麻豆映画

Intro (00:01):
Welcome to Financial R&R, a show dedicated to financial insurance and risk management solutions and trends shaping the market today. Here are your hosts, Ron Borys and Ryan Farnsworth.

Ron Borys (00:13):
Welcome everyone. I'm Ron Borys. I'm here with Ryan Farnsworth, and this is the latest episode of the Financial R&R. Today's topic is a recap of 2024, and Ryan, I couldn't think of anybody else better to join us in this discussion today than Steve Shappell. Steve's a frequent guest on the Financial R&R and the head of the claims and legal group for our Alliant Financial Institutions and Specialty Business. Steve, thanks for joining us this afternoon.

Steve Shappell (00:39):
Thanks for inviting me. Appreciate it.

Ron Borys (00:40):
When you think of 2024, certainly a lot to talk about when it comes to trends in the marketplace, some additional more new capacity, certainly claims and plenty of claims to talk about. But we thought we'd start today's discussion looking back on the year and talking about what we saw from a market perspective and what some of those trends could potentially mean as we wrap up the last month of this year and start thinking about 2025. Ryan, what are your first observations from what you saw this year?

Ryan Farnsworth (01:10):
Yes, I think we started 2024 thinking that we were going to see a snowball of pricing decreases, of additional capacity coming into the marketplace because 2022 and 2023 had seen that gradual acceleration of rate reductions, additional capacity that had come into the marketplace in the last few years with maybe even more robust goals and premium targets. Quite frankly, as brokers, we were afraid we were going to be in the wild, wild west, that there would be such a landscape of premium reductions that we might lose control of the market. And although we still have seen some premium reductions on average, I think we can all agree that it hasn't been quite as bad as we anticipated it to be in terms of being out of control. Now, like any premium reduction or cost benefit for our clients, especially those with positive risk profiles, we'll take that all day.

But what we want to do in order to have an established and long tenured industry in the financial line space, especially for financial institutions, is to have a measured approach where risk management activities are rewarded by insurers and where claims and litigation trends are impactful by the insurance companies that are writing the policies. We'll get into that a lot today because that's one reason why we invited our good friend Steve Shappell on the podcast today because the claims activity and the litigation trends that we've seen in the market have most definitely impacted the financial institutions marketplace, but the laws of supply and demand have indeed been in effect as well because there has been tremendous capacity. Even though many insurers are taking claims from a primary perspective in particular, and we have seen some pretty severe claims from an E&O, from an employment and from a cyber perspective, we still have seen dramatic competition and clients who have a positive risk profile or have worked hard to manage their risk profile, have been rewarded this year.

Ron Borys (03:20):
Yes, I think that's absolutely right, Ryan. When you look at the last couple years of what we call soft market conditions, it was largely driven by underwriter appetite and people trying to gain market share. The word I would use to describe 2024 was opportunity. There were deals that we saw in 2024 where there was something different to be done, whether it's redesigning the program structure, looking at towers a different way, blending some coverages, maybe unblending some coverages, really trying to tailor programs very specific to the particular client. We know that when you look at the broad scale and scope of clients that we deal with on an everyday basis, some of our smaller clients, they're perfectly fine with the regular, traditional off the shelf solutions. They want to buy really good policies at the most competitive premium. But for some of our mid-tier and larger size clients that they don't have peers, we use the term peers quite a bit, but everybody has a different quality or characteristic that makes them different. I think the ability to differentiate clients in the marketplace and really highlight those strengths and reformat, redevelop, redesign programs to fit the specific needs of those customers, that's what I probably saw more of in 2024 than in any other recent year that I can remember.

Ryan Farnsworth (04:40):
The marketplace has been receptive of those efforts. We sit with our clients before we approach a renewal process or before our clients approach a transaction, and we help them try to find that more rewarding way to manage risk. Through analytics, through risk management strategies, our Alliant Cyber team in particular has done a tremendous job of working with our clients on helping them not just manage their cyber risk, but also how to more clearly communicate the risk to the marketplace. For the underwriters and the insurance companies that are wanting to be competitive and are open to hearing the way that we're portraying our clients鈥� risk to the market, I'd agree with you. It has been very opportunistic for them, and I think that those trends are going to continue as we enter a new wave of risk for our financial institutions clients, given the change in administration that we'll experience.

I'm sure we'll get into that more as we give our preview into 2025 on a future podcast. But there's no doubt that this year it's been a very high level focus on our client's risk profile and how the claims and litigation trends are impacting that. It's probably a really good transition to get Steve's perspective on 2024 and what we've seen because as we've been focused on that as a group, in the Alliant Financial Institutions group, we've been talking about that, between our brokers, between our claims attorneys and advocates. What is the most important consideration for insurer selection? In fact, we just had an internal poll as part of a group call recently where it wasn't pricing, it wasn't financial strength. But the most important consideration for insurer selection for our brokers and for our claims advocates and attorneys right now is coverage and an insurers claim reputation and their claims paying history. Steve, I know as the market has turned and the last couple of years have been very impactful on pricing and benefiting our clients, which means premiums are going down for the underwriters. The insurance companies have been fighting it seems just as hard to not pay claims because they have to preserve that capital, that smaller portion of the premium that they have been getting over the recent years. What's been your take on 2024 from a claims perspective?

Steve Shappell (06:58):
Yes, Ryan, your observation is a pretty accurate one. With a market that is collecting less premium per year, but claim volume continues to go up, our best case scenario, like in the D&O world flat, but employment practice claims going up, cyber claims going up, what we're seeing is misguided behavior coming from carriers. We're seeing an unprecedented level of fighting about nuts and bolts of a claim, a selection of counsel and rates every single claim. It becomes a source of friction where the carriers are pushing back on paying the rates that the defense firms are charging our clients to defend claims. Problematic. Then on the coverage side, we're seeing really aggressive coverage positions. We're seeing insurers use outside counsel to promote and push their coverage positions at an alarming rate. I've done this a long time, I've never seen such a high frequency of use of outside counsel.

Use of outside counsel presents a really challenging additional source of friction in a claim. All of a sudden you've got this lawyer representing the insurers, and they have an attorney client relationship with the insurer and a different mentality, a different objective of servicing that insurance company as a client, inserted into what is already a very contentious relationship and situation. These claims are hard, and they're big. It's become challenging. We're seeing the market split almost down the middle where half the market is embracing this misguided approach, and the other half of the market is doing a really great job of staffing their teams to handle claims, to not have to rely on outside counsel, which will take a predictably aggressive position. Bottom line is we're seeing a lot of aggressive behavior in light of this friction point that I started this discussion about of less premium for more risk.

Ron Borys (08:51):
Yes. It's really interesting, Steve. We spent many, many years together. The three of us talking to carriers about the use of outside counsel. For years we heard carriers say, well, we use them internally just for our own purposes. Which is fine, right? We know some of these claims are very complex, and sometimes it requires them to bring in a party to help service their attorneys and their staff to get opinions on certain things. But we've found a correlation over the years between outside counsel being front and center and very visible in the claim, especially early on, and bad claim outcomes. And to your point, and I don't think they always do it intentionally. There's a little bit of, it's in their DNA per se to come at clients in a way that intentionally or unintentionally is very off-putting.

At the end of the day, as I like to say, when the claim happens, that means something failed, something went wrong. A fire happened, a flood happened, a bad regulatory investigation is ongoing or a bad securities class action claim has come in. That's usually not the time that you want to have a contentious relationship with a party that you purchased a contract from to be your partner and help work through that. Again, you and I have been involved in a lot of these, and I really hope that this is not permanent. I hope this is short-lived because again, for the claims that I've been involved with, that seems to be one of the number one issues, is a really aggressive firm that really has nothing to do with the carrier themselves. They don't work for the carrier by name. They work for them because the carriers pay their fees, but I hope that this is a trend that we can try to work away from going into the new year because I think it's bad for customer morale.

Steve Shappell (10:38):
Yes, completely agree, Ron. It's a toxic claims relationship that we'll continue to push. To your point, we've been pushing carriers on this, and we won't stop because it's not productive.

Ryan Farnsworth (10:49):
Well, and I think collectively as a group, the Alliant Financial Institutions team is more prepared and ready than ever to place business with those insurers who manage claims the right way. We know that there's inevitably going to be barriers. There's going to be hurdles as part of every claim, but when you introduce that third party who wasn't involved at the placement of the policy, who wasn't involved when a client elected to bind coverage with a particular insurer, it really causes some problems. Quite frankly, we as a group, we're done with it. We're ready to move on and work with those carriers who are going to do it the right way.

Steve Shappell (11:30):
Yes, completely agree.

Ryan Farnsworth (11:32):
Steve, maybe as we think about claims specifically, even a more finite area of the industry, we've seen a lot of employment claims, we've probably seen more cyber claims than we've ever seen. Love to get your perspective on each of those two areas that our financial institution clients would like to hear on a broader level.

Steve Shappell (11:51):
Yes, so let me start with cyber. Cyber is a claim volume that has gone up incredibly almost every year. Nearly doubling each year over the last four years. Remarkable piece of claims. While we probably have seen a tick down in ransomware claims, the complexity of these claims has not gone down, nor has the size of the claims. They're very sophisticated, hackers, it's really quite disruptive in the claims. Again, I'd say half the market on cyber claims, just rock stars. They get it. They immediately are doing a great job of winning the trust of our clients. This is a very complex, stressful situation. Having a carrier come in and have the ability to give comfort that we're partnering with you, as opposed to hiring outside lawyers to come in and get contentious, it makes the difference. So, it's been an interesting and rapid acceleration in the evolution of claims. Unemployment practice claims, right? Those claims have continued to increase in frequency and severity, and I know people listen to this call in this business are saying, duh. It's true. It's something that we've all seen for year after year after year. But the frequency and severity, particularly the severity of these claims are quite remarkable.

Ron mentioned earlier some claims we've been involved in, some EPL employment practice claims from high earners, and the frequency of those claims has been remarkable. You get a handful, a couple handfuls, of those a year to the point now that it's become almost an underwriting issue where high earners have a separate distinct retention because it's become very predictable on the frequency of high earner claims and then the severity of those higher earner claims. Working through those again could be very challenging. And having the correct insurer partner is important because these can be complex. You look at some of these, take somebody who's at a private fund who's got an EPL claim, that person's earnings are very complex. It is not a simple, I made 20 bucks an hour and you fired me. They have carried interest and ownership. It is very complex. In addition to being very, very large. One of the things that we'll continue to do is identify those markets that are better about understanding the nuances of those claims and those claimants to get a better outcome as opposed to a hostile outcome where the carrier's treating our client, who's an unfortunate victim of an employment practice claim, like they're trying to steal. It's become a challenge because of the size of those claims.

Ron Borys (14:32):
Yes, it's going to be really interesting. Obviously, we're going to have a change in administration come the beginning of the new year. There's all sorts of speculation regarding regulation, the new Doge that's being created, and what does that mean for all of these various bodies. Whether it's the CFPB, whether it's the SEC, whether it's the EEOC, whether it's the DOL. There are so many letters and acronyms for all these parties, and the challenge here is how do you find a good balance between appropriate regulation and then avoid people from overusing the regulation. Employment practices is probably the classic example. I think the uptick in employment practices liability claims is largely as a result of A) they tend to be very emotional in nature. Usually if you are bringing an EPL claim, in most cases, not all, you've probably lost your job in one way or another. Now you're trying to go after your employer because you're angry. Your employer's angry because they feel like they hired or fired you for good reason. At the end of the day, the parties that are making the most amount of money, the defense attorneys and the plaintiff's attorneys who are having to sort out these messes.

Again, I think it'll be very interesting to see how the first six months of the new year shape up, and I like to consider myself an optimist, so I'm pulling for the good stuff. But at the end of the day, I hope that we can find some semblance here when it comes to appropriate use of litigation, appropriate use of insurance, and try to find this balance that needs to get back on track. Well thanks, Ryan. Thanks, Steve. It's a pleasure and a privilege to work with you both. Thank you all for listening to the Financial R&R. This will be our last recording for 2024, so we want to wish you all a very happy and healthy holiday season. If you're interested in learning more about Alliant or the practice that we're building here, please visit our website at www.Alliant.com. In the interim, we'll wrap things up for now and we'll see you again in the new year. Thanks so much.