Navigating the E&S Market: Key Strategies to Prevent E&O Concerns and Protect Your Agency

Over the past few years, the admitted market has rapidly changed, meaning more and more business is going to the E&S market. This means more complicated underwriting, not to mention the risks that inevitably come with adding more people to the deal flow.

To help you navigate this market, we’ve put together some analysis and best practices that you can use to feel more confident in the E&S marketplace.

Growth in the E&S Market

The trajectory of the Excess & Surplus (E&S) marketplace continues to be on the rise, as almost $73 billion in premium was written in 2023. That was up 14.6% from 2022, and it doesn’t appear to be slowing down anytime soon. Property – both personal and commercial – continues to drive much of this increase, especially in coastal states and wildfire-risk states.

These increases are obviously due to changes in the marketplace combined with evolving risks that require specialized coverage. As a result, the underwriting in the E&S is often more complex and demands more knowledge of specific areas of risk. And while this often relies on the combined expertise of agents and brokers, more complexity can mean more opportunities for error.

How to navigate E&O risk management

So, how do you manage increased demand for E&S markets while still focusing on having E&O risk management in place for your agency? To get more insight, we got feedback from Ashley Riley, the Director of Risk Management for Ohio Insurance Agents. Riley works with agents every day to ensure they are protecting their agency and their clients while also having the right processes and procedures in place for E&O prevention.

“Since many agents may be newly navigating this specialized market, being aware of the Errors and Omissions risks that come with it is incredibly important,” says Riley. “One of the primary E&O risks in the E&S market is the complexity of underwriting. The specialized nature of E&S risks requires in-depth knowledge and expertise. Agents and underwriters must accurately assess and price policies to match the unique risks involved. Errors in underwriting can lead to inadequate coverage or unexpected gaps, which can result in E&O claims.”

And, in fact, this does seem to be a growing issue for agents. Berkley Service Professionals reports that, “…the number of carriers willing to provide $10 million E&O limits is shrinking. Most are setting limits of $5 million and deductibles are increasing with individual restrictions that vary by insurance provider and agency.” In addition, social inflation, nuclear verdicts, and third-party litigation funding continue to raise flags of concern. Agents should note these increased concerns and have plans in place to mitigate E&O risks.

Ensuring protection for your agency and your clients

So, what can agents do to help better protect themselves and their clients? “Effective documentation and communication are vital in the E&S market,” Riley notes. “Incomplete or inaccurate documentation can lead to misunderstandings between insurers, agents, and clients, potentially resulting in disputes and claims. Do not tell your client that coverage is bound until you have received confirmation from the wholesaler. A good idea would be to have your clients sign off on any rejection of coverages offered or any change in policy terms you discussed with them.”

Since regulation can vary in the E&S space, it is critical that you understand how your wholesale broker operates and also understand the policy language differences that need to be conveyed to your clients. One example of this is mid-term policy cancellations. Many states have laws around commercial cancellation that define how and when unearned premiums are refunded. In E&S policies, that may not be the case as they aren’t subject to the same state regulations.

Practices to remember

Per Riley’s suggestion, “Stay vigilant about regulatory compliance. Develop a deep understanding of the regulatory landscape in the areas where you operate and regularly update your procedures to remain compliant.”

While the “risks” can be greater in the E&S marketplace, they can also be managed with vigilance in research, learning, understanding, and communication. Work to educate yourself and your agency staff on how to be prepared for these potential issues, and you’ll be in a better position to serve your clients and protect your agency.

Sources

• https://www.insurancejournal.com/news/national/2024/02/14/760715.htm
• https://riskandinsurance.com/excess-surplus-premiums-continue-to-grow-but-inflation-and-jury-verdicts-are-impacting-attachment-points/
• https://www.iamagazine.com/markets/how-changing-market-trends-impact-insurance-agency-e-o-risk
• https://ohioinsuranceagents.com/blog/2024/navigating-eo-risks-in-the-excess-and-surplus-es-market/