B&W’s Gatewood: E&S personal lines capacity going to distributors “who can deliver good results”

Gatewood said his firm is continuing to see business migrate from the admitted segment into the E&S channel, saying that the freedom of rate and form is “very helpful” in the marketplace.

“It's allowing us to bring terms and conditions to our retail partners that they need and I think, we're going to continue to see that for a while,” Gatewood explained, saying that admitted carriers have found it challenging to lift rates quickly enough.

“That's really the biggest driver right now on why we're seeing a lot of personal lines growth in the wholesale space,” he commented.

“Redeployment” among carriers

While some E&S capacity has come into the market, Gatewood said that a “redeployment of capacity” is occurring among carriers whereby underwriters are “creating a shorter list of distributors that they work with”.

“The most important thing right now is that the capacity is going to those wholesale distributors, who can deliver good results,” he argued.

“This is a time where relationships are very key. The results that you've delivered over a long period of time are key and your knowledge and expertise come front and center,” he commented.

Conditions vary across the country, Gatewood said, with some clients in California or South Florida either going bare or buying less coverage, something he said only a select number of clients can do.

“It's not going to become a widespread thing,” he said, adding that such clients may instead opt for coverage where they’re not covering the full value of their homes.

“Agents and clients are becoming very comfortable with that,” Gatewood said, saying that deductibles have also gone up as clients and brokers look to “stretch the capacity” to get what they need.

Some “opportunistic” plays

Pressure has emerged from the reinsurance market, and as some insurers have managed to get their exposure under control, are in a better position now to underwrite the risk.

“There have been some opportunistic people, who have come into the market and said, ‘Okay, the rate looks great, we think we can make money at this and as long as the rate stays here, we'll stay to play, but as soon as it drops, we're out’,’ Gatwood explained.

He called that dynamic “kind of problematic”, but noted that rate increases have “done a lot of good” in attracting capacity, along with improvements in the insurance-to-value that clients are now buying.

“The good news and all of that is that, from our recent meetings that we had at WSIA – where the marketplace all kind of got together – the general consensus, I think, among most markets is that we're just about to the point of rate adequacy, in most of the country,” Gatewood said.

That means clients will start to see smaller increases and what he described as “traditional personal lines increases” with surging inflation starting to play less of a factor in renewals.

“Every part of the country has problems to contend with”

While coastal regions have tended to get a lot of attention in the personal lines segment and have caused the most dislocation, Gatewood said “you can’t find a state that doesn’t have problems”.

“Non-coastal states are getting tougher, that market is getting harder,” he noted, citing the rising incidence of severe convective storm activity in the Midwest as creating challenges, while flood losses have also become an increasing concern.

“Every part of the country has problems to contend with. And it's just how the market is going to respond to it. And I think now, the market, believe it or not, is more comfortable with the wind exposure on the coast, than they are with the convective storm exposure in non-coastal areas,” he pointed out.

Tornadoes, hail, winter storms, and freezes have become a chief concern among capacity providers, “because it's so unpredictable”.

“We don't have great models for it yet. And so, the secondary perils are getting a lot of attention, and they're becoming more tough to place,” Gatewood added.

He used Texas agents as an example of those who will willingly acknowledge that hail- and severe convective storm-exposed business has gotten “very tough”, even as underwriters and agents attempt to leverage more third-party data tools.

However, the quality of output of those tools, Gatewood said, “still remains to be seen”, adding that wildfire risk is a perpetual problem where loss events can be an “all-or-nothing” type of exposure, where there are seldomly partial losses.

“You just want to make sure that you're not overly exposed in any one area. You never want to get to the point where you have more exposure to the secondary perils than you can afford to take, or than your shareholders are going to tolerate, or than your capacity providers are going to tolerate,” he explained.

Drought conditions moving easterly has meant that more states beyond California are becoming exposed to wildfire. Gatewood noted that even his home state of Michigan has recently contended with wildfires.

“So, they can happen, and I think, as people start to pay attention to the climate and what it's doing and how the impact is, this issue of wildfires is going to continue to be one that everybody's going to be extremely cautious about,” he explained.

Watch the full interview with Burns & Wilcox’s personal lines head Bill Gatewood to hear more on: