To avoid a race to the bottom, transaction insurance players need to ‘stay in their lanes’

By Chad Hemenway on April 21, 2017

NEW YORK—Are carriers involved in the transaction insurance marketplace participating in a race to the bottom? Is this the year the rapid growth levels off?

The “two Craigs,” Schioppo and Warnke , both from Marsh, said they have had a bet each year on whether the incredible pace of the transaction insurance market will slow. Craig Warnke, managing director of the broker’s transactional risk practice, admits he’s never won the bet.

“At some point, you figure the market reaches its natural equilibrium,” Warnke said during Advisen’s Transaction Insurance Insights Conference here on April 20.

Warnke’s logic seems sound enough. This can’t go on forever. But the fact is the market has seen significant growth. In 2010, Marsh placed $387 million in transaction insurance limits. The broker placed slightly more than $6 billion in limits in 2016.

Transaction insurance, if there remained any doubt, is here to stay, said the brokers. Competition is fierce. Additional insurers have entered the marketplace, putting pressure on underwriters to keep market share and brokers to manage the process as they send a submission to more than a dozen insurers.

It’s a good time to be a buyer, the brokers said. Coverage is broad, the process is quicker, and rates and retentions are dropping, according to Schioppo, who acknowledged hearing speculation that carriers are in a race to the bottom.

“Carriers need to stay in their lanes, and not blow their books up,” advised Schioppo, who is transactional risk practice leader at Marsh. “The lanes have widened,” but there is a risk in racing too quickly into agreeing to things, he added.

Corporate buyers represent an increasing share of Marsh’s overall book of business, reported Warnke. These buyers typically tend to buy more limits than traditional private equity buyers because corporate buyers are used to large D&O and property insurance purchases.

Warnke said action in the transaction insurance market “may accelerate in the second half of the year” since many insurers have “impressive budgets, which will be harder to hit.” With prices lower, they’ll need to make more deals.

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Chad Hemenway is Managing Editor of Advisen News. He has more than 15 years of journalist experience at a variety of online, daily, and weekly publications. He has covered P&C insurance news since 2007, and he has experience writing about all P&C lines as well as regulation and litigation. Chad won a Jesse H. Neal Award for Best Single Article in 2014 for his coverage of the insurance implications of traumatic brain injuries and Best News Coverage in 2013 for coverage of Superstorm Sandy. Contact Chad at 212.897.4824 or chemenway@advisen.com.