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A Conversation with Berkshire Hathaway Specialty Insurance

On Friday, April 24, 2020, CAC Specialty hosted a Property & Casualty marketplace update discussion with senior leaders at Berkshire Hathaway Specialty Insurance, Sanjay Godhwani and David Bresnahan.

Berkshire finished last year at $2.7 billion gross written premium and this growth has continued into Q1 2020, partially fueled by the transitioning market. They continue to be deliberate about how they assess risk, and opportunities for growth exist via expansion of line size or product on current accounts as well as new business growth.

Sanjay and David commented that their growth has been strategic by being intentional on the product lines they offer, as well as selecting their broker and customer partners. By building their company in a time with ample market supply, Berkshire set themselves apart with a “want to be wanted” mentality. This means finding a reason for people to want to work with them, including being responsive and being able to count on them in the event of a claim.

Below are some the key questions and topics discussed with Berkshire:

What was happening pre-COVID in the market and what will the landscape look like as we emerge?

  • On the casualty side, too much emphasis is being put on nuclear verdicts, social inflation, etc. Prior to this, underwriters were giving rate back year over year, expanding coverage, increasing limits – even before aggravating loss trends. Underwriters lost confidence, could not figure out how to price product, leading to withdrawing capacity.

  • Off balance underwriting led to the market being knocked even more off balance with COVID-19. Larger clients may only be buying 70-80% of the liability limit carried previously, due to capacity restrictions. The market is still very unpredictable.

  • COVID-19 introduces a lot of uncertainty into the market, depending on the line of business, occupancy or customer. Clients should expect carriers to want to engage throughout the year to be updated. The confidence they have that they will be informed through the year allows them to feel more secure about the relationship with the insured.

Are clients moving business?

  • Submission counts were up even before the health crisis. End of March/early April saw people renewing their existing programs. However, as people become more settled, there is more time to be thoughtful about insurance decisions and opportunities for new business.

How is Berkshire thinking about clients whose exposure has decreased?

  • The market is operating with a ‘reasonable person approach.’ Even though the insurance contract does not require Berkshire to consider restructuring a deal midterm, Berkshire is entertaining such requests and, if warranted, are willing to consider making equitable adjustments.

  • Carriers want to be confident that their loss payments will be commensurate with the way business is priced. To that end, being transparent and sharing as much detail as possible about upcoming projections will assist both sides in a partnership-orientated way.

What lines of business do you see as Berkshire’s biggest value proposition?

  • The D&O market was in distress prior to COVID-19. Crisis adds uncertainty to financial statements and financial status to Berkshire’s customers. The strength and security of Berkshire Hathaway further differentiates them from other D&O options.

  • Not every carrier will be impacted by COVID-19, depending on their product lines. Losses will take several years to materialize, so the strength of your insurance carriers is very important – clients need them to be around to pay claims.

  • The nature of disclosures – understanding how a company plans to make their disclosures and how sincere and believable they are, is something companies can do to differentiate their risk profile.

Smaller limits, ventilated layers – is this a permanent way of buying, or just a period we are going through?

  • Increased diversification has been forced upon clients as underwriters withdraw capacity and limit. This is a result of uncertainty and underwriters’ lack of confidence in how to price their products. It may be a long time before confidence is restored.

  • Berkshire has no mandate to reduce limits and can still put up $25m of excess liability capacity, but the pricing does not always work for everyone.

  • On the property side, Berkshire is most effective in primary and lower excess positions. Specific attachment points depend on occupancy, CAT exposure, and pricing.

What are some of the other, lesser known products that Berkshire excels in?

  • Hospitals, healthcare systems, long-term care, medical malpractice

  • Big surety underwriter, focusing on construction and contract surety

  • Parametric triggers for wind and earthquake

  • Single peril business and ability to write multi-year terms

Differentiation is a two-way street. When choosing an insurer, what should clients consider?

  • How well do they understand my risk? What are the questions they’ve asked? What information have they analyzed? When meeting with insurers, you may find there is something they didn’t understand that you can better inform them on.

  • What is their willingness to pay claims? Many carriers have strong balance sheets and have the ability to pay claims, but not every carrier is willing to pay claims.

As a customer, how can I differentiate myself?

  • Questions around clients’ financial situation will be asked more often and from underwriters who may not have previously asked these questions. Be comfortable with giving some financial insight in to what is playing out.

For a complete recording of the webinar, please your CAC Specialty representative.

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