California Wholesaler Conference Questions: Rising Premiums, Disruption, Disasters?
Surplus lines in California had a great year with more premium and more items, such as policies and endorsements sold.
However, surplus lines brokers had to work harder for all that premium.
That’s according to Ben McKay, executive director of the Surplus Line Association of California.
McKay was speaking on Tuesday to a crowd of insurance professionals at the annual California Wholesaler Industry Days conference in La Jolla, Calif.
The three-day conference is hosted by the California Insurance Wholesalers Association. The CIWA conference, which began on Monday and ends on Wednesday, drew hundreds of attendees to hear about issues affecting wholesalers.
Fellow speakers on the panel with McKay were Corinne Jones, executive vice president of operations for AMWins Access, and Brady Kelley, executive director of the Wholesale & Specialty Insurance Association. The panel was moderated by Hank Haldeman, executive vice president and director of The Sullivan Group.
According to McKay, the surplus lines industry in California saw more than $6.55 billion in processed premium in 2017. There were also more than 650,000 items processed, an increase of more than 200,000 over the last several years.
“We’ve had a dramatic increase in the number of items and processed premiums,” McKay said.
He offered a “glass half full” outlook if you divide the greater number of items into to total premium, which equates to a smaller premium per item.
That means surplus brokers had to work harder for their dollars, but that there is now more premium to go around, he noted.
The panelists also talked about technology disruption and whether it will harm the surplus industry.
Haldeman polled the audience with a requested show of hands to see how many believe technology would hurt surplus lines and how many see it as an opportunity. A large majority acknowledged they see tech disruption as an opportunity.
McKay illustrated why he believes it will be hard for technology to thoroughly disrupt surplus lines by offering a near-future hypothetical example of a person who wants to get a policy for an autonomous vehicle through smartphone app. But since autonomous vehicles are new, it’s likely the only coverage that can be found will be found in the surplus lines market.
California requires retail brokers to take customers to admitted carriers first and get declinations before going to the non-admitted market, McKay noted.
“How does the app get the declinations?” he said.
Kelley addressed so-called disintermediation in the surplus lines market by referring to a Sept. 4, 2017 article by Insurance Journal featuring prominent wholesale brokers who think the industry will buck disruption.
The article maintains that today’s wholesale brokers expect to continue to thrive despite trends of more carriers going direct to customers in small commercial lines and insurtech startups such as Lemonade, Trov and Slice Labs also looking to disrupt commercial lines.
Kelley posed a question to make a point that he, Jones and McKay were all making about any effects that disruption and disintermediation will have on surplus lines throughout the panel.
“Does technology really ever replace relationships?” Kelley said.
Natural Disasters
It was a wet and somewhat wild day in Southern California when Josh Darr, lead meteorologist at JLT Re, pointed out that in part because of the weather, along with recent headline-grabbing wildfires and hurricanes, interest in extreme weather and adaptation are in the rise.
Darr gave a talk at the CIWA conference titled “2017 Natural Disasters: A Sign of increased activity?”
“We’re staring to see more people acknowledging that this is happening and how we should address these issues,” he said.
His talk covered a number of meteorological topics including climate change, El Niño, the jet stream, atmospheric rivers, the accelerated melting of Arctic sea ice, California’s drought and this year’s record wildfires in the state.
Darr’s talk was a thorough tutorial on atmospheric and climate science and what it all means for the industry.
He said scientists have seen a “dramatic” drop in healthy sea ice in the Arctic region, and explained in simple terms that replacing white heat-reflecting ice with more blue ocean means that more heat will be absorbed by the oceans in the region.
“This fundamentally changes how the sun impacts the Arctic over the summer,” he said.
Eventually that heat trapped in the ocean is released as energy and extreme weather, he added.
He spent a portion of his talk on the wildfires that hit Northern California in October and Southern California in December, and noted that the fires in the Northern part of the state were preceded by an extremely wet winter that appears to have helped build up fuels to burn.
“It was the wettest year for the Northern Sierras on record,” he said.
He said that a longer fire season for the state, which some believe is a new normal that can be possibly tied to climate change, has led to increased pressure on CalFire’s budget. It’s 2017 budget was reportedly $1.86 billion.
“The budget for CalfFire continues to be strained year after year,” he said.
Disruptors
“Disrupters & Emerging Trends Have a Target on the Insurance Industry: What’s Real and How are We Preparing” was the topic was presented by Greg Ricker, executive vice president of operations at Atlantic Casualty Insurance Co., and Scott Good, head of digital strategy at AmWINS Group.
The pair asked the audience a series of poignant industry-related questions and asked them to text the answers, using an app to immediately produce results they shared with everyone.
They were asked about the biggest opportunities they see going forward. Answers included: geriatric products; marijuana; direct billing; microinsurance; cyber; climate change related products; and commercial autonomous vehicle products.
They also asked the audience how often their organization discusses or makes plans for emerging trends.
Roughly 30 percent responded “Seldom,” while 32 percent answered “Monthly.” The rest were roughly evenly split between “Quarterly” and “Annually.”
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