The Art of Property Layering

A New Landscape

2023 has presented a new landscape for insureds, retailers, and wholesale property brokers. Regardless of whether catastrophe exposures exist or not, all property accounts are facing challenges – from real estate owners to manufacturers and any other type of property owner. Multiple factors, including global losses during the previous year(s), 2023 reinsurance treaty and facultative changes, and insurance carriers’ views of portfolio management have radically impacted brokers’ ability to find coverage solutions for insureds.

All available property markets have had to rethink how they deploy and price their capacity, and the overall trend is that everyone is being more conservative in their approach. With the shifting landscape, brokers are already seeing reduction in markets’ capacity, rising rates, rising insurance to value, and rising catastrophe deductibles. As a result, historic strategies for how to approach accounts are no longer as effective, and the technical expertise required to layer successfully has become more complex. The question is how to best navigate these industry challenges.

Challenges to Consider

Capacity reduction – Due to the aforementioned challenges, carriers are constantly adapting their portfolios and risk appetite. Additionally, carriers are seeking more data to analyze risk, monitoring their cost of capital more closely, and generally wanting to manage their own capacity rather than providing it to an MGA/MGU. As each carrier progresses forward in the 2023 landscape, there seems to be a general consensus within the brokerage community that most markets are taking a more conservative capacity approach per insured. The ability to find a one-carrier solution has become increasingly more difficult. Therefore, the need to involve more carriers to complete an insured’s property program has become a reality.

Rising rates – Rising insurance rates will continue to be a challenge brokers face in 2023. The quantum of rate change is dependent on many factors including geography, loss record, insured retention, and specific insured risk characteristics. Additionally, having to engage more markets may lead to increased overall pricing. Commercial property insurance buyers should expect to see significant impact due to less capacity and rate increases of 25% and higher.

Insurance to value on the rise – Insurance carriers are finding repair and replacement costs are higher than what insureds are reporting. As a result, the values of properties are rising for proper recovery leading to larger risk limits and deductibles. Additionally, an insured without proper valuation will find carriers adding restricting policy language or may elect to report proper building values and purchase less insurance.

Rising catastrophe deductible – Given the frequency and severity of many different types of losses and carrier portfolio management, we are seeing carriers needing to increase deductibles. For example, convective and windstorm deductibles have already risen due to increased wind, hail, and named storm activity. There are options to buy down these rising deductibles. However, they come at a cost.

With these challenges at play, how can you best navigate the changing property landscape?

Property Layering

Through property layering, wholesale brokers are able to build a program with multiple markets that address the specific risks and needs of each customer. There are two sides to property layering: the science and the art. Understanding the science of layering has remained important and prevalent within the industry, while the art of layering has diminished due to the previous softer insurance cycle and usage of MGA/MGU capacity. Having a deep understanding of the dynamics of both the science and the art of layering a property program is becoming increasingly important today.

The science of layering is the technical understanding of the risk profile, determining the PML (probable maximum loss) and modeling results. Carriers are becoming more data-driven and committed to the science of layering when offering capacity and pricing.

The art of layering is the ability to conceptualize the customer’s needs and the markets’ appetite, largely based on the science, and employ different strategies to create a structure that is the right fit for both the insured and the markets. Approaching each market with a laser-focused submission, including all pertinent underwriting data, structure, deductible and pricing, and the ability to pivot to alternative solutions during the marketing process is imperative.

To be adept in the art of layering, brokers must utilize relationships – both company and personal – to understand market appetite and figure out the best way to blend each market’s capacity with their willingness to accept specific risks to ultimately bring the best solution to the customer. When a market isn’t inclined to give exactly what you want, flexibility and creativity come into play. As these challenges arise, successful brokers are able to find solutions to meet market requirements and still complete the program in the most efficient way. As the property landscape becomes increasingly tougher, the art of layering becomes even more meaningful.

Lastly, being able to envision multiple solutions and being willing and able to pivot and propose alternate options to markets in your property layering will enable you to have a solution for the client if the original roadmap does not pan out. This is often the secret to getting deals across the finish line.

Property Layering Tool Kit

Given the challenging property landscape, successful brokers will approach all accounts, even renewals, as if they are a completely new risk. Using different approaches, such as excess of loss, quota share, stretched or ventilated layers, or splitting the account up into multiple layered programs, allows creativity in the process. Additionally, utilization of buydowns, parametrics, domestic capacity, Lloyd’s of London, Bermuda, European markets, captives, and reinsurance markets can be valuable tools when building a layered program.

Specialization + Collaboration

A team of specialized brokers with strong understandings of complex risks leads to more effective building of programs. Ultimately, we do not need one market to be a hero but a panel of markets to share risk.

If you’re a retailer struggling to find solutions, look for a partner with the following qualities:

A specialized wholesaler with strong, established relationships with both carriers and underwriters within your specialty
A wholesale broker whose company supports teamwork and collaboration, so you’re getting the combined expertise of multiple brokers that are working together to find the best solution for your client
A wholesale broker who has a deep understanding and proven application of the art of layering

When choosing a wholesale partner, consider asking them these questions:

Are you consultative?
– Will we be brainstorming and considering multiple solutions for the insured?
– Do you rely on MGA/MGU capacity, or do you evaluate other solutions?
– Are you open to receiving feedback and changing strategy during the marketing process if needed?
Do you practice transparency?
– Do you advise all the markets you will be approaching of the overall strategy to complete the program?
– Are you communicative throughout the entire process to find unique solutions for me?
– Do you maintain transparency post-binding?
How do you measure success?
– Do you ask for feedback after the process to ensure customer satisfaction?
– Are account challenges and solutions shared internally, so your staff can pool information and experiences to collectively achieve the best results?
– Is your company quality certified by a reputable organization?

Historic losses and market challenges have made today’s property layering much more complex. Brokers with an understanding of the science, a finely tuned expertise in the art of layering, knowledge of markets’ appetite, and developed partnerships, along with understanding the risk, are best positioned to successfully construct a program individually suited for each customer.

About the Author

Andrew Giordano is a Brown & Riding Principal and has over 20 years of industry experience. He specializes in Dealers Open Lot (DOL) and has extensive expertise in real estate, including habitational accounts and complex risks. Having worked on both the carrier and wholesale sides of the industry, Andrew brings a wealth of experience and unique insight to B&R. He has earned both the Chartered Property Casualty Underwriter (CPCU) and Associate in Surplus Lines Insurance (ASLI) designations.

Andrew can be reached via phone at 312.279.3737 or by email at [email protected].

Brown & Riding has a quality management system (QMS), which is certified to ISO 9001:2015 by Intertek. B&R’s QMS has been in place for 20 years and counting and requires internal and external audits on a continual basis to maintain certification.

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