E&S market growth outlook | Insurance Business
[00:00:00] Shanna Sweeney: The defining characteristic of today’s market is that capacity is increasing faster than loss, costs are improving.
[00:00:08] Daniel Akerman: Unlike excess casualty, the recall market is not heavily penetrated. I would argue that probably less than 10% of manufacturers purchase the product.
[00:00:20] Richard Smith: I do think AI can be a slippery slope in the severity E&S market.
[00:00:26] Paul Lucas: Hello everyone and welcome to a special edition of Insurance Business TV as we delve into the E&S space. Specifically, we’re going to examine the E&S market growth outlook and opportunities within the excess casualty and product recall markets with an expert panel from Upland Specialty. So let’s introduce them, shall we? We have Shanna Sweeney, senior Vice President of excess casualty, Daniel Ackerman, senior Vice president of product recall, and Richard Smith, Chief Claims Officer. So welcome everyone. And to kick us off, Shanna, if you don’t mind, I’ll start with you. What does the overall market growth look like right now and what would you say are the drivers?
[00:01:04] Shanna Sweeney: The casualty market in 2026 is probably best described as fragmented. We’re still seeing increased new capacity enter the space, which has created more competition for well performing risks, particularly those with strong risk management, favorable loss histories and limited auto exposure. But at the same time, the underlying loss environment hasn’t materially improved. With social inflation and nuclear thermonuclear verdicts, litigation, funding, and all the above, we’re still seeing severity continue to challenge the marketplace. In my opinion, the defining characteristic of today’s market is that capacity is increasing faster than loss costs are improving. As a result, there is pressure on pricing. It’s still a very challenging market. From the underwriting perspective, the opportunity is for us to balance growth with discipline and ride the wave of this fragmentation.
[00:02:12] Paul Lucas: I like that idea of balancing growth with discipline. Daniel, from your perspective, do you think there are real opportunities for growth here?
[00:02:19] Daniel Akerman: For product recall, growth projections look promising. Market penetration remains low compared to many other lines of insurance which creates significant opportunities for insurers and brokers to expand the market. I would argue that probably less than 10% of manufacturers purchase product recall coverage. There are a number of factors that are aiding in this tailwind and helping us with the opportunity to grow. One is the increased visibility in recall claims with the rise of social media. In the past, a recall might make its way into a regional trade publication or newspaper, but today with the help of social media, recall news can reach a global audience within hours, thereby significantly increasing brand and reputational exposure. This has then put more pressure on regulators, which in turn puts more pressure on our insureds. Regulatory requirements and oversight have increased significantly over the past 5-10 years, which has resulted in more recalls. The mindset amongst regulators has shifted from finding the contamination to preventing the contamination.
Supply chains are getting a lot more complex. The increase in interconnected supply chains means increased financial severity of recalls. Historically, a manufacturer would source ingredients locally, produce in one facility and sell the finished product domestically. In this scenario a potential defect would be contained to one market. Today, that same ingredient is sourced from one supplier and sold to multiple manufacturers, incorporated into hundreds of products and distributed globally. A defect can now impact hundreds of products on a global scale significantly increasing the size of the recall. Lastly, products are becoming increasingly more complex, and complex products generally lead to a greater number of potential failure points.
The current state of the recall insurance market is very similar to what the cyber market was 20 years ago when cyber risk was not well understood. As cyber losses became more visible, regulations increased. Customers and lenders began requiring the coverage, and ultimately, brokers began to educate clients about this risk. The same thing is happening in the recall space. With the increased visibility of recalls, the attitude has shifted, and we are seeing an increased interest in the product.
[00:04:16] Paul Lucas: Well, let’s flip it over to the claim side as well if we can. Richard, from your perspective, are there any loss trends that you expect over the next few years? And if so, what’s pointing you in that direction?
[00:04:27] Richard Smith: I think we are going to see a continued trend towards severity, complexity and volatility. We see increasing prices for component parts or building materials, medical treatment, you name it. Those increased prices affect society as a whole and society’s perception of value. Those perceptions drive severity through what is ultimately social inflation. Along with the increase in pricing, complexity of products and services is also increasing. It applies to something as every day as your car. That vehicle is now a moving computer. It’s filled with components that are sometimes autonomous. They talk to each other. Gone are the days when I could change my own oil or my own spark plugs. Those are now different because vehicles are different. They are more complex. This trend continues through everything from construction to products. Everything we see and touch has volatility. We see this as a kind of pervasive specter of statutory and time limit demands that are strengthened. And they are often one sided and meant to pressure a carrier or an insurer with the threat of open policy limits or runaway verdicts.
Not everything is bad news. We are seeing positive trends pop up with reasonable tort reform and fraud investigations. The state of Florida’s 2023 tort reform has been a beacon of light in the industry. And there is an ongoing massive amount of industry time and energy that is put into investigating and litigating fraud in New York that is starting to bear fruit as well.
[00:06:20] Paul Lucas: I like that we finished with a positive there. And Daniel, if we can continue that trend just tell us some of the tactics if you want the strategies to mitigate risk to reduce those claims that Richard was talking about while still satisfying the insured’s requirements.
[00:06:35] Daniel Akerman: That’s always a challenge. But we have two core strategies at Upland, diversification and limit management. We do not overcommit capacity to any particular risk or segment and try to keep an even limit deployment across the board. Diversification is also a key factor in reducing portfolio volatility, and we achieve this through geographical spread, insuring risks all over the world and maintaining a strong balance between food and non-food insureds.
[00:07:22] Paul Lucas: Vital as well. Shanna, to just understand the risk that you’re taking on.
[00:07:27] Shanna Sweeney: Exactly. It is vital to understand the risk that you’re taking on. It’s easy to echo the sentiment Daniel had mentioned with diversity in the portfolio by way of industry segment attachment point and limit deployment. Inherently, we are risk takers. Mitigating risk is more about understanding it and spending the time and the diligence to really understand our insureds and what it is that they are exposed to. It is definitely more about understanding the risk instead of trying to eliminate it.
[00:08:05] Paul Lucas: I’m gonna be honest, I refuse to have an insurance conversation these days without talking a little bit about AI. So guess my question is what with the rapid growth in AI, what impact will that have on underwriting and claims? Richard, maybe you can kick us off with the claim side.
[00:08:22] Richard Smith: It is a very timely and massive conversation to have right now. AI can be a slippery slope in the severity E&S market. We must be careful and use these amazing agentic tools while maintaining the personal decision making for AI uses. I immediately think of use topics like fraud identification, reducing adjuster administrative tasks, summarization of data and discrepancy reporting. In the US alone, fraud is reportedly valued at $308 billion annually. Using AI to consistently search records, social media meta-data, and more to provide indicators to an adjuster to help efficiently and properly refer information to SIU partners to investigate the fraud from an administrative work reduction. A recent poll from claims adjusters shows that 60% of the adjuster’s time is spent on administrative work instead of thought work. The investigation, the evaluation, the resolution of claims, that is where AI can really step in with data summarization to leave decision-making in the adjuster’s hands.
Upland has a new claim system with a native AI that conducts administrative work by taking thousands of documents and reading through and summarizing them. That gives time back to the adjuster that they can use to then think about the claim, evaluate it, find better ways to resolve the claim. Claim files contain thousands of notes, documents, medical records, other data points. Within these files there are often small discrepancies that materially change the direction of that claim file. AI is actually very good at going through and finding those discrepancies, instead of the adjuster spending hours doing it. All these agentic tools are great, but what they really do is help unleash the experience and expertise of the adjusting staff.
[00:10:54] Paul Lucas: Yeah, it’s quite scary just how good it is, isn’t it really, Shannon, that’s the claims perspective, I guess from you. I want the underwriting side.
[00:11:02] Shanna Sweeney: AI is definitely beginning to transform underwriting, and I’d say the biggest way is by helping underwriters process information faster and identify risk insights more effectively. It is allowing underwriters to spend more time on judgment-based decisions. When I think about the highest value AI could potentially bring to the underwriting side, it’s around loss run ingestion. When we have the ability to look at all of the loss runs across all industry segments going back five to ten years, sometimes more, we have the ability to use AI portfolio analysis tools to identify hidden trends or profitable segments of the industry that we may not have considered.
[00:11:59] Paul Lucas: Sounding, Daniel, a little bit like AI can be really powerful on the underwriting side. Would you agree?
[00:12:05] Daniel Akerman: Yes, I would agree. AI has the potential to serve as a very powerful tool for underwriters both from an efficiency standpoint and risk selection standpoint. From an efficiency standpoint AI will enable underwriters to do more with less. Applications will be machine read and risks will be pre-underwritten by an AI agent, reducing the burden on underwriters significantly. From a risk selection standpoint where underwriters have relied on information supplied in a five-page application by the broker, we can now supplement this information with publicly available data including news reports, regulatory reports, social media statistics and more. This additional data can help to identify bad patterns in a risk before a recall actually takes place.
Another area where I see significant potential is in AI’s ability to help track aggregation. As mentioned earlier, the increasingly complex supply chains bring with them added aggregation risk which can be tricky to monitor in real time. But with AI, we will be able to run every new risk against our existing portfolio of insureds to see if there is any supply chain aggregation. The biggest downside risk with AI is the potential overreliance on AI. This overreliance will affect underwriters and insureds alike, and it is critical that we maintain the human factor as the final check and balance before committing to a risk or shipping out a finished product.
[00:13:25] Paul Lucas: Well, if you don’t mind Daniel and Shannon, I’ll just keep the spotlight on you both for a minute because it’s quite interesting, isn’t it? We’ve got Shannon from the excess casualty side, we’ve got Daniel from the product recruitment recall side. So what opportunities do you see by combining marketing efforts of excess casualty liability coverage with product recall coverage to I guess potentially insured insureds? Shanna, any thoughts on this?
[00:13:49] Shanna Sweeney: Product recall and excess casualty really go hand in hand because we are servicing the same clients. It allows us to more intimately understand our insureds and set ourselves up for very long-term relationships. From our client’s perspective, discussing both of these coverages together actually creates a more holistic approach around risk management, and it allows us to identify some gaps and ensure coverage coordination across the board. There is also a lot of ability for us to share expertise. Our underwriters in the manufacturing and agriculture world are often on the phones with our product recall folks discussing microbiological contamination standards and testing. Marketing together benefits both Upland and our insured.
[00:14:41] Paul Lucas: So I guess Daniel, quite a lot to be had in terms of collaboration. Do you agree?
[00:14:46] Daniel Akerman: Yes. From an insureds’ perspective, you get a more complete insurance product that address both first and third-party exposures plus you reduce potential conflicts between the recall and casualty carriers since both policies would be with the same company and handled by the same claims team. From a recall perspective, collaboration increases cross-selling opportunities, where recall underwriters can piggyback on the well-established casualty market. From the casualty perspective, product recalls often precede casualty claims and can be used as an early warning sign.
Collaboration would also benefit from data sharing and increased aggregation monitoring, which is much more difficult if the products are segregated. Ultimately combining the two lines would be beneficial for clients, but this would require a major shift in product distribution where the recall market currently relies on product recall specialist brokers.
[00:15:55] Paul Lucas: Interesting stuff and I don’t want to leave you out as well Richard. So if you don’t mind, just to wrap up our video time together, what are your strategies for satisfying claim submissions more efficiently and effectively? Have you got any tips for us?
[00:16:09] Richard Smith: For excess casualty, we receive a lot of claim notices that are notice-only. But we can have AI strategically review these notice-onlys with added predictors that can help the adjusting staff, then review the claim to see what kind of monitoring we need to have. From an adjuster’s standpoint, we need to work with our full tower on that excess line. As Shanna often says, ‘It takes a village to build a tower’ and that’s 100% true. In our excess capacity, we use AI to help, but ultimately, it’s the human that needs to work with the other humans representing the rest of the tower to fulfill the promise of the policy. And that’s the claim that comes and what we do for our customers when that claim appears. For the product recall line, when a claim is presented, we often see an insured that can be in a state of emergency. In these cases, I don’t think AI is the answer. The person is. And it’s why we have dedicated personnel who know that business and can offer consistent claims handling and decision making. Because at the end of the day, it really is consistency that cuts through gray areas, and in prior recall claims, gray areas often cause the most issues. Our ultimate strategy is to maintain low case counts and maintain human expertise while using AI to support them.
[00:17:55] Paul Lucas: Great strategy. It is. Great thoughts, Richard, and indeed a fantastic panel all around. Huge thanks to Shanna, Daniel and Richard for their time today, as well as the whole team at Upland Specialty. And for more expert analysis, keep it right here at Insurance Business tv.
