How E&S carriers are redefining risk

Retail brokers eye E&S for growth, leveraging adaptable coverage as standard carriers exit volatile markets.

The excess and surplus lines (E&S) insurance market has seen exponential growth in recent years, with Dowling & Partners estimating that 34 percent of US commercial business is now wholly E&S. But where exactly does the market go next? Is this growth sustainable? And, if so, how can retail brokers capitalize on its possibilities successfully?

In a recent roundtable panel with Insurance Business, Rebecca Wicker, senior vice president, E&S property at Arch Insurance, and Dominick Tassone, chief underwriting officer at AM Specialty, sat down to discuss the challenges and opportunities in the sector and look ahead to what the future holds for brokers in 2025 – beginning with assessing what’s behind this growth spurt.

“Standard carriers have withdrawn from challenging markets and exposures,” said Tassone. “I think the complexity of emerging risks, whether it’s based on social inflation [or] secondary perils – that’s a driver. The flexibility [we’ve seen] through policy forms being able to pivot on tightening terms, pricing … that allows E&S to … proactively manage that business.”

‘E&S market can fill the void’

And then there’s the lingering impact of the Southern California wildfires in January, for which Morningstar DBRS estimated insured losses will exceed $30 billion. As Tassone told IB, the standard market simply cannot manage these unexpected and costly incidents – so they pull out of the exposure.

“And that’s really where the E&S market can fill the void,” he said. “That’s where we’ve seen the growth.”

Wicker believes that the foundation of this growth was laid several years ago with a rise in massive insured losses.

“There were more and more sizable fire losses happening – $250 million to $300 million in size. A lot of the standard markets at the time were putting up 100 percent themselves – they were carrying the full brunt. And it wasn’t just fire; multiple hurricanes hit Florida in one year; it was a combination of fire losses and cat losses.”

The result? Standard carriers began to retreat, scaling back capacity or enforcing strict supplements such as a $25 million cap on Florida named windstorms. And this retreat opened the door for E&S providers to fill in the gaps. 

“That gave the opportunity for the E&S markets to step in and start looking at those accounts to provide capacity,” Wicker said. 

The 2023 treaty renewal season added fuel to this transition. Carriers facing heightened aggregation from back-to-back hurricanes sought additional protection, but costs soared. “Price per square foot and aggregation were two really big hot buttons right after Ian,” said Wicker. That season marked “a significant push into the E&S space.”

Tailored coverage in a tight market 

Where standard markets offer predictability, E&S carriers thrive on adaptability. One of the major strengths of the E&S sector lies in its ability to design and customize policies for unique and emerging risks.

“The E&S market is a solid market for standalone perils such as standalone flood or named windstorm or Cal-quake,” explained Wicker. Increasingly, coverage is expanding to include “secondary perils, such as tornado, hail, and wildfire. It’s becoming more and more common that an insured with the standard market had a flat wind/hail deductible, and now they could be seeing two to three percent. They’re going into the E&S space to see if they can purchase a deductible buyback.” 

And Tassone agreed, adding that the ability to tailor policy language, pivot, change terms immediately, push pricing, and be flexible with deductibles is essential. 

“[There’s also] new coverages [such as] parametric, difference in conditions, and controlled burn … in the marketplace.” These are areas where standard carriers won’t tread, but E&S providers can “be creative, be somewhat flexible, and produce a policy form that is specific to the exposure and price it accordingly.”

“All the carriers have done a very good job to educate the expectations when submissions come in. It’s a constant evolving of information. As exposures change, we ask for more information.”  

Importantly, Tassone noted that the difference in conditions and parametric segments are expected to grow by close to 10 percent through 2027.

Who’s buying E&S?

The typical E&S client spans a wide range – from high-risk geographies to aging infrastructure.

 “Obviously [with] older structures, [there’s] loss activities where you can price it,” explained Tassone. The E&S appeal is strongest “whether it’s Gulf states, whether it’s along the Atlantic, whether it’s California – wildfire or quake.”

And even regions once considered low risk are reevaluating. “The Northeast is experiencing more wildfires than it’s ever seen before,” Tassone said. That raises the need for creative structuring – through “deductibles, sub-limits to control the exposure, price it appropriately, and make sure your policy will respond. Being flexible with deductibles to respond to the complexity of the risk – I think that’s what the key is.”

These unique exposures are looked at a lot more frequently by the E&S market, handling everything from chemical blending to vacant retail to sawmills and recyclers, all of which Wicker says are incredibly tough classes of business. 

“Our underwriters see this a lot more often,” she said. “So they’re getting comfortable with that type of risk and know how to apply correct deductibles and rate for those risks.”

That hands-on exposure to difficult risks builds confidence, but it also requires adaptability, especially as the threat environment evolves. 

“We have secondary cat perils that are now becoming primary cat perils, such as wildfire and tornado hail,” she continued. “We’ve had more activity this year on hail than this time last year… even significant wildfires just a couple of weeks ago in New Jersey.”

As environmental volatility becomes the norm, both Wicker and Tassone stressed that the foundation of a successful submission is accurate, complete information. 

“I believe in sticking with your E&S partners who were [with you] during the hard market time, providing that capacity, trying to keep consistent in the marketplace and with appetite and coverages” 

“[There’s] the importance of having a statement of values on Excel with full COPE information,” Wicker emphasized. “It’s not just price, especially when you’re 

in a cat zone, which almost everywhere in the US touches. Are they purchasing enough? Are they purchasing too little? If you don’t have the COPE information, that really has an effect on the accurate limit you’re purchasing.”

And here, loss history is equally critical. 

“Three years of loss history is minimum; five is great,” she added. “But I also can’t say enough how many times we'll see a million-dollar loss in a submission with no loss information and no detail. So, the better detail you can get, the faster we can start moving on that risk.

Sticking with partners you trust 

And while both Tassone and Wicker agreed that brokers are improving in this area, it’s still an ongoing conversation. 

“All the carriers have done a very good job in educating the expectations when submissions come in,” noted Tassone. “It’s a constant evolving of information. As exposures change, we ask for more information. From our perspective, we’re getting that information in; [however,] we’re not getting complete information. It’s an education process, but we need to always do better and continue to educate the brokers on exactly what we need.”

What sets one policy – or carrier – apart in the E&S space, however, goes beyond submission quality. It’s about experience and consistency. 

“We’re an underwriting-first company. Underwriting is key. We’re here to make an underwriting profit,” Tassone told IB. “Is the team focused on underwriting financials of the carrier? What type of business have they done in the past? Do they have the experience to tailor policies for their clients’ needs? That’s critical.”

Wicker believes that long-term relationships matter just as much as policy flexibility – especially when disaster strikes. 

“I believe in sticking with your E&S partners who were [with you] during the hard market time, providing that capacity, trying to keep consistent in the marketplace and with appetite and coverages – I think it’s really important. 

“There is a lot of new capacity in the marketplace, and we’re all fighting for that attention right now. But the day a client has a big claim is one of the worst days of [their] life. You want to make sure you’re with a carrier [where] you’re not going to worry about how that’s going to play out.”