market and demonstrates how a structured insurance solution to help solve it.
Insureds in the U.S. Casualty space continue to face a structural issue leaving them with few good solutions to address capacity and pricing constraints in the market: Primary insurance carriers are less willing to write high limits and umbrella carriers are pushing for higher attachment points. This has resulted in a structural gap between what is available in primary markets and what is required by the umbrella market.
The attachment problem for umbrella placements
Over the past three years the casualty insurance market in the United States has gone through a major readjustment. Today, there are two major shifts in the way casualty programs are being constructed:
- Shrinking Capacity: The available capacity in the excess market has shrunk dramatically; this has led to increased pricing and reduced choice for the insured.
- High Primary Limits: The umbrella market is now requiring significantly higher primary limits than in the past. Due to carrier limitations and attachment point requirements, larger insurance limits are not easily offered or obtained. In the past, insureds looked to a robust buffer layer market to fill in these structural gaps. However, due to poor results, this option is not readily available in the current insurance market.
As a result, for some industries with a particularly high frequency of loss, such as commercial transportation, there are very few available markets to provide a risk transfer option, and what is available is often cost prohibitive. This leaves insureds with more of the casualty risk and exposes their balance sheets to an unknown negative impact of losses.
In many cases, insureds find themselves with two choices: paying an extremely high sum to fill the attachment gap, or, with nowhere else to turn, self-insuring and retaining all of the risk. For insureds stuck in this situation, a lesser-known third choice does exist: a structured solution. A structured solution can provide a hybrid of both risk retention and risk transfer at a cost that can be substantially lower than the traditional market.
A structured solution in practice
A structured solution is able to ring-fence the insured’s liability and purchase risk transfer coverage at a cost that is within reach. Structured risk offers the insured a finite amount of coverage that is generally spread over multiple years.
Let’s look at a few examples where clients utilized a structured insurance solution:
- A new operator of a large fleet of buses was in need of insurance coverage. As they were a newly formed entity, they needed a program that offered coverage, but was not impacted by their limited financial information and history. A structured solution was able to provide this client with a structure that offered sufficient coverage and a mechanism by which they were not required to provide long-term collateral.
- A contractor with a large fleet, with significant historical loss activity, was in need of coverage. The insured had invested in a loss control tool, but this was not being sufficiently taken into account by the traditional insurance market. A structured solution was able to provide a lower initial loss fund, with additional premium for adverse development. This allowed the client to take early benefit of their investment, but also created a mechanism that funded adverse development in the event that their losses were above expectation.
Benefits of a Structured Solution In both above examples, BufferFlexSM provided the respective client with the flexibility to access coverage that reduced their insurance cost by sharing risk and paying a premium commensurate with their actual loss experience.
Another benefit of a structured solution in these situations: the insured is, to a much larger extent, in control of their own destiny. Their cost is based on their actual loss experience and not affected by the volatility of casualty premiums in the market. And unlike with self-insurance, a structured solution contract can provide the full claims support of a traditional insurance policy, with the flexibility of coverage that comes with significant risk retention.
Overall, a structured risk solution can provide tailored insurance coverage for clients that have little choice or prohibitively high premiums, providing an oasis in the current state of the market. Risk sharing fosters a true partnership between carriers and clients and puts the needs of the client and their business first.
For additional details on solving unique market challenges, please visit our Excess Casualty and BufferFlexSM webpages.
Disclaimer: Not all products and product features may be available in all jurisdictions and availability may be subject to business and regulatory approval in each jurisdiction. The content of this article is intended for informational purposes only. The views and opinions expressed in this article are solely those of the individual author and do not reflect the views of Everest Re Group, Ltd. (“Everest”), and its affiliated companies. Additional information about Everest, our people, and our products can be found on our website at https://www.everestglobal.com/.