Piggy backing off our most recent episode, Charlie Venus talks with Brendan Nohelty’s counterpart in the Casualty Brokerage space at XS Brokers. Sean McVicker leads us through the maze that is GL and Umbrella policies as related to real estate and the habitational marketplace. He covers the differing litigious environments seen across the country as well as more tightening terms and increased rates. Learn about how the loss of RPG’s trickled down to excess market. Click here to listen to the property focused episode with XS Brokers.
Edwin K. Morris (5s):
Welcome to the trusted advisor podcast brought to you by Iroquois Group. Iroquois is your trusted advisor in all things insurance. I am Edwin K Morris.
Charlie Venus (16s):
Welcome to the trusted advisor podcast. Today we have Sean McVicker of XS Brokers. He is a division leader in their Casualty Brokerage unit. We are going the discuss the general liability umbrella issues associated with habitational accounts, specifically condos and apartments. Sean, let’s talk about Casualty. Are you seeing it on the casualty side where admitted markets are starting to exit the habitational space and you’re seeing more opportunities on your side?
Sean McVicker (47s):
Certainly. I mean, so much of what Brendan said is mirrored in the casualty side as well. And on one hand, you know, habitational in real estate business should be simple. It’s a building, you know, we’re going to write an insurance for a building. What’s so complicated about it, but there are many things that make it complicated and you know what we kept hearing Brendan reference was different regions of the country having different considerations, not just from an underwriting standpoint. And frankly the underwriting standpoint comes second. Ah, the underwriting changes in different parts of that country because of different risk characteristics, different legal, climate’s different, you know, the plaintiff’s bar and Tri-County Florida is different from the sidewalk laws of New York city.
Sean McVicker (1m 31s):
So, so much the real estate space is really different in different parts of the country. You also have a much different environment sometimes in the primary space as opposed to the excess and the umbrella space. And so there’s just a lot of different dynamics at play that the goal is to be able to have a mastery of all of those different things that might cross our desk on any given day so that the process of scouring the market doesn’t necessarily start when we have an account in our desk. It’s been ongoing, as far as our constant communication with our carrier partners, our constant education of ourselves about what that admitted markets are doing, what the programs are doing because our ability to the best advise our clients.
Sean McVicker (2m 16s):
It doesn’t just rest on our products and our solutions, our, our ability to best deploy them relies on our understanding of what better options might be out there. So it’s a very, it’s a very complex environment for something that is seemingly a pretty straight forward exposure. That’d be a real estate and habitational a business. And so a, it relies a lot on partnership between us, our carrier partners and our retailers as well.
Charlie Venus (2m 39s):
You touched on all of the, the different litigious environments around the country and how those vary state to state. When you’re looking at the losses from a apartments and condo on a, from a GL perspective, what are you seeing there?
Sean McVicker (2m 54s):
Well, there’s two things that I think are more just observational. One is that the limit for your average, general liability policy has been one-two since longer than I’ve been in the industry, it hasn’t adjusted for inflation in general, and it certainly hasn’t adjusted for the social inflation that’s driving the claims verdicts. And so it’s interesting from the standpoint that, in a lot of the firming that we’ve seen, when a general liability carrier is only deploying or 1 million in limits, their underwriting considerations are a very different than what the excess and umbrella markets are looking at. So I think that that creates for a different answer in commentary on the GL side, compared to the excess in many cases.
Sean McVicker (3m 40s):
The second observation though, that I would say is that if you talk to anybody, who’s had a underwriting background and had any sort of formal training. One of the things you learn as an underwriter is the difference between severity, exposure and frequency exposure. And in my experience, the classic frequency exposure was a real estate business and habitation in business, meaning that there was a lot of slip and falls or other nuisance type of claims, but the verticality wasn’t quite there. And you really can’t say that anymore. I think that all of us would probably agree that the challenge in the real estate and habitational space from a claim standpoint is that not only do we have the frequency exposure and our increasingly, increasingly litigious environment is only driving increased frequency, but there’s all this, also the pops where we’re seeing the verticality.
Sean McVicker (4m 35s):
That is a really challenging the profitability of these carriers. And especially on the excess side are resulting in their reduction in, in the capacity deployment they’re putting out.
Charlie Venus (4m 47s):
On those GL claims both the, particularly on the cat side, there was an agent I was talking to yesterday and, you know, they had a $4 million pop where it somehow a, a, an infant rolled out of a bed and got jammed into a radiator heater and somehow the infant was there for, you know, for several hours, very severe burn. So, you know, that’s like the extreme case, but are you seeing other cases like that in a, you know, that or going into the excess layer or is it situations where, you know, where the apartment you can have multiple fatalities, multiple injuries from a fire?
Sean McVicker (5m 27s):
The answer is both. The answer is undoubtedly both. I mean, the freak accidents seem to become increasingly common and less rare as we’ve seen, as, you know, to add to some of those examples, we’ve had somebody meant to press the brake in the parking garage of the apartment building and accidentally hit the gas and pin somebody up against the wall. That was a very vertical claim. We’ve got a number of other different, unique situations that are truly, you know, what we in this industry describes as the shock losses, but from a, a multi, a multiplicative claimant standpoint, the life safety exposure, even from the GL side that you, that you have to take into consideration when it comes to fire losses or bodily injury is a reality, smoke inhalation is a reality.
Sean McVicker (6m 16s):
Those are the things that are certainly being underwritten for on the casualty side. You know, one of the big items that people will look at, underwriters will look at a, when you are thinking about those sorts of exposures is the number of stories of a building, the life safety from a, you know, typically what we think of as the property controls, but those are very relevant. As far as giving people ample notice of a situation that’s gone awry and then ample time to vacate the premises. And so those are all considerations that on the casualty side as well, underwriters or taking a closer look.
Charlie Venus (6m 51s):
Are you seeing any increase requests for automatic sprinkler systems simply from a life safety standpoint?
Sean McVicker (6m 58s):
Certainly. And I think that the interesting piece that I would say that while it’s certainly a hard market, a firming market, we still are here to feel the distressed business where even though we’d like to see, and our underwriters would like to see that on every risk, it’s just not the reality. And so I wouldn’t say that we’re in a situation where when push comes to shove, solutions aren’t available, when things like our automatic sprinkler systems aren’t in place, we certainly see the aluminum wiring, some, some knotted tube, which again, it doesn’t just impact the property exposure. It’s, it’s a life safety exposure on the casualty side as well,
Charlie Venus (7m 35s):
From a security standpoint, are you seeing a lot of claims from that standpoint for failure to provide adequate security for whether it’s a condo unit or a, an apartment complex.
Sean McVicker (7m 48s):
And I know you’ve had legal experts on this podcast who are a much better verse than I in some of these, but the, one of my observations from conversations with underwriters that, not in all cases, but in many cases, when you hire and provide armed security or any security at all, in some sense, it’s an acknowledgment of a higher exposure and an assumption of greater liability. You knew what was there, you were aware of it as evidenced by your attempt to address it. And so if there are still then assault and battery, firearms related claims or anything that sort, those are the things that can definitely become problematic from a claim standpoint on the carrier side.
Charlie Venus (8m 31s):
Something I read recently, certain crime areas where their crime score’s over 70, or, you know, it becomes a much more difficult to place business in, in those zones. Are there any particular requirements for certain types of locks or lighting or anything that the carrier’s are requesting in those situations?
Sean McVicker (8m 48s):
Pretty much every account that we see on on most days is in some sort of tough or crime area, a as, as tough and firming as the real estate space is, there’s still an admitted presence, and there’s certainly still a program or a presence. So when we’re talking about the true ENS placements, these are things that are almost always going to be in some type of tougher crime zone. And so they want to look at, of course, what security controls are in place like with armed security or unarmed security. Lighting obviously is something that becomes something that they’re looking at. But I think that one of the things that also can help an underwriter gain a comfort level is since they understand that, no matter what you do, there’s going to be a claims, how can we properly defend ourselves?
Sean McVicker (9m 37s):
How can they properly defend themselves? And so things like security cameras in a world where more and more of our lives and more and more instances that occur are on video footage. I think that that is something that might help underwriters gain more of a comfort level that we’re doing everything we can. The insured themselves are doing everything that they can. And if we do still get hit with the claim, this information is going to give us more ability to properly defend both themselves and the insured.
Charlie Venus (10m 9s):
From a rate standpoint, are you seeing a similar rate increases on the GL side is a, as Brendan mentioned on the property side?
Sean McVicker (10m 17s):
That gets me more to what I was mentioning earlier about the, how long we’ve had the one bill of GL primary limit. I would argue that in many cases, the GL market has been pretty stable for the past 18 to 24 months in less distressed areas, the immediate markets and programs are still writing it, and in the more distressed areas take New York city, for example, take the Bronx, that’s not new news, but that’s been an evolving space from an underwriting standpoint for some time now. And a, I think that some of the, the, the leading lines, as far as this firming cycle, that we’re in, were auto, especially the excess auto, New York construction and habitational.
Sean McVicker (11m 4s):
And so that habitational space from the GL standpoint, a has definitely been one of the first classes experiencing some of these firming effects, but because they’re actually deploying one, one, two limit’s in many cases, there’s been a little bit more stability there. So when we jump over to the excess and umbrella lines, that’s where we’ve seen more I think the impact that creates the sticker shock and the difficult conversations with clients, because, you know, when you see increases that some of the publications we’ll put out talking about, you know, a 50%, a, a 150% rate increases on our umbrella’s in, in my experience, that’s less a carrier simply increasing their price that much it’s oftentimes because either a high limit RPG umbrella program non-renewed them, They went out to the traditional access and surplus market and to get a replacement quote, they got half the limit for double the price.
Sean McVicker (12m 1s):
So, you know, effectively it works out to being these 100, 200, 300% rate increases or more that total market shift from a space where I don’t think any of us realized quite how much market share the umbrella RPG programs and the kind of binding, portal type solutions. They had so much market share in the excess worlds for habitational or a real estate that it went when there was a real quick exit from many of them, in my opinion, it wasn’t so much that all of a sudden the traditional excess and umbrella underwriters drastically changed their stance. They had almost had the same stance for a long time, which was that, yes, we can consider this class, but we’re not going to put up those massive limits.
Sean McVicker (12m 44s):
And the pricing is just too thin. So they, in many ways, almost stayed in that same lane. The market was just so far away from them and it moved towards them very, very quickly.
Charlie Venus (12m 56s):
Well you mentioned RPGs in there. Are you talking about it for the, for the audience risk purchasing groups, correct?
Sean McVicker (13m 4s):
Correct. In some cases sharing limits, in some cases, insureds do maintain their own tower’s, but a, these are specialized umbrella programs that we’re putting up pricing and limit capacity that just could not be matched by the traditional excess and umbrella carriers.
Charlie Venus (13m 20s):
From an umbrella stand point, what are you seeing in terms of available limits? An individual client might be able to get a 5 million, 10 million, 25 million, or are you going to have to put that in towers depending on the risk?
Sean McVicker (13m 32s):
My sense, and I think that a lot of my peers might feel similarly, is that we’re enough through this firming cycle where much of the drastic change has occurred. And so while I’m not experiencing or expecting a rapid resoftening, I do see some stabilization. And so as far as what that looks like, it does depend on where we are in the country in some of the less distressed legal venues and what some of the more preferred occupancies and preferred properties. You’re still going to find them umbrella programs out there that’ll put up five or 10 legal limits and do it at a good pricing, but we’re talking about some of the more challenged, legal venues in the country.
Sean McVicker (14m 13s):
You’re looking at a very often markets that at most, will put up a lead five. And in many cases we’re talking about maybe a two or three mil legal limit with somebody else coming in over the top. And it takes, as you’ve heard many, many times from all of the guests that have been on his podcast, a hell of a lot more carriers to fill out the same tower than it used to, or even just 24 months ago,
Charlie Venus (14m 35s):
In addition to the issues on the umbrella side with the, with some of the rating increases and in building the limits, what are you seeing a difference in terms being presented?
Sean McVicker (14m 49s):
Another interesting question, because we’ve had this firming that was happening before the pandemic, the pandemic was obviously, unfortunate in so many ways, but carriers still had to do what they had to do, and that resulted in, if anything, the pandemic accelerating some of the changes the carriers were making already. And so that drove increase in rates, less capacity and tighter in terms. And I think that when we think about a firming market, the obvious first thing that comes to mind is prices go up. But there’s also many other ways that a market can firm. A reduction in capacity, deployment is probably the, the second thing that comes to mind, but, the third thing is the term tightening and that’s something that we’ve seen a lot.
Sean McVicker (15m 36s):
And I think that the two dynamics that I’ve seen at play are a lot of these master schedules that had thousands and thousands of units. Underwriters, it’s a very difficult task to try to effectively underwrite a large schedule like that. It’s very difficult to do when insureds can participate in the risk with SIR arrangements and more of a risk management approach. I think that those can sometimes be more sustainable, but when we were looking at some of these large master schedules with thousands of units, sometimes no deductibles, it was very challenging for underwriters to really do a deep dive and effectively underwrite those schedules. And so that was something that the underwriter market addressed as quickly as they did with anything.
Sean McVicker (16m 21s):
And what that meant was that a lot of these agents were left with what was one policy now being broken up into many policies. In other situations it, it wasn’t necessarily massive thousands of thousands of units at schedule. It was just a, a five or six units at a location schedule that was experiencing rate increase after rate increase, and the insureds simply couldn’t stomach it when they were dealing with the, the rent payment issues that they were in the height of the pandemic. And so what that led to was many agents being forced to split the schedules up into probably single unit policies or a single location policies.
Sean McVicker (17m 3s):
In many cases, many times splitting into the, the, the binding authority market appetites. But what that came with was some of these tighter terms. And so you keep hearing about the markets or, or excuse me, the, the, the court’s being closed and a lot of the claims being pent up, and we don’t really know how much is being held back and how much the flood gates will open when the courts do return to full capacity. But one of my concerns is that in an attempt to alleviate some of that short-term pain, which was a absolutely a reality in, in, in many cases and a necessary a decision that I, I, I completely understand that the kick back and the problem in the longer run I fear is going to be a rash of claiming declination that we simply haven’t had insureds experiencing in years past, especially because of the extended soft market where not only was pricing down, but terms had been been broadened.
Sean McVicker (17m 57s):
As we see some of the hot button issues, we see a assault and battery sublimits. We see assault and battery, a exclusions outright. We also see proprietary language within assault and battery endorsements, where they’re offering maybe a million dollar limit, but on their terms with the carrier’s proprietary language. Firearms is another, you know, a firearms and weapons are the other limitations and exclusions that you’ll see increasingly on a lot of these carrier form sets in certain parts of the country, the injury to independent contractors and employees, and subcontractors is more of a concern than in others, but it’s a, it’s not no concern in anywhere.
Sean McVicker (18m 39s):
And so that’s something that carriers are increasingly being able to put on their policies in an attempt to alleviate some of the price increases. Hard hammers and soft hammers are also very relevant within the treatment of subcontractors for property owners when they have, whether it be basic, you know, repair and maintenance work or anything more substantial. And all of these tighter terms, we’re not really feeling the pain of them going to work yet as these claims have been a bit pent up, but there’ll be interesting to see, do we have a moment where there’s an inflection point where a certain segment of the marketplace says, I will go for those higher prices.
Sean McVicker (19m 19s):
I will go for those broader forms at a higher expense, because I’ve learned the hard way that it, it is expensive, but it’s less expensive than having to handle these claims on my own.
Charlie Venus (19m 31s):
Having to pay those claims out of pocket, where you are really self insuring for that exposure. And it puts a lot of burden on the retail agent because they gotta be reviewing all those coverage forms and really relating that to their, to their client in terms of what the term reduction is. And I’m sure you’re doing it when you’re making the presentation to them a, but it’s still something that they have to be doing and making sure that, that it’s clear to their client. Now, a couple of other questions. So are you seeing any sale of active shooter insurance?
Sean McVicker (20m 6s):
We see that it’s a, it’s a different segment of the marketplace. I’m certainly far from an expert on that space. There’s a couple of dedicated programs that will do that. Obviously tragically we turn the news on far too often and see why these policies are something that insureds should absolutely be considering. And many of these programs will go direct to retail agents. And so it’s something where not only are they providing a product, but it probably more importantly, they’re providing the education about what the product is built to do. And I think that a lot of what these products provide as much as an indemnification on the back end is some advisement and how you can control your exposure. Obviously these are events that nobody can predict, and it’s very difficult to control, but there are some proactive measures, ah, that can be put in place.
Sean McVicker (20m 52s):
And I think that the twist on a lot of these products is that they’re as much a risk management tool as they are an indemnification product.
Charlie Venus (20m 59s):
Yeah. And the other thing I wanted to ask you about was pollution liability, because in my experience, particularly on the Hab side but just in real estate in general, you know, those clients don’t buy pollution, liability insurance, and they have a significant exposure. And even when you’re talking about Hab in all of the life safety issues, if you have some type of natural gas or oil, fire, heat, and cooking, and there was a potential for a carbon monoxide leak, there’s a potential for massive BI in that, in those facilities. And a lot of people don’t understand that that’s not going to be, that’s a pollution claim, not necessarily a general liability claim.
Sean McVicker (21m 44s):
No, we, we spend a lot of time talking to agents about exclusion F on the general liability form. And I think that the encouraging part is that pollution you know is similar to cyber, but maybe a few years ahead. It’s becoming contractually required far more often. But even more than that, I think that just the conversation is more prevalent across many classes of business. And I’ll include hotels and motels in this real estate discussion here. I mean, we’ve seen the Legionella claims, obviously mold is the leading cause of loss in many of these pollution environments, of the lead claims that are still a concern, particularly in the parts of the country with older buildings.
Sean McVicker (22m 28s):
That’s another, a exposure to that is increasingly needing to be met by the a environmental markets. Because again, when we, when we talk about a, a a firming and it being more than just the prices going up, it’s also a carriers may be at the same price, introducing the exclusions. So, and so the, the, the number of characters that are available on the GL side used to include led coverage is lessening. And so that means that more of that lead coverage if still in demand, is being provided by the environmental marketplace
Charlie Venus (22m 59s):
Well Sean, any parting comments for the retail agents out there from a GL perspective, GL in excess perspective?
Sean McVicker (23m 5s):
Anybody that’s listening to this podcast in the first place is clearly somebody that’s constantly trying to educate themselves, be at the forefront of the market. It’s exciting to be in a very fast paced environment like we are here and wherever you sit – retail, underwriting, wholesale side – things are constantly changing. And like I said, at the beginning, even with what should be seemingly simple, an apartment building that needs insurance, how complicated can that be with all of the legal considerations, a, the plaintiff’s bars, the risk, the specific components that it must be taken into consideration.
Sean McVicker (23m 46s):
It’s a very complex environment. So it requires us constantly talking to our carrier partners, retailers constantly staying engaged and in communication with their admitted carriers and their wholesale partners. And I think working hard to make sure that we all understand and try our best to operate in the same foxhole. We are all trying to make an insured pay as little as possible for as much coverage as we can possibly provide when it’s a firming environment right now, like we’re in right now is not as easy to be able to deliver. We got you a 10% price reduction and more coverage. We’re having more difficult conversations. So our focus is to be able to walk into what might be a tough meeting in a tough creation with an agent that feels as empowered as they possibly can, or that is able to demonstrate to their client that no stone has been left unturned, that they’re stroking a check with confidence because while they might not love the number, they feel confident that they’ve been well-represented.
Sean McVicker (24m 43s):
And it’s our job. In addition to the carriers out there and all of the other partners working with retail agents, to make sure that they can have that confidence. And so I would say, keep listening to this podcast and reading everything you can get your hands on as this environment continues to change and pick your partners wisely. There’s a lot of good ones out there, and in this people business, building a relationship with people that you can rely on is that you trust that you are going to do a competent job, I think is the best way to ultimately be able to satisfy your clients.
Charlie Venus (25m 16s):
Well, thanks, Sean.
Sean McVicker (25m 16s):
Charlie Venus (25m 17s):
Thanks so much for having us in the past hour with you.
Edwin K. Morris (25m 21s):
Thanks for listening to this edition of Charlie’s Corner brought it to you by Iroquois Group. I am Edwin K Morris, and I invite you to join us for the next edition of the trusted advisor podcast.