Advisen

Transaction insurance takes the 10-year challenge

By Chad Hemenway

Social media was recently populated with posts from people taking the “10-year challenge,” in which users put a recent picture of oneself next to another from a decade ago. Cleverly, Advisen’s Transaction Insurance Conference chair Matt Heinz did the same with reps and warranties insurance.

The most commonly used transaction insurance product, R&W has grown to be seen as essential in mergers and acquisitions. Following Heinz’s “challenge,” the data – acquired from brokers Aon, Lockton, Marsh and Willis – tell a clear story.

As a result of the growth, there is “a ton of clean premium,” said Heinz, senior managing director at Aon, during the conference in New York on January 20.  

“For years we (brokers) were constrained by the appetite of our markets,” Heinz said. The lack of premium on the books meant carriers were not eager to stray “outside of the middle lane,” he added.

Now, this clean premium has “widened the aperture of carriers,” Heinz said. R&W has now expanded to industries such as healthcare, financial institutions, and oil and gas.

As the marketplace demonstrates its usefulness and potential profitability, Heinz said “Underwriters who were not in this space, looked and said, ‘We’ve seen the growth and fairly clean results. Let’s get involved. Let’s be a player.’”

The impact of additional capital has led to lower rates and retentions, and better servicing, Heinz said.

Overall, the numbers attached to the transaction insurance marketplace are evidence of success but more R&W deals means more claims. Therefore, much of the story has yet to be written.

“Claims will be a huge part of this success story,” said Craig Schioppo, transactional risk practice leader at Marsh, later during the conference. “If it turns out, as claims come in, that there are problems every third claim, that’s going to be a problem.”

Bill M. Monat, transactional solutions leader at Willis Towers Watson, said claims will be the “litmus test over the next 12-24 months.” He said so far the outcomes have been good but as claims progress carriers will reassess profitability and clients will determine whether the product worked.