Upland Specialty Insurance: First Half 2024 Outlook

February 5, 2024

The US excess and surplus lines insurance market experienced significant growth again in 2023, marking the sixth consecutive year of double-digit premium growth, surpassing the $100 billion mark in direct premium written for the first time. Submissionvolumes have shown no signs of deceleration, and the supply of traditional capacity remains constrained, inferring the US excess and surplus (E&S) market is poised to grow again in 2024.

The continued market challenges being experienced from adverse prior year development, inflation, and evolving risk transfer needs of the commercial lines market is leading to increased rates, tightening of terms and conditions, reduced capacity, and stricter underwriting criteria. This dynamic continues to drive business from the standard admitted market to the E&S market where more specialized and tailored coverage can be secured. “A real challenge for the excess and surplus market in 2024 is getting a handle on pricing adequacy, specifically the continued need for rate being driven by prior year loss emergence and inflationary trends,” stated Jim Damonte, President of Insurance Operations and Chief Underwriting Officer.

Given the reality of increased competition from new E&S entrants, many of which are carriers with a capital-light model or MGA’s that are significantly supported by the reinsurance market, underwriters are facing a number of foreseeable challenges. The ability to leverage and invest in technology, data analytics, and long-standing broker relationships can help improve risk selection, pricing, and distribution management to help offset some of these challenges. “The need for cooperative relationships between underwriters and brokers has never been more critical in the pursuit of growth via underwriting profitability,” added Mr. Damonte. “Upland’s disciplined underwriting approach, extensive product expertise, and comprehensive claims management will allow us to successfully grow our capital and be a long-term stable market for our broker clients.”

In the following content, Upland’s underwriting leadership has provided their market outlooks for the following risk environments:

·      Excess Transportation

·      Casualty Construction

·      Excess Casualty

·      Primary Liability

·      Professional Liability Errors & Omissions

·      Excess Cyber Liability

Excess Transportation Market Outlook

The excess transportation market saw a 12.5% increase in premiums in 2023, reaching $12.7billion. The forecast for the 2024 transportation market is mixed, as there are several factors that could affect the demand and supply of this coverage.

Changing labor regulations, such as California’s Assembly Bill 5*, could redefine the status of independent trucking contractors and their employees by affecting the availability and cost of liability insurance for the insured company and its drivers.

The shortage of qualified drivers could also increase the risk of accidents and claims, as well as the cost of wages and benefits for trucking companies and drivers. The impact of inflation, an increase in frequency and severity of claims as well as higher litigation payouts are all impacting insurance premiums. These trends continue to make excess insurance for trucking more expensive and less accessible, especially for smaller trucking businesses. According to RoadSync, due to these factors, rates are expected to rise 6% to 10% in 2024.

“Upland is monitoring the transportation marketplace closely. We have aligned our underwriting to be risk averse and are prepared to pivot with the market as the year progresses," said Mark Grossberg, Senior Vice President, Excess Transportation Liability Underwriting.

Casualty Construction Market Outlook

The overall 2024 forecast for the excess construction market is positive, as the demand for this coverage continues to increase and the supply of traditional capacity remains limited. The E&S construction market grew by 14.7% in 2023, reaching $28.3 billion in direct written premiums.

The construction market is in many ways symbiotic with the overall economy, and the current consensus of most experts is that the US economy has avoided a major recession. Interest rates appear to be stabilizing, and builder confidence is up. Big picture, things look much more encouraging now than they did even six months ago.

“The construction industry has done an admirable job adjusting with the economy and predicting how to respond,” stated Carl Dowling, Senior Vice President, Casualty Construction Liability Underwriting. “Incredibly, through all the market changes and even a dramatic increase in interest rates, there has yet to be a slowdown in the construction industry. The construction segment is resilient, and absent a serious recession, it does not stop. It adapts. When residential construction slows, commercial construction picks up. When new construction hits the brakes, renovation projects accelerate. When growth in one region becomes stagnant, other parts of the country boom.”

The overall construction segment is healthy, but there are some potential headwinds for contractors depending on the region and sector of the market in which they operate. High interest rates have slowed the residential market, and residential foreclosures are up 167% over the prior year. Trillions in commercial loans are coming due as the collateral behind those loans is devalued due to low occupancy rates. The end of the 421A tax abatement in New York has called into question the profitability of future planned housing projects in the five boroughs. Cheap money and high rental rates over the past few years have led to rental overbuilds and excess inventory in some parts of the country, while at the same time, there is an estimated shortage of 5-7 million affordable rental units across the US.

In many ways, the industry is doing exceptionally good at contemplating and predicting these macro level changes. Builders traditionally offered incentives on new homes, but they are now using incentives to solve payment concerns by buying down interest rates. With the lowest level of home affordability in the US since 1984, builders have also started to reduce the size of residential footprints, and while the cost per square foot is increasing profits for the builder, the overall cost of homes is coming down for the buyer. Beyond just the residential sector, the cost of building materials has continued to trend down for the past few quarters, and in many regions, build times have been reduced by roughly a third. Builders are also adjusting what they are building and getting creative. For example, 75% of all land zoned for residential is reserved for single-family home construction, so institutional investors are building entire neighborhoods of single-family homes for rent.

“Developers must recognize that there is currently a significant disconnect between wages and prices in the US and between individual buying power and the buying power of institutional investors (hedge funds, banks, and private equity),” added Mr. Dowling. “To remain stable, the construction industry must remain relevant to the buyer and end user (both individual and institutional) by building not only what they need but what they can simultaneously afford.”  

As we move into 2024 and beyond, Upland is positioned well to meet the coming challenges in the market. We have a broad appetite and the ability to partner with contractors across the entire country. Whether the industry shifts more into the residential, commercial, or industrial space and if construction becomes more concentrated in renovation or new projects, Upland’s product solutions allow us to adapt while our team of experienced underwriters navigate the varied hard and soft markets across the country.

Excess Casualty Market Outlook

The forecast for the excess casualty insurance market for 2024 is mixed, as there are several factors that could affect the demand and supply of this coverage. “The market outlook in the excess casualty sector is one we would describe as cautiously optimistic,” said Shanna Sweeney, Senior Vice President, Excess Casualty Liability Underwriting. “Although certain segments are seeing increased competition and rate stagnation, others are continuing to trend in a positive direction. We anticipate continued growth in the major segments of casualty business we pursue, specifically products, agriculture, construction, and premises driven risks.”

The project market is relaxing after a few big years which is increasing the competitive pressure on short tail, renewable business. Inflexibility in coverage offerings, rigid rate approaches, and decreased capacity plays in the admitted markets will continue to bring opportunity for the broader E&S market to compete and provide solutions for our insureds. However, maturing new capacity and an increase in market participants could quickly saturate those prospects.

When we look to the future, changes in laws and compliance standards coupled with emerging risks are likely to be our biggest threats. Not to mention, nuclear verdicts continue to rock the liability world, restricting available capacity across many industry segments. In 2023, we saw the effects of Biometric Data and PFAS verdicts make their way to becoming standard policy exclusions among many carriers. Conversely, changes in Florida construction statutes have seemingly opened the door for additional consideration from carriers with an exception – coastal builds. The weight of infrastructure, overextraction of groundwater and rising sea levels are all contributing to concerning levels of sinking and collapse along the east coast of the United States. We anticipate that specific market niche to continue to harden with available players decreasing with the tides.

“Overall, we are confident in our ability to provide meaningful support to the E&S excess casualty space in 2024,” added Ms. Sweeney. “By staying in step with the changing physical and legal climate, class action filings and developing trends, Upland is able to position ourselves in a way that moves with the market and not against it.”

Primary Liability Market Outlook

The primary liability insurance market in the United States saw a 9.5% increase in premiums in 2023, reaching $236.7 billion. It is also forecasted that the market will continue to grow in 2024, but at a slower pace of 5.5%, reaching $249.6 billion.

“The market isn’t soft yet, and the E&S segment from a growth perspective has still been favorable overall,” stated Daniel Lee, Senior Vice President of Primary General Liability (GL). “While we are seeing certain indicators that competition is increasing, putting some pressure on the pricing environment and opportunities relative to our risk appetite, there is still a healthy amount of business for us to find ways to bring value to our customers.”

Challenges in the property line have not only shifted property premium to E&S but have had an impact on additional GL moving over as well. Businesses that have traditionally been packaged and present heightened property exposures (more pronounced with coastal or wind/hail prone areas) have pushed additional GL opportunity to the specialty side. We have seen this occurring in the real estate and the hospitality industries, including hotels and restaurants.

On the other hand, while we have seen some rise in competition from new competitors, much of the opportunity disruption has come from increased standard company activity on risk types we pursue on the specialty side. Industry challenges around standard market property and automobile seems to have strengthened focus on GL. Overall, there seems to be a proportionate increase in E&S-placed business being lost this past year to the standard company side versus peer competition, versus two years ago.

Another consideration, albeit to a lesser extent, is the increased activity around alternative risk financing options, specifically group captives in the GL area. These programs present another competitive dynamic related to overall business opportunity. Drivers towards these options are not only tied to rising insurance costs but also the opportunity for insured companies to put their insurance spending to work via investments, versus the cost of traditional insurance programs. This trend line has strengthened in recent years, and we expect growth activity in this area to continue. That said, these options will not be applicable to the entire segment as certain risk characteristics need to be met in order to qualify, or be feasible, for such programs.

Overall, the pricing environment in the GL area has become more competitive when compared to 2-3years ago. “Opportunities are there, but underwriters need to be thoughtful as they navigate this market for profitable growth. In general, the ability to secure additional rate has been more challenging, and new business pricing levels have been more aggressive in certain areas,” added Mr. Lee. “For all market considerations, focus on sales discipline leveraging meaningful relationships will help Upland overcome these dynamics. Each underwriting firm has challenges unique to their business, but awareness of the broader competitive landscape is key to proper planning.”

Professional Liability E&O Market Outlook

The professional liability market is ever expanding with new businesses being founded by experts in their fields each day. “Since the pandemic, we have seen a large influx of startups requiring the purchase of errors and omissions (E&O) coverage. We expect this trend to continue into 2024, as remote work and advancements in technology have allowed experts to build their businesses in far reaching geographies,” said Kate Walas, Senior Vice President, Professional Liability Underwriting.

Evolving trends in2024 that we will watch closely include state, federal and industry specific regulations impacting our target classes of business. Particularly, we are keeping a close eye on privacy, consumer protection, emerging tech, and AI. Social inflation and nuclear verdicts have been leading to rising settlements and overall higher legal fees. Market driven coverage expansion in terms and conditions has also been challenging the market.

The professional liability market is evolving with new entrants providing an influx of capacity during certain time periods. Rate adequacy remains top of mind and bottom-line underwriting remains Upland’s strategy.

Excess Cyber Liability Market Outlook

Given the evolving landscape of cyber threats, cyber liability remains crucial in 2024. The importance lies in mitigating the financial impact and facilitating recovery in the face of increasingly sophisticated cyber threats.

“The outlook for cyber liability insurance in 2024 is expected to be robust. With cyber threats continually evolving, businesses are recognizing the necessity of comprehensive coverage to safeguard against potential financial losses and reputational damage,” said Jackie Lee, Senior Vice President, Excess Cyber Liability Underwriting. “Insurers are likely to refine policies to address emerging cyber risks, and the demand for such insurance is expected to rise as organizations prioritize cyber security measures in an interconnected digital landscape.”  

In 2024, cyber insurance policies will require more stringent security measures and practices from the insured, such as multifactor authentication, patch management, and incident response. Carriers will need to shift their role from reacting to risks to preventing and mitigating future losses.

Click here to download this white paper.

About Upland Capital Group 

Upland Capital Group, Inc. is an AM Best rated “A-” VIII specialty property/casualty insurer headquartered in Dallas, Texas. Through its wholly owned insurance carrier, Upland Specialty Insurance Company, the company markets, underwrites and services specialty insurance products in select markets to include excess transportation, casualty construction, excess casualty, primary general liability, excess public entity, professional liability errors & omissions, and excess cyber liability.

Media Contact: Blake Zipoy, Marketing and Communications, bzipoy@uplandcapgroup.com

Additional Sources: AMBest / Insurance Journal / Roadsync /  Aon / Deloitte / Willis Towers Watson / Swiss Re