Big Challenges! Big Solutions! Excess and Surplus Lines Insurance in the Private Client Space with Kevin Madden of AMWINS

In this episode, Personal Insurance Advisor at Ericson Insurance and CEO of RiskRevu, Kurt Thoennessen, CAPI, talks with Kevin Madden of AMWINS about the critical role  the Excess and Surplus Lines insurance market plays in our economy. This discussion explains what the Excess and Surplus Lines market is, how agents, individuals and businesses interact with it, as well as many details that will help you navigate this area of insurance. Kevin is an insurance industry veteran and he shares some amazing information during this episode. I hope you enjoy it and learn a lot from him. Thank you for listening! 

Transcript

Kurt Thoennessen  10:20

Hello, and welcome to the private client risk and resilience podcast. My name is Kurt Thoennessen, and I am a personal insurance advisor at Ericson insurance advisors. I'm also the founder and CEO of RiskRevu, which is a technology platform I built to help agents and brokers gather information from clients and prospects online in a modern way. So I'm really happy to be back behind the microphone today. It's a gorgeous day out, it's almost Friday, the weekends come in. And I'm talking to one of my good friends, Kevin Madden. And Kevin Madden and I go back several years, and we've been working together in one capacity or another. And just super excited to be talking to that to Kevin today about something that he is very passionate about been doing for an awful long time. And which is the excess and surplus lines market. And we'll get more into that as we get into this. But Kevin, I have also worked together on several committees, you know, for an Industry Association, the Private Risk Management Association, we work in New York together on a committee there, we just have a lot of fun. So the audience, you guys who are listening to this, you are in for a treat today, because Kevin's a great guy and knows a ton about the insurance industry, the excess and surplus lines market and everything in between. So welcome to the show. Kevin, glad, glad to have you here.

Kevin Madden  11:48

With an introduction like that we I better not disappoint you today.

Kurt Thoennessen  11:53

There is no disappointment ever. This is gonna be great. We're gonna delve into all kinds of topics. And you know, whether it's at a high level or the minutia. You know, there's so much going on, but I thought maybe we can start off with just just a little bit of background on you. And let's let the audience get to know you. I'm sure a lot of folks who are listening to this are going to know you already. But for those who don't know you. Let's tell them a little bit about you.

Kevin Madden  12:19

Alright, so my name is Kevin Madden and I, Kurt and I have we will not admit how many years we've been doing this, but it's more than one decades. And we've known each other for an awful long time. I started my career in New York, I was born on Long Island started graduated from Hofstra University and started my career in what I still refer to as the PNM building, which MetLife bought many, many years ago, I most of my career in New York, I was with the Chubb group of insurance companies I transferred to Boston Believe it or not, I was Trump's first personal lines manager in the city of Boston in 1982. From 1982 to 1986. I was an experiment to see whether or not there was any high net worth business to be written in that marketplace. I thought that was very interesting. Came back to New York, moved to New Jersey, then he got a very large promotion moved to Pittsburgh and ran a 16 state region for Chubb. So one of the things that was nice, I was in New York for 10 years, I was in Boston for four years, I moved to Pittsburgh, and I lived there for 15 years. But in each place, I started to make relationships. And one of the things about this business, Kurt, as I'm sure you you know, and I'm sure you've probably done a podcast about it. It is the greatest relationship business I've ever seen. And it's amazing how it's a very, very big industry, but a small circle of influential people. And you never burn a bridge in this business. Because you never know when you're going to when you're going to meet up with that person, you know, again in the future. After being in Pittsburgh, 15 years, I moved to Columbus, Ohio

Kurt Thoennessen  13:54

where I have to say stop you right there, Kevin, I mean that right, there is gold advice. And I've heard it time and time again, I live by it. You never burn a bridge, because not only is it not good, good, good for your soul, good for your spirit. But you're always going to come back and meet up with these, these people that we work with on a daily basis. So great advice there to anybody who's in the insurance business and in any business.

Kevin Madden  14:21

And then I spent some time in Columbus, Ohio was helping nationwide private client or launched their program and then towards the end latter part of my career. I'm not saying the end because I'm not anywhere near finished, moved to Ohio and I've been living up excuse me, left Ohio moved to Florida. And I've been living down here in Florida and it really delved into the surplus lines business over the last eight years. And it is probably I mean if I had to do over again, I wish I might have moved into the surplus lines business maybe 1015 years prior because it's such an exciting part of the markets have been it's challenging. It has its highs it has its lows Like anything, but a very, very important part of the insurance market and how the surplus lines backstops our economy. And we'll get into a whole bunch of different ways about how that how that's done. So But Kurt, I'm gonna borrow for something that we do. When we have our New York Metro prma meetings we always start with what's your happy thought to start your day? And earlier this week, I became a grandfather again for the sixth time my son Kevin, who also works for him when had his second son so it's been a good week already and I know it's just gonna get better from from Iran it.

Kurt Thoennessen  15:34

Hey, that's that's incredible news. Congratulations. 660 said grandson

Kevin Madden  15:40

that no six grandchild fourth grandson have to wow,

Kurt Thoennessen  15:43

wow, that's incredible. And they're all close by right.

Kevin Madden  15:48

Four of them ever in the same town. We all live in Palm city. And then I have a son who lives outside of Pasadena a town called Monrovia. I luckily, I was able to see him. Just last month, we had an all access meeting in San Diego. So I went out early and spent some time with her. So I have two grandsons out there. And everybody's doing great. So we

Kurt Thoennessen  16:07

are two days out from the birth of your latest grandson. How are you? How are you feeling today?

Kevin Madden  16:13

I'm feeling really good. But when I'm done with this podcast today, I get a chance to hold them in my own home. He's in the process of departing from the hospital today. And Kevin and Carolyn, my son and daughter in law though, they're just excited to get back home. And Angelo is his older brother, he's and he's looking forward to seeing his little brother every day. So everything's good, mom's good. Everybody's happy, healthy, good. Life couldn't be better.

Kurt Thoennessen  16:41

So that's great. That's well, congratulations for myself. I'm sure the audience feels the same way. So that's That's wonderful news. Bringing bringing new babies into the world. Always good news. So let's talk about the excess and surplus lines market. And you know, in today's world, I think I hear that term almost on a daily basis, where two, three years ago, it wasn't that way. Two, three years ago, we had our admitted markets, which will, you know, admitted markets, or, you know, those are that are admitted to do business in the state that you're operating in. And excess and surplus lines are not admitted, those that are not admitted and work outside of the regulatory environment. Yeah, I mean, it's much more of a frequent solution to the problems that were being brought today. And, you know, there it's got its own set of rules and challenges and all kinds of stuff. So why don't we start, though, maybe, and this will come better from you than from me, and maybe I'll chime in on something. But what is excess and surplus lines? You know, I know, some of our listeners may be very familiar with this. But you know, some folks who listen to this, maybe they've never dealt with that market. Maybe they're, they're just getting to know the market because they're having to buy a policy through it, or place a policy through it if you're a broker. So what is the excess and surplus lines market? Kevin, from your point of view?

Kevin Madden  18:10

Well, what's interesting is that there's really three big reasons why the excess and surplus lines market exist. Number one, let's not even try to name a one, two and three, let's just go the first one would be when a when a new coverages is created, because of changing economic conditions. And the greatest example I've got of a new coverage that came out of nowhere would be cyber theft, or or, or ID theft and all of those types of coverages and ransomware, okay, 15 years ago, not not really much of a market for that type of thing. But now with the internet connectivity and all these various systems and the offloading and offshoring of major portions of a company's electronic capabilities were were very, very subject to employ, you know, theft, and things of that nature. And the limits when that are necessary for these multibillion dollar companies to cover are rather large. So that product was created in the excess and surplus lines market. And frankly, it's the past couple of years, the rate increases have been astronomical, because of some of the hacks that have occurred. And, you know, the most, you know, some of the most glaring being the winner. We had a pipeline shutdown in the state of North Carolina, and people didn't have gas for three days, you know, from a ransomware. Here's another little interesting tidbit, if and I heard this listening to a Hank Greenberg chat from Chubb about a year ago. He says if you try to pay your ransom in Bitcoin, you're violating OFAC requirements. So you've got some interesting, interesting things you need to be considering with that so so what you're saying

Kurt Thoennessen  19:57

is, if I may is you It's almost like a proving ground or a testing ground, correct products and cyber insurance ransomware insurance, which is a relatively new, as far as the insurance industry is concerned, and just the market in general, it's a new coverage. And so the excess and surplus lines gives that opportunity why now why? Why is the excess surplus lines the place that that happens?

Kevin Madden  20:22

Well, the admitted carriers want, they really need more data points, because they're going to file a program and their rates and their forms and their procedures would then be regulated by the various state insurance departments, when the product is just when the market is screaming for an insurance solution. And the admitted market has doesn't have data that they can base their program decisions on, they tend to not want to get involved. Now, great products can be incubated in the ens market. And that's sometimes how new products, new new products come to market. That would be one another would be the shear capacity of and you're sitting not all that far from New York City, I'm sitting not all that far from Miami. So think large real estate towers, condominium towers, and so on and so forth. Now, one market is going to want to, would be able to put up the limits that would be necessary to cover one of those buildings. So for

Kurt Thoennessen  21:23

a couple of 100 million dollars, you know, for, if not a billion dollars,

Kevin Madden  21:27

if not a billion dollars or more buildings, you know, on 911, when the towers came down, that was a devastating, you know, an unbelievable type of claim. So that would be the sheer nature and the amount of capacity necessary to cover so that would be another. And the third would be distressed business. Now that that's what sometimes people think of the surplus lines business as the place of last resort, it's bad business, nobody wants to write it is that the other, sometimes it's just, you know, it may be a, let's say, a four or $5 million home that happened to have some water damage issues. And because the what a damage claim that might come out of a four or $5 million home could be 150 $200,000. Again, all depending upon when the waters shut off. And, you know, we're talking our lingo right now. But the reality is, you just need to fix what's causing the problem. But it may step out of the admitted market go into the surplus lines market for a bit. And then it could you know, when the claims experience continues or improves, then it could go back into the admitted market. So there's an ebb and flow of that sometimes when something comes into the surplus lines market, it stays there, someone say from a personal standpoint, with a notorious reputation, not just well known, but notorious. And those liability risks would find themselves in the surplus lines market at much higher premiums and restricted coverage.

Kurt Thoennessen  23:07

That's excellent. So three, three areas of thinking here for the excess surplus lines market, it's an incubator for new ideas, emerging threats, emerging risks, that the industry is looking to develop a product for. And perhaps the admitted carriers are not ready, they don't have the data, they don't have the the knowledge for how that that type of exposure is going to perform for their company. So an incubator for new emerging risks, limits high and super high limits. This is where the excess surplus lines I, you know, I've seen this time and time again, where you have a very large building, and, you know, when, when I will insure a condo down in Miami, or New York City, and sometimes we'll get the master policy, we'll see on the master policy for the building, that there's several different insurance companies involved. And a lot of them, not the name brand companies, you know, that are advertising or that, you know, that I'm familiar with on the admitted side. So that's very interesting. And then lastly, is the distressed business, you know, and that's, I think, today, we're seeing a lot of that, like I was talking with at the beginning of this conversation, where there's a lot more conversation about the excess and surplus or ens markets, where it's because of this distressed business, that that is happening. So we'll get more into that as well. But you said something interesting there, which was, you want to fix the problem, you know, it's distressed business, and maybe it'll be in that for a little while. That's fine, but they're really looking to fix the problem. And so, let's talk a little bit about that. You know, let's say a client goes, you know, gets into a situation like you said they Have a water loss or something that the the admitted markets are no longer a solution for them, they need to have an excess and surplus line solution. How do they fix the problem? How do other people who are in these situations fix the problem to help them either get back to the admitted market, or minimize the time that they are with an excess and surplus science carrier.

Kevin Madden  25:23

Alright, so I'll give you a Florida flavor of the water damage claims because of you, you have a water damage claim in Florida. And let's just say you're a snowbird so you have a place up, let's say in Northwest Connecticut, and you have a place down in Florida. So you're in same Connecticut six months a year, and you're in Florida six months of the year. If the water damage occurs when you're up in Connecticut, you don't have a water shutoff valve or water shutoff system. And you don't get somebody inside that house in Florida inside of 48 hours, you are going to have a mold claim, and it will grow rather substantially rather quickly. Because mold down here I mean, the the conditions are a Petri dish for growing mold so that the problem there is the length of time that it may not be occupied. Where a pipe could burst or wasn't winterized. Because what's interesting is having lived in many cold weather places, when people up north leave their places and come to Florida, they should they they winterize it so the pipes don't burst pipes don't freeze. They don't think that way down here in Florida, because there's no such thing as winter exit your pipes, it's never really winter down here. So, you know, the water is always on. And you know, you could winterize pipes down in Florida, people just don't think that way. So the fixing the problem is having a water shut up, really. So when there was a burst of water that's running through a system, you could automatically you know, shut it down. So you could minimize damage rather quickly. And that's become I would say, Kurt, you know, years ago, you know, you would never insure a house, a million dollars without mandatory Central Station burglar fire alarms. And you know, total fire losses, you know, come way, way, way, way, way down. Because early detection helps to prevent a total claim the water shutoff valves that the larger the homes become, and the fact that they're not occupied all the time, or maybe unoccupied for periods of time. That's just become table stakes for writing those types of things. So if you have one, and it doesn't have a shutoff valve, and you've had a couple of water damage claims, that risk will find its way into the our, you know, surplus lines market, we would limit water that we would not, you know, we could say you don't have water damage coverage, or we may say we're limiting your water damage coverage to $10,000. So we're going to somehow make sure we maneuver the client to be considering this because what a damage claims and now the most costly dollars, okay, in the personal lines, if you did a pizza pie, or a pie chart of claims that it's surpassed fire as the number one cause of loss, as far as number of claims as well as dollar cost of loss, it's past fire. So seeing the benefit that alarms have done, okay, on the fire claims, let's keep wildfire out of it for that discussion. Water is now the number one cause of loss and everybody is talking about. But having one of these things makes your house much more defensible and much more writable. So it's really a very, very good thing that any homeowner should really be taking, taking strong consideration of doing it, particularly if you have multiple homes where you're obviously you can only live in one at a time. Right, you know, from that standpoint?

Kurt Thoennessen  28:57

Well, and I want to take a step back real quick, just for people who may not be aware or understand, you know, why they might have to get in excess and surplus lines policy. And so, you know, specifically in the private client space, you know, we're talking about homeowners insurance, particular, possibly a valuable articles policy, possibly an umbrella policy, and the situations that I see, like you said, you know, there could be a couple of water damage claims on a record and the admitted insurance company will not renew the policy because of that. And now the agent is trying to find a solution and the admitted companies are declining to offer terms. And so that's when they will need to go to the excess and surplus lines market. Same thing on a potential valuable articles policy. Maybe there's several losses in the last two to three years that caused the insurance company to it not to fit their eligibility guidelines anymore. They're able to non renew the policy legally and And and now the broker is faced with replacing that coverage and has to go to the excess and surplus lines market. Same thing on the umbrella side if there are numerous accidents, motor vehicle violations on a driving record, that can cause a non renewal of an auto policy or an umbrella policy. And that's again, when the excess and surplus lines market becomes the solution to do that, so and once you once you're you're faced with that, then it's about working with the excess surplus lines markets to find that and, you know, I think we should talk a little bit about your company at this point. And what that is and how your company and companies like it play a role in this in this process. So you want to talk about wholesale brokers and and how they how they play a role.

Kevin Madden  30:53

Well, I was as a as a company was formed just a little bit over 20 years ago. And now we are the largest property and casualty wholesale insurance broker. And if you add in our benefits department, we're also the largest wholesale broker for those brokers who also offer benefit programs. We are not a company, we are a broker, we connect you to the company. The term that we use is we don't take the balance sheet risk. We're not the insurance company but we use various surplus lines, markets to satisfy the coverage need. At the end of I believe it was the end of 21 Excuse me 2020. We did premium placements approaching $27 billion. It was like 26 and a half billion dollars. And that's you know, continue to grow. We are the largest but I'm gonna give out the top 10 names so that people understand. You know who other large wholesale brokers are including the benefit side it would be Edwin's CRC. Ryan specialty RPS Victor burns and Wilcox, Jen cap holdings, Brown in writing specialty program group and US Risk Insurance Group. The interesting thing is on that list am winds Ryan specialty burns and Wilcox brown are writing about RP. Brian specialty went public a short while ago, but the other six are owned by insurance companies. We're not, that's our business is also. So arc, we handle our retailers problems. And we're interested in the wholesale side of the business not be admitted side of the business, we do make some admitted placements, but our main business is wholesale insurance. So those names are all, you know, could be familiar to people on the call and some may not be you know, from that standpoint,

Kurt Thoennessen  33:02

right. And as a broker I, I recognize to me, ya know, and that's good. And as a, as a broker, I recognize several of those names, and I work with a few of them as well. Because when I, when the client comes to me, and we have this problem we have to solve, that's when I go to you and I say, Kevin, you know, we have this risk, we need a solution for it, can you help me, and you know, whether it's you or someone else that you work with? Depending on the type of business it is, you know, that's when you guys get to work. And you say, Okay, let's put together a data set. Let's get the information we need to go to the carriers. And that's another good question I wanted to bring up is who are the carriers? Who are the insurance companies because like you said, You are a wholesaler you're not the insurance company. You're a broker just like I am, but you're a broker of excess and surplus lines carriers are there are there you know, on the on the retail side that I deal with primarily, you know, we have Chubb pure Berkeley, one AIG, Cincinnati vault, so on and so forth. But on the excess and surplus, are there some key insurance carrier relationships that you have that that are important to know about?

Kevin Madden  34:12

Well, I'm gonna give you the top six, just as a as a flavor. As you know, Lloyds is not an insurance company, it's a it's a send it, you know, syndicate and so on and so forth. But Lloyds controls 20% of the surplus, your surplus lines market in the United States, okay, so the name Lloyds, or, you know, companies at Lloyds, that type of thing. The others are names that you'll be familiar with because they have a surplus of mines side of the house. Berkshire Hathaway Lloyd's is 20% Berkshire Hathaway is 5% of the market. AIG 5% of the market mark out 4% WR Berkley 3% Again, these were a year and a half ago, and then nationwide through Scottsdale, another 3%. So those are you know, the top you know, players there's hundreds that you know, kind of go below that. They would they, you know, much like, you know, you mentioned chirp. Chirp has a huge surplus science company called Westchester. And they do an awful lot of business in this particular spectrum as well. So those are some of the carriers, but they specialize in difficult to place risks that need a creative solution. And then the reason why we're able to deliver on those creative solutions, because we are able to charge an appropriate premium for what we consider the risk to be. And then the second thing is we can tailor the coverages so that the client is only insuring they're not buying something that's off the shelf, and they're buying, you know, 17 different perils insured against when they need for, you know, that type of thing, if it's the fifth house that somebody owns, and it's very, very remote, and, you know, an admitted solution, they can they can issue a policy without 40% contents, you know, things like that, where there may not be that kind of, or they say, you know, we don't go there that often it's a million dollar home, or we rent it all the time, that might find its way into a circle slides. And Airbnb exposure is also something that usually finds its way into the surplus lines market.

Kurt Thoennessen  36:16

Well, that's a good example of one of those emerging risks, right? That's been around now, it's been around for several years. But there's still not a, there are some admitted solutions to that, to that exposure. But there, it's not across the industry yet. Right. So there's still some non admitted offerings that are out there. And, but that's a good example of an emerging emerging risk that is still developing. And you just mentioned two things that I thought were really important to pull out excess surplus lines, they can tailor the premium, and they can tailor the coverage. And that's two things that is not always that easy on the admitted side,

Kevin Madden  37:03

right, that forms and rates are filed, and they have to file they have to follow their filing, there are times when it's beneficial to not have to be able to do that. Because the situation cannot be handled that way to shift gears a little bit and shift into liability. In today's day and age, and, you know, when we were in Chicago, late last year, I was on a panel and I said, You know what's interesting is, we write an awful lot of very, very good business of what I would say are well known people. But they're not notorious. They just happen to have their names in the paper quite a bit. That doesn't make them a bad, right. But it does make them a little bit more of a target type of thing. Now a notorious person who would be you know, a criminal, or, you know, someone who's in their name, their name is in the paper, and they're always doing crazy things. And we're not going to get into all the things that they can be. So but those types of, quote unquote, celebrities, actors, entertainers, sometimes professional athletes, they would find their way into the surplus lines market, their liability needs are much more unique.

Kurt Thoennessen  38:14

Right, because of their notoriety, because they're well known, because they could be known to have deep pockets, and I can make them a target.

Kevin Madden  38:22

And also they need, you know, if you're a professional athlete, and you attend a couple of baseball, signings or football, signings or do charity work, or your, your, your running coaching camps, you have some side income, that's not part of your contract. And what happens is that needs to be covered, because most homeowners policy is not going to get you it's not going to cover those particular types of activities.

Kurt Thoennessen  38:45

Okay, right. Yeah. And that whole topic of athletes and entertainers is a whole, a whole topic in and of itself. Yes. Now, with, let's talk about, you know, if someone is faced with, like, you know, a private client who's faced with placing one of these policies for themselves, is there a good rule of thumb, or just an understanding of what, how much more a policy in the in the surplus lines, excess and surplus lines market might be? Like, say they're paying 5000 in the admitted market? You know, is there a rule of thumb for how much more that's going to be in the excess surplus lines? Or is it just it's case by case?

Kevin Madden  39:26

Pretty much case by case and also, when you're dealing with say that, you know, the top 10 wholesale brokers, they write enough business and enough markets to have their own, you know, way of pricing? I wouldn't be thinking you know, that just because it's going in surplus line. So last year's premium was 100,000 this year, so it's going to be 200,000. Although in some parts of the country today, California and Florida specifically, that might be happening, but it isn't happening. Because, you know, just somebody wants to charge that much. It's the cost Have the reinsurance we have to, you know, lay some of this off or, or it has to be done that way in London. And the cost of the secondary, you know, cover there is helping to drive that. The other thing is in managing aggregate, assuming this is a, you know, predominantly a retailer and carrier audience, they understand, you know that a large, large concentration of risk in a small area of the storm or a wildfire goes through they are attacked, or a condominium tower collapses, all of that is in one, you know, one area, that's going to be a very, very large claim. So, you really have to watch a concentration of risk. So, we do that as well, from an aggregate management standpoint. And when you hit your aggregates, by county, things slow down, you know, so you have to, you have to be aware of that. So,

Kurt Thoennessen  40:52

now, it's very interesting. And the other I mean, you mentioned, California mentioned, Florida, I want to talk about those in a minute, because there's, there's quite a lot going on there. But I also wanted to talk more about the tailoring of coverages. So premiums, now access to surplus lines, companies can charge the right premium for the risk were admitted companies might not be able to. But you're also able to tailor the coverage. You mentioned before, if a if a home had a water damage loss, then you might the excess and surplus lines company might limit the coverage for Water Damage on that, on that policy. What are some of the other types of things that you can do excess and surplus lines brokers can do to tailor a policy? And what are some of the things that might drive that.

Kevin Madden  41:48

So let's say small business, and even any commercial real estate, let's say property in general, and it's built in South Florida windspeeds can be withstood for 150 miles, you know, for a sustained period of time. And let's just say that buildings 20 million, it's not likely, I'm not saying it's not possible, but the chances of the entire building built to withstand that level of wind for a sustained period of time that the whole building would go away. Let's say it's concrete, reinforced clay, tile, roof, or metal, you know, you've got all different kinds of things. As a risk manager, you may say, you know, I'm on, I probably only need two or $3 million, with the wind or uncomfortable self insurance. Those are things that you can bring into the surplus lines market, and we can we can take care of it. So I was on a call with a major national carrier early this morning, discussing our relationship and they said, we're having an awful lot of success writing these types of homes, X wind, because they're so newly constructed, and a lack of a mortgage. The homeowner says, You know what I'm willing to self insure that myself. So there's, you can do that, in the circle signs, if you have, you know, there's all different kinds of additional coverages that are on these packages. If you don't have a need for those, you can just take them off and not pay them. Because when you're building a quote, in our system, anything that goes in there is a charge for it. You don't you know, it does, it doesn't have to be I want a whole box of cereal. And you know, I only want a half a box and CoA and they only want cereal, you know, you can you can kind of cut everything out to just what you want to ensure. And you can do that much more easily surplus lines.

Kurt Thoennessen  43:40

And it's very interesting, because as you're talking about systems, I'm envisioning the rating systems on the admitted side. And you know, when you do that there, it's kind of the general information. They're asking for risk characteristics of the building. You know, there might be a section for optional coverages where you can do a checkbox, but it's a pretty short list versus what you're saying. I envision it has that same general characteristics and risk characteristics that they're asking for. But the list of coverages is probably very long. Like there's a lot of checkboxes like there's a checkbox for pool liability, dog liability, water damage, claim, fire claim, you know, everything like you can literally design the policy down to like, Hey, I only want fire coverage. So I'm only going to select that checkbox. And and I assume there, there's probably some standard, you know, templates built out. It's like, oh, this is an H oh, five. So I'm going to click that. And it's going to give me everything for an HL five, H oh three, and so on. So what it sounds like to me, it might behoove the broker, the agent who's working on this to to help the wholesale broker and saying, hey, you know what, we don't care about wind coverage. You know, the client wants to self insure wind coverage. So the wholesale broker is not spending their time trying to quote that. That's correct. Yeah.

Kevin Madden  45:00

But so that one of the big aggregate things in Florida is how much wins. So that those are easy replacements, quite frankly,

Kurt Thoennessen  45:10

right? And so if you could, you know, because if you don't have that conversation with the wholesale broker as an admitted broker, the wholesale broker might be, you know, spending their time trying to find the wind coverage is going to take a lot more time, versus trying to find a homeowner's policy without wind coverage, right off the bat, because they might make assumptions, you know, like, oh, well, everybody wants wind in Florida, right. So just something to be aware of as a as a retail broker.

Kevin Madden  45:35

And Kurt sitting in your seat, when you're getting multiple quotes from different wholesale brokers, make sure you take a look at what they've actually quoted, because they don't automatically have a template, we release all of our quotes this way, they really do tailor make, based on what you want, what you want to cover. So you'd have to watch that, because there's an awful lot of speed to get a quote out. But there's less time spent analyzing what's actually in the number.

Kurt Thoennessen  46:04

And that is extremely good point. I've seen policies come in. And we've gone through the whole quoting process here, it's a fire drill, because the closing is on Friday, and we need a quote and whatever the case is, and then you get the policy and I've seen warranties on these policies that are not coverage related, they are behavior related. And the behavior is you must the client, the homeowner must have an active fire and burglar alarm in the home, at the time of loss in order for coverage to apply.

Kevin Madden  46:40

It needs to be on and it needs to be on.

Kurt Thoennessen  46:43

Right, or I've seen on valuable articles policies, the behavior is the door must be physically shown to have physical damage to it in order for there to be a theft claim. Right. And so so that is the other thing to look out for. You know, and these are, this is part of that tailoring conversation that we're we're having. And it's these tailor these customizations to these policies are important, because that's how we can place the coverage, and play some coverage. But it's also important to know that they're there to remember that they're there because, you know, three years down the road, after two renewals, you might forget, and that's where the claim happens. And then, you know, it's things you have to keep, keep going.

Kevin Madden  47:33

Switching gears a little, you're familiar with this working with the type of clientele you do when you travel abroad. And let's just say a nice amount of jewelry, only covered well on your person, or in your own bag of some type with you, or in the hotel safe. So the you know, and if it's somewhere else, like okay, when you put it in your checked baggage, well, that's not on your person. That's how I got recovered. So if your bag is with you, that's okay. But if it's in the, you know, in the hole of the plane, those those are sticky claims. So,

Kurt Thoennessen  48:12

right, yeah. And it's, it can be confusing, because you know, when a client is so used to dealing with the admitted side, where coverage for valuable articles, for example, is worldwide, right, and there's very few limitations to now all of a sudden, you know, they had, it's a string of bad luck. And they had three claims in three years. And now they gotta have to have an excess and surplus lines policy. And well, that policy limits the coverage, it's no longer worldwide, it's only in the home. Right, and it limits it to that. So now, unless they remember that, you know, they're not going to be able to change their behaviors for how they're handling their jewelry. And whatever that policy is, is is covering. So it's, you know, the the premium is one thing, but the warranties, the coverage, endorsements that are added to these policies. So excellent point, as far as you know, yes, things are done in a fire drill manner a lot of time. But in taking a look at that policy once it comes in absolutely critical. And making sure you know that the client understands it, and the agent understands it on an ongoing basis. And I think question for you, you mentioned this earlier is, you know, there's amount of time that someone might be required to be with an excess and surplus science carrier. Is there Do you have a general sense for how long? You know, if someone gets placed within excess and surplus lines, homeowners policy, for example, how long are they going to have to stay with that policy before they can go back to the admitted market?

Kevin Madden  49:38

Well, staying on the theme of did we fix the problem? You know, if it was water damage claims, the water water shutoff valve was placed in there and all of a sudden the three four years free without it. Most admitted markets would be welcoming, welcoming them back. From that standpoint.

Kurt Thoennessen  49:55

That's a great point. It's is was the problem fixed because you could wait three or four years but nothing was done to mitigate or very little was done to mitigate from future losses, then that could be a different issue that can be okay. Well, we'll wait another year, let's see, you know, because anybody who's taking on any risk, whether it's me with my next door neighbor taking care of their dog, you know, I want to know, do they have a bite history? Do they like kids? You know, are they going to, you know, mess up my house? You know, same thing with an insurance company, you know, they want to know, the history they wanted, like, Okay, you put a French drain in? Well, did it solve the problem? You know, longer than six months? Is it three years now? Okay, you know, the French drain, we've had a lot of rain in three years, you know, maybe maybe that that's enough time for them to say, You know what, this is going to be fine now. Yeah, it

Kevin Madden  50:46

all depends on what the reason was that they went in. So shifting smoothing over to the liability side, the notoriety probably is going to stay. You know, that it's, if I got in from a surplus line sampling, usually, it's going to kind of stay that way. Now. I would say, exception might be just as a general class, to the degree that professional athletes are much more targets when they're still playing, and so on, and so forth. And oftentimes, people say the best time to write them is when they're getting closer to the end of their playing career, because you've seen what they've been like, in the public eye, many of them are just fine. Some have some issues. If they, you know, they retire and then go into, you know, just live a nice, quiet lifestyles, plenty of people who do that. So the reason why they were in that have changed could have changed as well. Limits might change. And so say, for example, you've got someone who's getting on in years, and they're starting to, you know, pass along properties, or sell properties, and downsize and so on, and so forth. So the size of the risk becomes less of an issue. So that it all depends on why they why they went there in the first place. But it's not like, it's not like you go there, and you stay there forever, there is a much higher churn on the types of business that we do. Also, you know, things that fall in that it's a temporary condition of builders risk, not a lot of admitted markets and staying in that business, in either commercial or personal. Okay. But for the time period that it's being built, we take care of it, then it's like, okay, now it can go pretty much any admitted market, you know, brand new construction, you know, all the all the latest upgrades and building codes and so on. So that's a that's a great example of both markets working together and helping the the overall economy.

Kurt Thoennessen  52:47

Absolutely, you know, that comes up quite a bit. And whether it's a ground up construction or a rent renovation, a major renovation, that that that's a great example of when excess and surplus line policies are used. Now, I think we'd be remiss if we didn't talk and touch briefly on Florida, California, difficult markets. And that, you know, and I think, you know, we've had a great conversation, as we wrap it up, let's let's talk a little bit about these incredibly dynamic markets, and how the excess and surplus lines market is playing a critical role at this at this point in time. Well, you know, what are your thoughts?

Kevin Madden  53:31

Again, I've been doing this such a long time. And Florida, I don't 20 years ago, it may have been in the top 10 states in the country. California was always, you know, for many years has been the largest state essentially, it's the largest concentration of high net worth homes in the countries in the state of California. Florida has moved into the third most populated state in the country behind Texas, again, Texas was low top 1020 years ago. So there's been a massive movement of people over the last three decades, okay, and where are they? They're in places that have major catastrophes going on, moving out, away from, you know, the cold weather and so on. Surplus lines, carriers and so on, for the most part, we ran off a lot of business coastline. That's kind of where it is not huge markets in the middle of the country, for us, and they tend to be from a surplus science standpoint, it's very, very hard to predict, and model tornadoes, which is the biggest thing that kind of runs through they're very intense storms, narrow area. And so from that standpoint, the two, again, two major states Florida and California, two very different perils, Hurricane one damage, and then wildfire is, you know, the last five, the five most largest wildfires If that ever, ever occurred have happened in the last five years in the State of California, I don't really want to debate whether or not climate change is an issue. The simple fact of the matter is the last five years have been the most devastating. And the term of wildfire, there's probably a whole bunch of reasons why that's happening. But I came across something when I was traveling, and it resonated for me about two, three years ago, I happen to be in a hotel, I can't remember where it was, or pick up the USA today in the morning. And they showed a picture of satellite picture. Probably California in the beginning of 1980s, mid 80s, might have been late 80s. And they had a, an infrared hotspots in the state of California, and predominantly from the from the satellite, you could see that most of the state was green, fast forward to maybe two years ago, most of the state was red, and it was measuring drought, measuring heat conditions, and the fact that all these, you know, trees and things, they were gone. So you know, it's kind of like a fire get started in California. You know, people think, Oh, the fire department's going to come and put out my house. No, they're not going to try and put the fire out. But if your house happens to burn, and there's hundreds, you know, when a wildfire gets going, they're trying to contain it, nobody's house is getting saved. And these flyers can be very, very devastating. But conditions have changed. From a from a hurricane standpoint, we now have a hell of a lot more people, or a heck of a lot more people within two miles of the coastline. I mean, people, you know, it's always been where would you go, if you wanted to, you know, have your dream spot, I'll go to the mountains, or I'll go to the ocean. And then, you know, mountains is you got what, you know, trees. And as you cause a wildfire, and California is not the only place that has wildfire concerns. I mean, there's plenty of you know, Midwest mountain mountain estates. Sure. Mississippi, Colorado is becoming just as crazy. We have issues in state of Washington, we have issues in Oregon. So those, those are the two biggest things. And there are different things that you that we need to be concerned about. The interesting statistic I had in Florida the other day, I happen to be reading that pretty much right now in the homeowners market in California, I mean, Florida, 75% of the major markets aren't right in business. That's incredible. Considering how many people move to Florida in the last two and a half years because of the pandemic.

Kurt Thoennessen  57:43

And how much new construction there is to

Kevin Madden  57:46

is a ton of new construction and on top of the construction, so there's to me, there's better than average business being built. And that should be able to be placed a heck of a lot easier than it is okay. California, again, not having ever lived there and kind of underwritten it from a distance. To me, it is just so hard to build a model that's predictable. I think there's just so many different data points. And the fact that the when these fires kick on, they start, you know, you know, if they happen to get out of, you know, where the the woods and the trees and everything and they get close to neighborhoods. California homes are very close together. You know, as a general rule, it's not you know, everybody's got 12 acres. I mean, it's not like that doesn't exist, but for the most part when they when they jump highways and such, these houses are really close to going. So

Kurt Thoennessen  58:44

yep, yep. Well, and it's in today's market, you talked about aggregate earlier. And I imagine that aggregate in California is a lot different than aggregate in Florida, and that the reinsurance contracts that are being renewed, are renewing at much higher rates than they were, which is causing the rates to go up significantly, and potentially reducing the amount of aggregate that's available. So it's, you know, it's causing capacity issues, if you will, you know, where people, brokers like me, are just having a very difficult time placing placing policies. Yeah. And so, go ahead. I was just gonna say, you know, that leads me to the question, I think, you know, everybody in the excess and surplus lines market has different answer, but do you think that there is ever an uninsurable risk in the excess and surplus lines markets? Or is there always going to be a solution? You just have to find it?

Kevin Madden  59:51

I would say 9899 cent of the time you could probably find a solution. But when when you have something close to one insurable you will be paying Who knows, you know, that that's just you know, and off the top of my head, I can't, you know, think of one just out there, but there are some things that that may, you know, have may just go self insurance because the cost, I mean, you start getting 1010 Point rate, you know, you know, a $10 rate on the structure any right, you know, so, um, but yeah, something. Yeah, thanks. I'd have to noodle on that a bit. Yeah. But you do want to make you did send one to me, I do want to make sure because we have a number of people on the phone, one of the questions you said we might throw up would be how many wholesalers should you deal with? And one of the things that that for all the retailers that are out there, we don't all have the same markets. Okay. We have many of the same markets. But we, when we're approaching London, London, our syndicates look very different. Okay, they're set up differently. So you really don't assume just because it's a Lloyd's policy, it's the exact same kind of stuff, it all depends on what your Syndicate is allowing you to do so. So that's number one. When you come to the surplus lines market, you've already gotten all your deck donations and the admitted market say they don't want it, the worst thing that you can do is try to maintain 3040 50, I've seen as high as 350, different wholesale relationships, if all you're doing is is throwing if you throw a quote into the wholesale market, and you say, I'm going to show it to 20 wholesalers, I'm going to be the hero, that's fine. 19 of them are annoyed. Only one's going to win. So what you ought to do is figure out and here's another thing, the first thing you should do, from your books of business figured out what percentage of your book of business is wholesale premium. Because I've canvassed the country and talked to a lot of large national plays, not just specifically in California, Florida, or Texas, or Louisiana, but on a national basis. Most large retailers, it's six, six to 7% of their revenue or premium. Okay? So 93, or 94%, of what you do. So here, why would you need 300 markets to take care of 6%, that makes sense, figure out, take three people, four people out of the top 10, and then pick the one other person that's not in the top 10. But all they do is write, you know, campgrounds on the top of mountains in the in the middle of nowhere, you know what I'm saying that they are just so good at this one little bit. Yeah, and just keep them and don't try to do everything. But as long as those markets can handle what your clients DNS needs are, you're better off, you'll get you get a faster turnaround from the wholesale markets, your wholesalers are going to move us yours, submissions to the top of the list, because you're gonna get a very, very good quality bind ratio, and you're gonna get much better service. On our side, we raid our retailers, what's your quote, To bind ratio? We are varied in submissions, because it's such a hard market. So we have guys even in the hard market, you know, they're quoting and binding 40 45%. That's a very good number. But we have a lot of guys, you know, the last 3030 pounds or 30 submissions, we got didn't write anything. I used to go onto the bottom of the list because you never give me a binder. So you had you know, we we have to manage our time. That way, you know, so that because here's the thing, if we work on a quote, it doesn't turn into premium, we didn't get paid that much, you know, saying it's the same thing on the retail side. Right.

Kurt Thoennessen  1:03:38

Now, that's very helpful information. Good to have that perspective. Again, it goes back to what you said at the beginning of this call this conversation, which is the relationship business. Yes. Right. And, you know, sending a submission to 300 markets versus one or two, you know, you can tell there's really no relationship there. So you know, that's a that's a very important insight there, Kevin, I appreciate you sharing that. And so, you know, as we finish this conversation, which has been incredible, I think so many different aha moments and great knowledge being shared. I really enjoyed it. I hope our audience has as well. I want to leave the audience with some information about you. If they if you if they want to get a hold of you have a question for you. What's the best way for them to do that?

Kevin Madden  1:04:29

I would just send me an email Kevin dot Madden at am winds.com. Or connect with me on LinkedIn. And I am one of the things I do before I go visit a retail. I look up their LinkedIn profile. And one thing I found out if you want to connect with somebody connect with them on LinkedIn, nobody's monitoring their LinkedIn mailbox. So I look at those both every day and just you know, I would give out my cell phone number but if I As a number, I don't know, I don't normally answer it. Because I get too many calls out if I you know, if you're in my if you're in my, you know, my when you call me I know it's Kurt Thoennessen. So that kind of thing. But yeah, send me an email reference that we listened to your podcast from Kurt, you don't get a quick response.

Kurt Thoennessen  1:05:21

Excellent. Thank you so much for that. And so thank you to the audience for checking out this episode today. I hope the information was valuable to you, in whatever you are doing. Whether you are an agent to broker carrier or a private client, someone who is looking to better understand the excess and surplus lines market, I hope this information was helpful to you, I really appreciate you listening in to the private client risk and resilience podcast. Thanks again, Kevin, for being our guest is awesome. chatting with you. And maybe there's another call in here, where we're delve into some other some further issues on the excess and surplus signs, markets. And if you

Kevin Madden  1:05:59

like, Thank you for inviting me whenever you call me, you know, I'm gonna answer.

Kurt Thoennessen  1:06:03

Thanks, but And if, if you liked the episode, give it a like. And if you liked the podcast, write us a review. We'd love reviews. Love to hear the feedback. And if you have some feedback for some, some constructive feedback, we'd love that as well. So again, thanks for listening in. We look forward to our next podcast episode, and catching up with you then. Thanks and have a great day.