I had the great pleasure of appearing as a guest on Broker Brett’s podcast recently, and we got to chatting about why my company, Pathpoint, chose to focus on the E&S market. We talked about the fact that E&S simply hasn’t been a focal point for the insurance industry up until now, and I thought the topic worthy of a deeper dive here.
There are some very basic reasons why E&S has little to no spotlight in the past. Even insurtech, which is tackling the greatest pain points of the industry, has not addressed the seemingly complex E&S market. It is the one segment of commercial insurance that has not really been digitized in any meaningful way until now. Sure, there have been some baby steps made, but true digitization is more than just having an inbox or a single online rater. True digitization requires innovation by both the carriers and the distributors.
Meanwhile, personal lines have become very digital over the past several years. Admitted commercial lines are now becoming more and more digital. But E&S has been left behind. Let’s examine the reasons why.
If you are an agent working on commercial lines business, and you’ve placed E&S business through a traditional wholesaler, you know how this works and how long it takes. Unfortunately, because it’s not really talked about, it also has not really been improved. Consider what really happens when an agent has to place a risk in a non-admitted market.
The process is excruciatingly slow.
You’ve collected your client’s information, you’ve assisted them in filling out an ACORD form, and you’ve submitted their request to one or more admitted insurers. And then you wait. Depending on how you submit, the response could take 5 minutes or 5 days – only for you to find out that the risk is declined.
So you must now bring that risk to a wholesaler (who then makes you and your client fill out more forms) and then you wait and wait some more. Keep in mind that for small commercial accounts, where the premiums are lower, it’s YOU the agent who is footing the bill for all these extra hoops. You check in with your wholesaler to get a sense of timing, you follow up… what is happening behind the scene at the wholesaler? Who knows. Eventually, quotes come back and your client has questions, so you go back to the wholesaler. Maybe their response comes back quickly, maybe you wait… it’s tedious just to write out all these steps, to say nothing of what it’s like to go through them. The whole process takes days on end – but why? And why do we accept this?
Here is the reason: you don’t know what’s happening behind the curtain because the magic is deliberately hidden from you. The products are complex, and the underwriting decisions are opaque. To you, it probably feels like it’s all a big black box.
By the very nature of the fact that it takes in the hard-to-place stuff, E&S is complicated.
To be fair, the E&S market is complex. It’s also fragmented and lacking transparency. However, these things should not be holding us back from progress.
So let’s start with the premise that E&S is too complex to digitize. I call foul on this one. Technology does not shy away from the complex, in fact, it shines brightest when a traditionally complex problem is simplified through the application of good software. It is true that there’s a high level of complexity at play in E&S, but I don’t believe that’s why the market has remained analog for as long as it has. Rather, it’s because traditional wholesale brokers have not led the charge towards digitization, likely because they don’t see it as a cost they should have to shoulder (reasoning instead, that the carriers should cover all such costs). And while I fully appreciate their desire to preserve their role in the process, in protecting their turf, the approach traditional wholesalers have taken with respect to technology has held back the progress of the entire industry.
Now let’s turn to the fact that the E&S market is fragmented and subject to some strange regulations. Take for example California, the one state where wholesalers can’t even directly market the names of the E&S specific markets they have access to. Naturally, this is limiting and creates a shadow on the industry. The U.S. retail surplus lines market finds itself in a unique position due to these unique challenges and state-level regulations. We’ve got a market of over 30,000 U.S. retail agencies trying to buy coverage that is not available in the admitted market, and they are unfortunately not well-served in terms of wholesale broker partners. To my way of thinking, this is all the more reason that this segment of the market stands to benefit from digitization. Through technology, we can factor all of these differences and exceptions in automatically.
And finally, let’s consider the overall absence of transparency. The historical lack of digitization in the E&S market, and the resulting lack of access, make agents look like they don’t have control in the process. And that has to change. Making the quoting process faster represents a huge step forward for the E&S market, and I’m proud that Pathpoint is leading the way in this effort, but it’s not the only thing we need to do. We also need to pull back the curtain, and to give agents and brokers alike visibility into the process – and into each other’s needs. We will all do our jobs a little better as a result.
The future lies in addressing these challenges head on.
When my co-founders and I were introduced to leaders in the world of E&S insurance several years ago, we quickly grasped the need for the industry to reduce cost and boost efficiency, which would deliver better outcomes for end insureds. What we heard, again and again, was that the lack of digitization was holding carriers, agents, and their customers (U.S. businesses) back and that there was room to improve the high costs and inefficiencies of the current distribution model. And we kept asking ourselves: “But why aren’t the dominant wholesale brokers leading the way with these innovations and changes?”
It is incumbent upon us as an industry to add as much transparency as we possibly can to the opaque business of E&S, and in doing so, to simplify an extremely complex and often frustrating process. By building software to streamline and digitize the procurement of surplus lines coverage, Pathpoint is adding efficiency and facilitating the kind of direct access between carriers and insureds that this market sorely needs in order to improve. What are you doing to facilitate the shift?