On this episode of Charlie’s Corner, Charlie explores CNA’s successes in Middle Market with its two key leaders, Julie Stephenson and Dieter Korte. Listen in as they discuss how CNA approaches Middle Market risks, and learn more about rate and profitability trends, the impact of COVID-19, the role of reinsurance and much more. Learn more and follow this week’s guest at our LinkedIn page.
Edwin K. Morris (4s):
Welcome to the trusted advisor podcast brought to you by Iroquois group. Iroquois is your trusted advisor in all things insurance. This week, you are listening to Charlie’s corner, a segment hosted by our very own Charlie Venus.
Charlie Venus (19s):
Welcome to our podcast today. We have two great guests from CNA, Julie Stephenson and Dieter Korte. Julie is senior vice president and chief operating officer for middle market commercial insurance, and Dieter is senior vice president of customer segments at CNA. Welcome to you both. Thanks for being here.
Julie Stephenson (39s):
Thank you, Charlie.
Charlie Venus (40s):
So can we start off with each of you telling us a little bit about your role at CNA, how you got there and what defines middle market at CNA? And Julie, would you like to go first?
Julie Stephenson (52s):
Sure. Thank you so much. And thank you for having us today. I joined CNA about five years ago now as the commercial chief underwriting officer after a 20 year career with Chubb. I started my insurance career in risk control, transitioning to multiline underwriting soon after. As of August of last year, moved from the chief underwriting officer role to the chief operating officer role for middle market. And it was at that time that CNA chose to specialize specifically in middle market by separating out our construction segment under separate leadership so that we could focus primarily on building our middle market brand and growing our business.
Charlie Venus (1m 41s):
Dieter Korte (1m 41s):
Thank you. I joined CNA a little after Julie, so it’s been a little bit more than four years now. I also came from Chubb. I spent 25 years at Chubb in a number of field roles, primarily dedicated to middle market business, and then moved into a home office role handling loss sensitive business for a little bit more than a year, which included a couple of captive programs and other loss sensitive, larger clients. And then towards the end, managed a line of business before I joined CNA. I initially joined CNA to lead the manufacturing segment, which soon after that expanded into oversight of all of our industry segments, some people refer it to call it industry verticals, but I think you understand what I mean by that.
Dieter Korte (2m 32s):
And in my role, I primarily develop strategies for expanding our industry appetite. You know, I work with our lines of business and product development. We produce underwriting guidelines for our field underwriters and work with our counterparts in claims and in the risk control unit to develop, you know, specific service deliverables that are targeted to our core industries. So it’s a, it’s a very broad role that touches a lot of different disciplines. You know, we explore constantly exploring new industries or new, you know, smaller sub segments within industries that give us some unique opportunities, whether they are in one marketplace or they’re across the country
Charlie Venus (3m 21s):
Dieter, could you give me just a real quick recap on what the segments are that you have in middle market? Julie already mentioned that construction is not included. Is there anything else that isn’t included from a middle market standpoint?
Dieter Korte (3m 36s):
Yes, it’s fair to say that the overwhelming majority of our healthcare business is handled in our specialty units, we on occasion will assist with a little bit of property or some auto coverages, but generally speaking, Oh, healthcare business is also transacted in our specialty and outside of our middle market business, but outside of that, it would encompass all other industries.
Charlie Venus (4m 2s):
Great. So one question I have for you both, and that is with, you know, what’s been going on in the country from a COVID-19 standpoint. So if you could just address and really in three different buckets, the impact of COVID-19 on your business from an internal CNA operating standpoint, what you’ve seen so far from business results and how it’s impacted your underwriting decisions in terms of the industries that you’re continuing to write. And maybe those where you have, you have pause writing those, those businesses because of the COVID-19 exposure.
Julie Stephenson (4m 42s):
I was gonna say, I’ll take the internal question. You know, I think we, as a commercial organization transitioned to a remote working environment really well, frankly, much better than I think we anticipated, our underwriters have responded really well. We’re still growing both in GWP and new business. And I think navigating this market in a very collaborative way with our distribution partners who have also been, you know, going through the same dynamics. So, you know, hopefully, you know, you find our underwriters engaged and present and, you know, as we like to say, we are open for business and, you know, trying to advance our strategies, advance our priorities as if we weren’t in the midst of a pandemic
Charlie Venus (5m 31s):
Now, so from a business results standpoint, you just mentioned that you’re continuing to see a growth in written premium.
Julie Stephenson (5m 38s):
Yeah, so still, still growing on a GWP basis, but also still growing new business, you know, while we haven’t released our second quarter results yet, you know, we had a nice first quarter relative to new business. Our new business grew double digits and that trend continues into Q2. So, you know, it’s a bit different. We’re having to adapt to a different cadence, I think, in how submissions come to us. We are having to adapt to how we execute from a risk control standpoint, maybe seek and consume information a bit differently than we had to do before. But, you know, I think Dieter and I felt very confident that our underwriters, our risk control engineers have adapted very well.
Julie Stephenson (6m 26s):
And we are absolutely looking to write more business and grow
Charlie Venus (6m 30s):
And Dieter in terms of the, the industry impact. Have you, has there been an impact on your new business because of COVID-19 in terms of underwriting appetite?
Dieter Korte (6m 42s):
No, not in terms of underwriting appetite. I think our traditional appetite has actually served as really well. You know, we are not a major writer of the industries that seem to be more impacted at the current time, whether that is retail, hospitality, the restaurant business, higher education, entertainment. We don’t have very significant writings in those industries. And, you know, one example that’s served us really well for us is the life science business. So we’ve seen a significant influx both of new business in our life science area, but as well as exposure growth, certainly not a plan of ours to have to be ready for an event like a pandemic.
Dieter Korte (7m 30s):
But, you know, just by virtue of how we view our underwriting appetite, the business that we pursue, we’ve probably avoided the worst outcome. To put this in perspective for you, I think a good barometer is what has been happening to exposure basis. So when we measure our results, we look at the renewal change, which is really two components. It’s your price change. And we’ll be talking about that a little bit later, but it’s also exposure change. So that’s really the units that we use to rate our business. You know, so far through the year, that number is still trending positive year over year. So through the first two quarters, our exposure growth is positive compared to 2019.
Dieter Korte (8m 14s):
However, it is fair to point out that that is a slower rate of growth than we’ve seen in 18 and in 19. And in fact, we already saw that number drop a little bit in 19, you know, which was indicative of the direction the economy was heading, but all of our industries and all of our lines of business are still trending positive. So it hasn’t been as bad as you could have expected.
Charlie Venus (8m 41s):
Well, that’s pretty impressive. Well, you know, tying in with what you just talked about with exposure and rate increase, where I’d like to go to next is if you and Julie can give an overview to the audience on the market conditions in middle market. So what’s going on from a rate standpoint. And if you can give that overview from a, from each individual line of business, that would be great.
Julie Stephenson (9m 5s):
Terrific, happy to. You know, the middle market, especially middle markets excluding construction, has been really interesting to watch. From our perspective, the middle market space was much slower to respond to the firming market and evolved very differently from what we saw say in mono-line property or mono-line umbrella and excess space, then market dynamics for middle market also varied wildly by industry, by line of business, and even by geography, making it even more difficult to navigate, you know, when trying to put forth the multiline multi exposure strategy. Middle market property is probably the best barometer. At year end 2019, we were achieving about five points of rate, but our national accounts property folks that handle larger mono-line property were achieving double that in their marketplace at the end of 19.
Julie Stephenson (9m 57s):
By the end of Q1, that middle market property number had doubled to 10 and now trending to the mid-teens. So there’s definitely movement and it seemed to move more quickly and either wind hail traditional cat prone territory. So I think the dynamic of increasing re-insurance costs, which I think we’re going to get into a little bit later in this podcast also impacted in what we see happening in, in the property market. Our auto results continue to trend unfavorably for the industry on the whole. It seems now that mid to high teens will be necessary to turn that market around from a rate perspective. And then of course, as a result, you see that needed pricing increase making its way into umbrella pricing, even on supported umbrellas, like we write here in middle-market, rather than, you know, the, the dynamic capacity movement and pricing that you’re seeing in the mono-line space.
Julie Stephenson (10m 54s):
We do continue to deploy umbrella capacity up to 25 million in middle market with the most favorable pricing terms and conditions certainly reserved for risks with smaller fleets, lower hazards exposures, as you would expect. And finally, for workers’ compensation, it appears the industry is beginning to finally see some positive rate movement in that line as well, we knew it was coming, or at least I would say we hoped it was coming despite the favorable loss history and reduction in frequency that we saw across the industry, the state rate decreases mostly based on lagging loss data. We knew that would soon take a toll, especially in the more difficult, you know, blue collar classes like manufacturing or wholesale distribution.
Julie Stephenson (11m 41s):
So the white collar classes remain quite competitive, but we’re even seeing a significant reduction in the number of large rate decreases that we were seeing in those classes over the last couple of years. So, you know, I think that if I had a crystal ball, I would that, you know, hopefully through 20 we’ll start to see work comp pricing turned positive for the first time in quite some time.
Dieter Korte (12m 5s):
I just wanted to add a little bit of an industry lens to that too. We are certainly working very hard through our analytics to be very specific and targeted how we see price increases, and that’s not just driven by the particular line of business, but then we also overlay that with the knowledge of trends within our industries, as well as our internal loss trends and experiences. And so our underwriters deploy a very targeted strategy of seeking rate increases, and you would see that in our industry results.
Dieter Korte (12m 50s):
So, you know, we vary greatly, you know, between some of the more challenging exposures and some of the more white collar business. But having said that, each one of our industries is getting a significant lift on price change. It’s, as Julie pointed out in some of her line of business comments, it’s picking up steam on a monthly basis, sort of across all of our industry groups as well.
Charlie Venus (13m 14s):
So, Julie, I wanted to go back to a couple of your comments, one on auto with the auto rate increases. So was there any relief at all from an auto loss standpoint during the lockdown, when everything, you know, there were virtually no vehicles on the road, did you see any improvement in results?
Julie Stephenson (13m 35s):
Yeah, I do think that we experienced, and I think our competitors would say the same thing, if you look at the industry trends that there was certainly a reduction in frequency, and we are certainly hopeful that that gives us a little bit of a respite from, you know, the difficulties that we faced in the profitability of the auto line. But I think it’s probably just that. It’s just a temporary respite from what was otherwise a line of business that’s been trending unfavorably year over year over year. You know, most commercial carriers have been getting high single digit or double digit rate increases for five, six years now, yet most combined ratios across the industry are still unfavorable for auto.
Julie Stephenson (14m 21s):
So, you know, we’ll, we’ll certainly take it, certainly happy to see that that dip in frequency, but I do think that the industry will have to remain diligent to get pricing on auto, you know, where it needs to be to, to sustain it. I think distracted driving and so many other dynamics, including some nuclear verdicts, especially in the trucking industry are, are fueling these issues in auto. So yes, I think with, with the shutdown in various parts of the country, we’ll, we’ll take that break and be, be happy for it, but I don’t believe that it’s our, our long-term solution.
Charlie Venus (14m 57s):
Okay. And just quickly on the workers comp, do you see a trend where you, you believe a lot of the COVID deaths, particularly among the service employees or healthcare workers, are those going to be covered by workers’ comp?
Julie Stephenson (15m 13s):
You know, I think the only thing we can say with certainty is the States that have issued presumptive orders, California, Illinois, now Vermont, where they have, you know, specifically declared in certain circumstances that, you know, workers’ compensation will respond. I think in the remainder of the States, it remains to be seen. I know the industry is watching that very, very carefully as you know, obviously a disease of life, like, like COVID, you wouldn’t have expected to perhaps be a compensable loss, but time will tell, I don’t think we have a crystal ball into how that’s going to evolve at this moment, other than in the States that have made those, those presumptive declarations.
Dieter Korte (16m 3s):
If I may add, having said that since you mentioned healthcare, we have always been very conservative in how we view healthcare and workers’ compensation, and clearly an issue like a pandemic was a driving force behind that because it’s it’s to be expected that, you know, those workers are clearly more exposed. So that is an area that we have avoided and apply to a conservative lens for exactly those reasons.
Charlie Venus (16m 34s):
Thanks, Julie and Dieter, to get some insight into the current reinsurance marketplace and to learn in detail about CNA’s middle market appetite, listen in to part two of this episode.
Edwin K. Morris (16m 46s):
Thanks for listening to this edition of Charlie’s corner brought to you by Iroquois. I am Edwin K. Morris, and I invite you to join us for the next edition of the trusted advisor podcast.