C&F’s Bredahl: More E&S submissions ‘coming in over the bow’
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C&F’s Bredahl: More E&S submissions ‘coming in over the bow’

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The excess and surplus lines market grew by double digits in the last year for the fifth year in a row. And that trajectory is expected to continue, Crum & Forster’s president of the surplus and specialty division Tom Bredahl told Meg Green in a recent video interview. This is an edited transcript of their discussion. See the full interview here.

What is driving the growth in the E&S sector?

It’s a confluence of events. We're living in a time where the world is getting more and more complex. There's new and novel exposures; there's emerging risks; there's growing exposure bases, in ways that we didn't predict. Things are getting more sophisticated, so the solutions have to get sophisticated, too. And that plays right into the E&S market’s hands.

What are you seeing in terms of volume of submissions today?

It's never been bigger. We had more submissions received in the trailing 12 months than we've had in our entire existence. It really is coming in over the bow. And we're using all our techniques and tricks to sort through it, including AI and other innovative, advanced modeling techniques. We are sorting through and get the risk we believe has the most promise of being bound to the right underwriter's desk as quickly as possible. Going beyond that, we use our data science team to help us with risk and selection. We use all sorts of data elements, both publicly and privately available. We pay for data. We mine our own data. We try to find correlations. We have predictive models. They're very advanced. And it goes on and on. We're having an embarrassment of opportunity here. And I just hope we can get through it and get as many good risks as we can.

Could you [tell] us more about how you're using that technology?

C&F started investing in data science [and] developing a data science team more than seven years ago. They're at a maturity state that's further along than I think most of our peer groups. What they've been able to achieve manifests in a number of different ways. Firstly, I mentioned the basic sorting, the prioritization of opportunity as it comes in the door. From there, we move on to pricing and selecting the risks, finding the better risks, finding the fairest price. In the event of a claim on that risk, we use the modeling to identify problems early on. It used to be a very simple exercise, but it's much more complex [now]. You have to decide early on: Has the venue changed? Are they attorney represented? Is it prone to a nuclear verdict? Is it a sympathetic victim? What's the injury? What's the liability? And so modeling comes in a lot in that instance. And then lastly, our data science team has been able to deliver tools to our operations team that have saved days, weeks, just with the implication of a new tool.

Could you say what lines you're seeing the most robust growth in?

Our fastest growing line is our sharing economy space. These are risks that have anything to do with the gig economy – mostly transportation-related. It's just an explosion based on technology and the advancement of online activity. We're seeing robust growth there and lots of opportunity. That's a classic E&S line. There's no playbook for that kind of business. I'm sure we're approaching it differently than our competitors. It has to evolve before it becomes even modestly standardized, and it's a long while before it ever goes into the standard market.

Are you seeing increased competition in the space – I'm thinking of especially a growth in MGAs and the fronting carriers, the so called asset-light vehicles – are they impacting the marketplace?

Yes they are. On the one hand, they're innovators. They deal with difficult risk, and they build creative solutions. They wrestle the coverages. They do some of the heavy lifting to develop products early on. But at the same time, they're taking up space. They're crowding out conventional carriers. It's a problem to be reckoned with. Over time, it reaches an equilibrium where business gets past from that sort of bleeding-edge development to a more conventional carrier. And we all share.

Do you think technology will be the differentiator? Is there a danger that companies who don't keep up with that technology may face adverse selection when it comes to risks?

I agree with you wholeheartedly on that, I think it is going to be a differentiator. Right now, we have an environment where [loss] trend is generally outpacing rate. When you have such a dynamic, you need to out select and out price, you have to find the most appropriate risks. You have to shift your book of business so that the aggregated book has risk traits that are less volatile than the previous one. And then you can still achieve profits. So yes, all of that requires advanced pricing techniques, advanced modeling, and a lot of data.

How do you see the E&S space evolving in 2024?

I see continued growth. I think it still has legs. I don't see the world getting any simpler. I think things will continue to be complex. We have social inflation. We have real inflation. We have nuclear verdicts. We have complexity in the online world. We have emerging risks. Nothing is slowing down. I don't expect things to go backwards. The market share of the E&S marketplace has grown over time, as we all know. I would guess that it would gain ground in 2024.

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