Changes are coming to California's 'overburdened' market

This article was produced with Amwins Group.

Gia Snape, of Insurance Business, sat down with Korbin Holck, executive vice president, personal lines, at Amwins Access Insurance Services, about challenges and opportunities in California’s insurance market.

The California insurance market has been grappling with unprecedented challenges over the past two years, primarily due to the admitted marketplace fallout. This turmoil has significantly impacted the Excess and Surplus (E&S) market, particularly in areas prone to wildfires.

With capacity concerns, high submission volumes, and difficulties in placing high-value wildfire risks, the market is experiencing tremendous strain. The situation has been further exacerbated by the frequency and intensity of wildfires, which have led to substantial insured losses.

But there are signs of positive change on the horizon, according to Korbin Holck, executive vice president, personal lines, at Amwins Access Insurance Services.

“We are anticipating an influx of capacity in the next 12 months, bringing innovative and tailored solutions to address the ever-evolving landscape,” said Holck.

This anticipated increase in capacity will provide insurers with more flexibility in their underwriting practices and allow for greater creativity in risk management. Wholesale brokers and retail agents must remain vigilant and embrace opportunities coming to the market over the coming months.

California wildfires – what’s the impact on insurance?

California has always been susceptible to wildfires due to its unique topography, climate, and vegetation. However, the past few years have seen a marked increase in the frequency and intensity of these fires. In 2023, the state experienced over 7,100 wildfires, which burned more than 324,000 acres of land, according to the California Department of Forestry and Fire Protection.

The financial impact has been staggering, with insured losses exceeding $12 billion. This has created a challenging environment for insurers, as they are forced to manage a growing number of claims and a shrinking pool of resources.

The admitted insurance market in California has struggled to keep pace with the rising risks associated with wildfires. Many insurers have reduced their capacity or withdrawn from the market altogether, unable to sustain the financial losses associated with underwriting these high-risk policies. This has placed immense pressure on the E&S market, which has become the last resort for many property owners in high-risk areas.

Three main challenges have emerged as the market adapts to this new reality:

• Capacity constraints: Insurers in the E&S market are facing significant capacity constraints. As the number of high-risk properties seeking coverage increases, insurers must carefully manage their risk exposure to avoid becoming overextended. This has led to a more selective underwriting process and increased scrutiny of potential policyholders.
• High submission volumes: The fallout in the admitted marketplace has resulted in a surge of submissions to the E&S market. Insurers are being inundated with requests for coverage, many of which involve properties with a high wildfire risk. This has created a backlog, slowing down the underwriting process and increasing the time it takes to provide coverage.
• Difficulty placing high-value risks: Properties with high values in wildfire-prone areas are particularly challenging to insure. These properties often require specialized coverage and higher policy limits, which can be difficult to place given the current market conditions. Insurers must balance the need to provide coverage with the necessity of managing their exposure to potential losses.

Innovative solutions in California’s challenging market

Amwins, for its part, is well-positioned to capitalize on the changes in California. With the creativity and expertise of its local team, Amwins is leading the charge in underwriting by layering risk and crafting unique strategies to meet the market's demands.

By implementing a strategic approach to wildfire risk coverage that includes the deployment of innovative aggregation control tools and new products tailored to manage high-value risks in wildfire-prone areas.

For Holck, effective communication is key to this process. By maintaining open lines of communication with their retail agents, Amwins stays informed about the evolving needs of their clients and the market as a whole.  

“Our strong suits are  understanding the specifics of each account, prioritizing time to uncover intricate details and premiums, and supporting our partners in closing sales,” Holck said.

There are a few key strategies that have helped Amwins navigate the complexities in California:

• Deployment of innovative aggregation control tools: Amwins has invested in state-of-the-art aggregation control tools that help underwriters better understand and manage their risk exposure. These tools allow for more precise modeling and forecasting.
• Development of tailored products: Recognizing the need for customized solutions, Amwins has developed new products specifically designed to address the unique challenges of insuring high-value properties in wildfire-prone areas. These products offer flexibility in terms of coverage and pricing, allowing for a more tailored approach to risk management.
• Relaxation around modeling and aggregation control: The ability to relax certain constraints around modeling and aggregation control has allowed Amwins to deploy aggregate in meaningful ways, providing better tools for underwriters, better technology, and improved methods for managing aggregating risk.

“By understanding our retail agents' needs and each account's specifics, we focus on uncovering key details, premium types, and growth opportunities,” said Holck. “This proactive approach empowers our partners, driving success and strengthening our mutual growth.”