Hello, I'm Lillian Colson. Welcome to today's virtual panel discussion, Impact of an Inflationary Economy on Inland Marine Insurance, hosted by Inland Marine Underwriters, San Francisco chapter of the Pacific Coast Advisory Committee. Before we get started, we have a few quick items to review to enhance your virtual experience today. To help reduce strain on your local network, we suggest that you close all unnecessary browsers and internet-reliant programs. You'll find your attendee control panel on your screen, and it will minimize by default. At any point, you can see the orange arrow icon, simply click on that orange arrow and then uncheck the auto-hide option to view the control panel again. Because this presentation today is an interactive virtual panel discussion, we recommend that you minimize the PowerPoint on your screen and increase the videos of the panelists to further enrich your experience during today's session. To ask our panelists questions, please use the Q&A box throughout the presentation to type your questions, and Michelle, our moderator today, whom I'll introduce shortly, will ask your questions to the panelists as time allows. We also have an additional Q&A period at the end of the presentation today, and we look forward to your participation and your questions. At the end of the discussion, we'll award a $25 Amazon gift card to two winners randomly selected from the pool of attendees who participate in asking our panelists questions. All right. Please be aware of the IMUA statement. We also have the IMUA mission statement and the IMUA policy statement reminding all to refrain from entering into any discussions on matters affecting rates or conditions of insurance contracts. Thank you to the entire San Francisco Regional Committee members, as well as to our panel of subject matter experts today, whom we'll introduce, who you'll meet shortly, for developing and planning the content for today's presentation. Special thanks to Melissa Trimble, Gina Mendoza, and Michelle Church for securing our panelists for this presentation today, and thanks also to my colleagues, Kevin O'Brien, Ali Monreale, and Eileen Monreale for all they've done behind the scenes to ensure the success of this event. And now, let's give a virtual welcome to the chairperson of the Pacific Coast Regional Advisory San Francisco Chapter, Michelle Church. Welcome. Thank you. Thank you. So, thank you for joining us today. On the behalf of the San Francisco Regional Committee, we're thrilled to present today's event, today's seminar, our panel discussion on how the inflation, how inflation and the economy affects in-land marine insurance. This is our second event for 2002, and our fifth virtual event, the second virtual event since 2020, in 2022, and our fifth event since 2020. We've had excellent turnout today, more than 160 people registered, and they are from all across the U.S. I'd like to introduce our team members, our committee members, and if you guys would just say hi so that your face pops up to the beginning of the screen, that would be great so people can see who you are. Frank Fasich is an executive underwriter with AXA XL, an executive in-land marine underwriter with AXA XL. Gina Mendoza is a senior market specialist specializing in in-land marine with the Hanover Insurance Group. Carter Helm is a senior underwriter specializing in in-land marine with Argo. Monique Howard is an assistant vice president for in-land marine with Allied World Insurance Company. Zafir Ozani is a senior underwriting manager for in-land marine with Allianz Global. Melissa Trimble is a property facultative underwriter for Genree. Bernic Calderon, who is our former chairperson, is a monoline property underwriter with the Hartford. And, of course, myself, Michelle Church, I'm an executive underwriter with Allianz Global corporate and specialty. Okay, sorry. So, today we're doing things a little bit different with the panel discussion. In the past, we've had an individual presenting information and their thoughts on a specific topic. But inflation and the economy, it's not a one-slide or multi-slide issue. So we are going to do four, we are covering four separate topics, general topics. The current economic climate and how it affects in-land marine insurance, how the construction industry is affected, transportation, how is that affected, and the outlook for the future. What are our panelists seeing coming down the road? I'm sorry, I got a little delay. So our panelists, we're extremely lucky, our three panelists are experts in their field. They are here to provide as much information as they possibly can. Our first presenter is Tim Fletcher. Tim is GenRe's Senior Emerging Issues Specialist and is a Vice President. He heads GenRe's Emerging Issues Unit and he works to identify emerging risks and exposures that will affect GenRe's clients as well as his internal colleagues. Tim has his Juris Doctorate degree and he is the HR Property Casualty Underwriter. He is based in Atlanta where he serves as the CPC's Reinsurance Access and Surplus Interest Group and is Past President of the Atlanta CPCU Chapter. So welcome. Thank you. Thank you. Glad to be here. Kevin is a Vice President Account Executive in the Construction Division at Woodruff. He has over 15 years experience in insurance and risk management, focusing on the needs of contractors and developers. He has significant experience in risk management analysis, implementation of tailored insurance programs for construction firms, owners, and developers that meet the unique needs of each project. Kevin is active in several industry organizations, the Bay Area Subcontractors Association and the Construction Financial Managers Association as well as the United Contractors. He's earned a Bachelor's Degree in Political Science and History from Gonzaga University and has a Master's from San Francisco State University. Welcome Kevin. Good morning. It's a pleasure to be with you guys. Dan Nucci is a Senior Manager within Hanover's Marine Claims Department and he oversees claims lines, cargo lines, contractors' equipment, bailment, and programs, encompassing coverages for household goods to personal electronics and other specialized property. Prior to joining Hanover in 2012, Dan performed many roles for the TPA branch of an independent Massachusetts-based agency specializing in municipal and human self-service groups, self-insurance service groups. He is in Westford, Massachusetts with his wife and two rambunctious Maine coons, which are cats. You don't know. Hopefully they don't make an appearance, but they might. Okay, I'm sorry. This is going the wrong way. Okay, so we're going to be starting with the current economic environment and inland marine insurance. We're going to have, we have a poll question, so let's answer everybody, answer what you think on the poll. All right, I'm just going to wait a few more seconds, but the responses are coming in now Michelle. Wow. That's not surprising. Lillian, can you have it go? Okay. Thank you. Yeah, I think those results are very interesting. I thought it was interesting that a majority of the folks, a slight majority thought that inflation would be significantly higher than it is right now. I think that is sort of the great unanswered question for all of us in society. You know, where will inflation head? Will the actions of the Federal Reserve serve to tamper down what we're seeing? CPI last month was basically 8.2%. Mortgage rates now are essentially double what they were a year ago. You know, it's interesting to see. It will be interesting to see where this all heads. You know, early in the year commentators were talking about transitory inflation, that things would settle down by the end of the year. You know, certainly that has not appeared to be the case, at least to date. You know, the other thing that I think is sort of interesting about our economy, too, is that while we're having these inflationary pressures, we're also seeing real significant labor shortages. There was a survey that came out from the NFIB, National Association of Independent Business People, where basically their two greatest concerns were inflation and finding suitable labor. And obviously the shortages that we're seeing take place are translating to some of the other challenges we're facing in the industry, supply chain, finding labor, construction, a myriad of factors in the economy. So very interesting to see where it all heads. And to a large degree, we are in somewhat uncharted water with respect to our economy. Thank you. Dan, what are your thoughts? Well, in the various segments with which I have a lot of experience, we're seeing the same thing. We're seeing, you know, the increasing energy prices, the labor shortages, and the supply chain issues really just cascading through, you know, almost every element of the industry. It's been something to see, and it seems like it's a confluence of a number of different factors between the baby boomers retiring, you know, things happening globally. Dan, can you hear us? Yes. Oh, okay. I'm sorry. We lost you for a moment. You were, you had just mentioned globally, changes globally. Right. And those global and situational environmental changes are all cascading throughout almost every segment throughout the industries that marine and in the marine particularly speculates. Great, thank you. And Kevin, what are your thoughts? You know, we are seeing rates being stable outside of the wood frame market, specifically in course of construction placements, and we're seeing still robust growth on the public side, and still in runoff, we believe, on the private side. But the impact of inflation supply chain issues is impacting projects currently and will likely greatly impacted in the six, nine, and 12 months going out. We see now labor shortages, increasing the time that subcontractors are on site, which necessitates requests for extensions, two, three, four, five extensions of time are typical. You know, it's, it's, again, there's a lot of capital in the marketplace, rates are stable. However, the indirect impacts are causing increases in premiums, meaning contract values are going up because labor rates are up, because they can subs and, and, and the trades can demand more in terms of payment. And then the duration of projects is extending as well because of the supply chain issues that Tim and Dan alluded to earlier. Have you, Dan, have you seen a change in how claims are, you know, are they, you know, is the value increasing? Are you seeing changes in the type of claims? What are you seeing in relation to claims that may be directly related to the general economic environment? Yeah, I mean, we're seeing things, you know, from, you know, as Kevin's intimated, you know, construction projects taking more time and, and labor shortages really affecting how much can get done. We're seeing that in the transportation space. We're seeing supply. I mean, the transportation space in a lot of cases is part of the supply chain. So there's pressures and stresses there. And in many cases, those can manifest in the claims. They can include, you know, additional exposures just based upon the different environmental factors, for sure. And Kevin, are you seeing any changes in the transactions between the customer, the insured, the broker and the insurance company? Are you seeing any changes right now due to the economy? What we do, what we see now is a lot of requests for pricing and then delays in the actual implementation of projects. Up until recently, you know, funding for a lot of projects was already in place. You know, interest rates were already pre-negotiated or locked in. So there was no impact on what the Fed has been doing, increasing inflation didn't impact these projects. What we're starting to see now is that it's getting more expensive to fund, especially private projects with the way inflation rates are rising. So we are seeing delays in starts. I had some conversations with underwriters and wholesale brokers earlier this week, and they're all kind of saying the same thing. It looks like a lot of projects that they thought would go at the end of 2022 are going to push into early 2023, first quarter, second quarter. And that's optimistic. So we are seeing an impact on, and what that means is that it's more work for underwriters because they have to re-quote, they have to get approvals up, you know, depending on the size of the projects. For brokers, it means, you know, continuing to have open communication with clients on the potential for rate increases or deductible changes because, you know, those things change as insurers books changes, you know. So, yeah, unfortunately, we are seeing a negative impact, which is delays and construction starts. Okay. We do not have any questions right now. Before we go on to the next topic, was there any kind of final thought you wanted to express on, you know, the current environment? I guess the one comment I'd like to make and ask as a question to, you know, to the people listening here is we are seeing on claims the demand for, you know, kind of the replacement cost value increasing quite a bit beyond what has been seen historically. And as a broker, we, you know, we sit in between the insurer and our insured, and oftentimes we are, you know, caught in the middle a little bit. We're trying to do a better job of communicating what exactly replacement cost is these days or actual cash value, which is replacement cost, less depreciation. And I think inflation is having an impact, a material impact on what the expectation of the buyer is when they do have a loss. And I'm just curious if those listening to this or panelists have seen the same, because at the end of the day, it can tend to strain relations because the claim is where the rubber meets the road a lot of times. Yeah, in the claim segment, we're definitely seeing increased customer expectations. And, you know, when funding can be, you know, pressured, sometimes, you know, insurances look to as another way to kind of recoup expenses or, you know, shortfalls that may not have been anticipated two, three years ago when you bid on a job. Or let's say it's a piece of equipment, a piece of contractor's equipment, you know, things are being repaired or people are asking for higher than normal replacement costs because the market values of things have gone up so much as a consequence of those supply chain shortages as well. I do have to say on our side, we are seeing some significant increases in valuation at the insurance requests, which is not something that we've seen before. We do run billing valuations on many of our structures, and there are significant changes in valuation just based upon the billing valuation systems. We've seen them just, they're just, you know, they're not as high. The first quarter, I believe, was an 8% inflation. So it's being reflected now in the billing valuation systems as well, systems as well. But it is nice that the insurers are thinking about valuations rather than I could buy this, I could build this. They're actually thinking carefully about how they're valuing their property. Okay, so no questions. So I'm just going to go to the next topic. So we start again with the poll question. To what degree will elevated interest rates cause a slowdown in new building construction? Please cast your vote. All right, I'm going to close it down in a few more seconds. that's interesting yeah go ahead I'm sorry okay yeah okay good I wanted to make sure I was showing yeah oh I'm sorry you know I'm sorry I cut you off sorry yeah I mean it's interesting at a couple levels here right where you basically have the vote split between significant signs of slowdown already visible and likely to worsen we're obviously starting to see some of that now new housing construction I think was down 18% in September there's been a real slowdown as far as new new home sales go obviously that is being triggered in large measure by the significant increase in home mortgage rates it will be interesting though to see going forward we were talking before this webinar about you know private investment private construction what will be the impact of some of the public funding public projects and they come into play here keep in mind that Congress passed pretty significant two significant bills during the last couple of years the infrastructure bill but also the Inflation Reduction Act which of course carried with it a significant amount of climate change related appropriations building new electric charging stations green construction that type of thing so it'll be interesting to see how that all comes into play in the next couple of years but yeah I mean I my own view as a consumer yeah it's it's clear that we already starting to see some signs of a slowdown here significant one okay so Kevin why did this is your area of focus what are your thoughts about how the economy is affecting the construction industry not only for builders risk but also contractors equipment you know is there going to be a backlog on orders or are people going to be selling off their excess equipment so it will cause a reduction sure so at a macro level what we see is still plenty of capital and rate stable stable fairly stable rates in the marketplace there seems to be an insurer that believes that they can you know capture market share by being competitive and with best-in-class contractors and owners who do have you know the appropriate risk management processes and in place there's there's plenty of appetite to write those contractors so in terms of rates and you know forms that we still see broad offerings but what we are seeing is increasing claims from thefts especially here in Northern California and in the Bay Area where I work every day I mean it's it's it's gotten to the point where it's we have clients that are almost uninsurable or they're seeing deductible theft deductibles increasing into nearly the six-figure you know number because it's such an epidemic such a problem and it's not really solvable especially in cities like San Jose and San Francisco where you have to leave equipment on the street you know because you're working with it every day in terms of builders risk what we are seeing again is labor shortage so we're seeing labor rates rise which is increasing contract values because owners and developers and general contractors have to pay more to the subs that are bidding the work so again rates are stable but but the overall contract value is increasing and the duration of the projects are taking longer which again pushes premiums up so what we're seeing is even though rates are competitive overall premium costs are rising which is you know which is an indirect inflationary problem that they're all grappling with so in that in that case it just to address the question of slowdown stalls and abandoned projects we haven't seen much of that here in Northern California at least or in California as a whole but what we are seeing what we expect to see is something like that in the next six to nine to twelve months when if a developer or an owner has to go back to get more funding due to contract increases and the cost of capital is too high or prohibitive or they don't want to pay and we do see people start to walk away do you think that you'll see more stalled projects and by stalled projects you know they're not it's not that the project is done it's not that they're abandoning it they're just not working on it for a large period of time do you expect to see more of that we're seeing it now in the context of typically our MEP mechanical electrical plumbing in those scopes where I deal with it every day where we need another extension because the HVAC system is not there yet it's still on its way or it's still being manufactured or it's stuck at the port somewhere you know where they don't have enough drivers to transport it from A to B so yes we we are seeing what we call you know we don't call them stalled because they're still able to do other stuff you know the landscape work they you know they're planting the trees and things instead of you know getting the HVAC system on the top of the building but but it's yeah it's having an impact and I can tell you that I'm causing more gray hair of underwriters who need because I'm constantly requesting extensions of coverage and trying to keep deductibles down and no no surcharges on rates and things of that nature so yeah day in and day out we are we are living and breathing what we have here mm-hmm and then in terms of equipment how do you think the market is going to change with those do you think we're going to be seeing more overseas or less inventory what do you what kind of what are your thoughts on how it's well costs are already rising on those because it's more difficult to get them built and there's there is demand for it and what we're seeing now is that underwriters are scrutinizing equipment lists especially for high-value equipment in a six to seven figure range and wanting to increase deductibles again for theft but also just you know physical damage wanting to put percentage deductibles and apply them or you know higher or higher per occurrence deductible to protect themselves because when the loss does happen and they are they are happening again the replacement cost valuation to continues to be a battle and I think insurers have been paying out more than what they anticipated if they do have a replacement cost valuation on the form rather than an ACV and you know for those brokers on the call you know just make sure you're to the best of your ability you're getting replacement cost if you can because it can be an uncomfortable conversation with your insured when they assume that they are getting replacement costs and it's actually replacement costs unless the piece of equipment is five years or newer or three years and newer and we've had those conversations and they they tend to be they tend to be difficult so just as a practical matter you recommend scrutinizing that because it is changing I can attest to that it's it's a difficult discussion when an insured has an expectation for the valuation of something and when the rubber hits the road and the offers made you know they're faced with I don't have enough you know availability of this this equipment and I need it to do a job I you know there's more pressure on salvage for insureds to retain salvage and and declare a total loss but then take the total loss money and put it back into the piece of machinery because they know they're not going to get another piece of machinery for six months 12 months 18 months two years because of all the supply chain issues coupled with that another factor is the labor market is you know stressed and and a lot of the operators are inexperienced using the equipment that they're using so that's driving a lot of collisions overturns rollovers so we're seeing increased frequency in the segment over that as well and what are you seeing in regards to builders risk valuation what are you seeing in regards to right now with the economy and claims and builders risk I think it's a lot of the factors that that Kevin spoke to I think that you know jobs are taking more and more time because of a lack of qualified labor the labor that that's there may not be as experienced subcontractors really have the ability to kind of you know call their shots in terms of price and you know it's a struggle for things to get completed on time and on budget some of that's manifesting in the claims for sure okay so we do not have any questions for this topic why don't we wait for a couple of questions there are two questions in the question tab I'm sorry it's not you know I'm sorry I can't quite see them Lillian can you read the questions out or so this question is from Michelle any oh actually so this is so these this is going back I think to the prior topic any recommendations for identifying when a project has been abandoned or stalled and they are not notifying you of it maybe Kevin sure we have thankfully we have not been faced with that often but I think the biggest issue is going to be you know the when the policy expires if a project is abandoned or stalled I think that's gonna be the first indicator you reach out to the insured and say hey you know we're 45 days out you know is this thing gonna complete on time and either if they go silent or if they say no we're you know we're gonna walk away here at 80% because we're out of funding that's a conversation you need to have with you need to have with the builders risk underwriter Michelle could probably speak to you know how quickly you want to say no we're not covering that as soon as we understand that it's abandoned but but I think once the policy expires is really going to be you know the question because who is insuring it at that point and who has the financial risk you know if it burns up and it's when it when it is abandoned so getting clarity there as a broker I would say that we're always communicating with our insurance whether they be developers or contractors around the you know when a policy is set to expire because that again is when everything is at most at risk got the accumulation of values you're at 95 99 percent and we do we spend a lot of time talking with the property insurer who's set to take it over and the builders risk insurer about what exactly they're both willing to share in terms of punch list work because oftentimes you know you get your certificate of occupancy but there's still things to do you know cabinets to install and countertops to put in and you know some of the systems are still being tested so we see a lot of potential friction that we try to mitigate with just constant communication between property insurer and builders risk insurer and insurance so that there's no communicate miscommunication if a claim event does occur around that time including a stalled project I hope that answers the question yeah yeah thank you and then we have from Anne what about valuation on exists existing buildings for renovation are they two going up I you know I would say we have not seen much of that but it's um we should be because if building valuations are going up so our tenants improvements and renovations so we should be but I personally do not think we're seeing them and what do you what do you guys think Kevin what do you think again talking to our real estate group here at Woodruff Sawyer we we understand that it's a big topic of discussion the undervalued people undervaluing buildings for years and years insurers I understand you know insurers believe that if buildings are more properly valued they would have had better loss ratios you know over the last few years as well so it's become a hot topic insurers are asking for re-evaluations of building values even on contractors where we don't have a big property portfolio they you know they own their building their yard things like that we are seeing hey we need we we've re-looked at this and we need 20% more on the building valuation and with contractors it's a little more difficult discussion because they're saying well no I know what it costs to rebuild it because I'll build it versus what it would cost to sell or what the insurer believes it's valued at given the area it's in so yes we are seeing it more and more and you know and part of what we believe is that it's it's about time I think it was an often overlooked issue that that the industry as a whole the insurance industry as a whole is only catching up on okay and I see another part of another question Lillian is there Just the one more? No, there's actually four more. So let me know. Yeah. You can stretch out the box. And when you actually click on the question, it'll show you the question in its entirety. Yeah, I'm not. Yeah, for some reason, it's not letting me open it up. I am seeing, this is probably something I could answer maybe a little bit better than some of the panelists, are sublimit extensions for contractor's equipment, like rental reimbursement and continuing rental expenses being seen? Yes. I personally encourage people to buy large limits for those if they can, especially continuing rental expense. If they're purchasing large pieces of, sorry, if they're renting large pieces of equipment, no one really knows how long, if the item they rented is destroyed as a total loss, how long it'll take to get the new one out there. And if they're renting large cranes that's $20,000 or $40,000 a month rental fee, your standard sublimit isn't going to do any good. You have to purchase much larger limits. I personally think that most insureds have insufficient limits, and they do not understand the need for the coverage, regardless of how hard our brokers try to explain it to them, until they've had a loss. And I did have that exact same thing happen recently. A broker encouraged the insured to purchase the coverage. They didn't, and now they have this $36,000 loss. So it's definitely, from the underwriting side at least, it's definitely, we're seeing it. And I think our message, personally, my messaging, I think, is effective, is becoming effective, I guess. What about you, Kevin, on terms of those limits for your clients? Yeah, I mean, scrutinization of these sublimits, and there's a lot of different sublimits in your typical contractor's equipment policy, are important. And you typically figure it out when you have a claim. And then you realize that it's insufficient. And then you have the discussion with the insured. So we try to, here at Woodruff, and we just have a best practice guide with a lot of our account executives and account managers. And one of those is making sure we have that discussion at renewal every year. It's OK, you've got to, yeah, what are you renting? OK, what's the monthly cost? All right, if you flip that backhoe, and you need to get another one, you're going to be paying rent twice. What is that going to look like? Those are the discussions. And they were more difficult to have during the pandemic. So I think we're going to see claims coming out of the pandemic, unfortunately, because we weren't able to have these in-depth discussions about people's business practices. But knock on wood, we won't. But yeah, Michelle's right on. You can't have too much. And it's typically not that expensive for brokers on the call. So it's not a hard sell. And it's a good security blanket, sleep at night insurance. Yes, definitely. So what we're going to do, we'll go on to the next topic, which is transportation. We do have time at the end of the discussions to, we have, we can answer more questions at the end of the discussions, assuming we have sufficient time. And so don't give up on your question having been answered. Our next topic is the transportation industry. We have another poll. Which of the following would be most effective remedy to current supply chain constraints? All right, the responses are coming in. I'm just gonna wait a few more seconds. Okay. Yeah, this, too, is a very interesting question to look at, and the responses themselves, I think, are very interesting and insightful. You know, 40% of you said ease of the current driver shortage. No secret, but this is a problem that is plaguing the trucking industry. I think you've seen some of the data that I have that the industry's projected to have a shortage of 160,000 drivers by 2030. Driver recruitment, retention remains an ongoing challenge. Dan's comments I thought were interesting about losses involving inexperienced drivers. Part of the infrastructure bill that was passed back in December provided for the ability for drivers as young as 18 to handle commercial transport across state lines in an attempt to alleviate this driver shortage. Yet to be seen, of course, how effective that will be and whether it in and of itself might generate some loss activity. 20% of you talked about enhanced on-shoring, a subject of some societal discussion right now. Thought being, of course, that the global economy that we thought was going to exist 20 – that existed 10 years ago has proven to be somewhat brittle given increased international tensions and really the fragility that was represented by supply chain with respect to COVID. Whether some of that on-shoring takes place as being talked about remains to be seen. There's some discussion that it might prove more difficult in practice than in theory. Improved technology with respect to automation, you know, as an observer in my role here tracking emerging issues at Genry, you're seeing much more interest in drones as a delivery mechanism. All the major retailers are operating some drone delivery program, at least in some pilot fashion. Again, to, you know, alleviate these last-mile challenges that we're facing with respect to product delivery, particularly as we move to an economy that basically is based on the internet of things, ordering things from home. Interesting, though, to see what will happen in the commercial trucking space. There has been a huge amount of capital flowing into development of autonomous tractor trailers. The vision, of course, being able to platoon these AVs along dedicated interstate highway lines. Huge savings and efficiencies to be realized there. It will be interesting to see whether that's able to happen or not. There are some obvious technological impediments that need to be overcome – overcome, rather. You know, the whole thought about autonomous vehicles. The picture is far from being the optimistic one that was presented five or six years ago. So, you know, at the end of the day, this is probably something that will be a combination of all of the above. You know, there is some information that suggests that the supply chain backlog that we saw 2021 and 2022 is coming to a little bit of an end. We all remember, of course, pictures of those ships circling the Port of Los Angeles. That appears to have alleviated to an extent, but, you know, these challenges appear to be with us for quite some time to come. Great, thank you. So, and Dan, what are you seeing? What do you think? Yeah, and the way that those factors that Tim mentions is manifesting in claims is, you know, the driver shortage is paramount. The lack of experience of, you know, some of the drivers is paramount. We're seeing some of the same things that I mentioned in contractors' equipment with the motor truck. We're seeing rollovers. We're seeing overturns. We're seeing load shifts because people just don't have the miles under their wheels, you know, operating a huge vehicle with, you know, a heavy load in the back and single vehicle accidents. We seem to be seeing as an industry more and more of those. Another consequence, you know, we're having less long-tenured drivers and we're starting to see some theft, some abandonment of jobs. We have some newer owner-operators getting into the industry at a very tough time that the industry is having, and they're not making the profits they may have thought they could, and that creates, you know, ripple effects through, you know, we're seeing a lot more contingent cargo claims. You know, brokers getting left holding the dime because a motor carrier has gone out of business or abandoned a load somewhere, or, you know, they had a bad driver who was in cahoots with some bad guys and stuff's getting stolen. You know, the supply chain, like I mentioned earlier, the motor truck, the logistics, those are all part of the supply chain, so they're pressured, you know, with people wanting stuff yesterday. You know, fuel costs are up. It's a very tough time for the cargo industry as a whole, and warehousing and storage and all those other elements of logistics kind of factor in as well. We have a large household goods program with us, and as Tim mentioned, with the interest rates going up, that's affecting some of the business for, you know, household goods carriers, so there's been a nosedive in relocation so that that business is challenged as well. Everything's kind of part of an integrated whole with no easy solutions. Kevin, what are you seeing on your side? I know you're primarily construction, however, you know, there certainly is a transportation, you know, component to construction. Oh, for sure. I mean, the effect for us at the job site, which is where we kind of see this occur, is that, you know, equipment doesn't arrive when it was supposed to at the end of the day. I mean, we're emphasizing now, you know, and it's not new to anybody, is that, you know, pre-ordering long lead items as early as you can, you know, because we anticipate some delays throughout the supply chain, whether it's the manufacturing of the HVAC system or the roofing material that's going to be installed or once it gets to the port or, you know, out of the manufacturing facility onto the truck and maybe, you know, it takes longer than we thought. We are looking harder at, you know, some of the coverages like off-site storage, temporary storage limits on builder's risk policies and in-transit limits for certain projects, making sure they're adequate because we could have materials stored for a long period of time off-site or they could be, you know, just winding their way to the project site for a longer period of time and there's a greater risk of a loss there. So, for some of our larger projects, it is a subject of discussion. And I think underwriters too, Michelle, please correct me if I'm wrong, are looking harder at charging something for that because I think it was oftentimes kind of a throw-in because it weren't the claims, but we anticipate seeing some claims on those lines as we continue to kind of work our way through this inflationary environment. Okay. So, we do have some questions. And Dan, are you seeing, obviously in regards to claims, are you seeing an influx of claims from new ventures in the transportation space that are taking advantage of high freight rates that are... I'm sorry, go ahead. Yes. We are seeing people who, you know, are getting into the trucking business and looking to... Hello? I think... Given this environment, given the profitability in it and finding it to be much more challenging, I'm sorry. And it is cascading through, you know, some of the claim activity. Okay. You know, we're seeing entities go out of business. We're seeing, you know, just a lot of activity around, you know, bringing insureds up to speed who may be new to the industry on what the procedures are, how claims work and what they need to be aware of and how to monitor their own business. We're seeing more of that too. But on the flip side, there are some new technologies, as Tim intimated, you know, not only the autonomous vehicle operation, but also telematics, which can help, you know, manage integrity of loads and provide some real-time data that can help with the management of cargo. Do you think the economy will help or hinder production and use of autonomous vehicles? Do we think that what the economy will, whether there's economic incentive for that to happen? Yes. I think most definitely with respect to commercial transport. And there really has been a huge amount of development dollars being poured into that. My own view as an observer, I think there's some real practical challenges that are going to need to be overcome before we'll see anything like that in the next five years. But, you know, I think the one thing that can be said about that too, these things don't tend to move as quickly or as normally as we would think. So, but I mean, the R&D is there. I mean, these autonomous tractor trailers being, you know, piloted, tested right now, but it remains to be seen the impact that they'll have. But, you know, obviously there's some real economic incentive here. I mean, with the driver shortage, but also too, there's a real safety component to it. On the casualty side, number of these nuclear verdicts that you've read about, that we've read about, you know, by definition, but in excess of $10 million have involved commercial trucking and they've involved instances involving, you know, obvious driver error or, you know, circumstances that, you know, perhaps an autonomous vehicle would not have gotten itself into. So I'd like to say unsettled, uncertain picture going forward. Okay. Okay. So we're going to go down onto the next topic. There are some additional questions, which we'll of course include in the end, as we have time. Okay. We have a new poll. One per year from now, the Inland Marine insurance market will be, what are your thoughts? OK. Very interesting. I think it's interesting that about half of you, slightly more than half of you, think that it'll be somewhat harder than it is now, but also a significant percentage think that there are too many unknowns to meaningfully predict. My own view on that, I think it is very, very difficult to forecast this. And I think in large measure, it will be determined by what the economy looks like a year from now. The debate going on, whether we are teetering on the brink of a recession, and if so, how long will it last, I think that will be a factor. The other thing, too, that's coming into play, I think, is that our economy is, in some measure, sort of in an unprecedented state. We have, at least up till now, significant inflation, but we have basically full employment and labor shortages in significant sectors of the economy. It's certainly a different picture than what we've seen historically with respect to inflation and recession. So many variables coming into play with respect to what the insurance market looked like. I would defer to my co-panelists on their thoughts about that. OK, so who would like to go next? Kevin, what are your thoughts? What are your thoughts? I think that thefts are going to continue, and that's going to drive claims and turn loss ratios upside down. We're already dealing with it, and insurers are responding to it. And that's going to have an impact on rates over time and on the overall book, as the insurer looks at it. And so that's why I do tend to think that rates will harden a bit. But again, there's a lot of unknowns, because I think, historically, Inland Marine is a profitable line of insurance. And so we continue to see insurers entering the marketplace and offering broad terms and conditions and rates. And a lot of our contracting clients are hard-bid contractors, and that mindset leaks into their insurance buying. And so when they see the lowest rate, they tend to ask a lot of questions about why we don't move there. So we spend a lot of time educating about the importance of partnership and relationship and long-term development of a bank account with an insurer so that when you do get the one hit, it doesn't just blow up your loss ratio with them year over year. But yeah, I do think a hardening of the rate market, just based on what we're seeing with the, because thefts can really be multiples of the premium that's paid year over year, depending on the size of the equipment. And do you see claims? Claims will be increasing or? You know, unless we start to change how we view theft claims. They're just the anecdotes I get from our clients, contractors in Northern California, California in general, is that they're not prosecuting or they're not being pursued. And so there's a lot of very effective groups that just have a business of stealing backhoes and sending them south or sending them north. And we hear about using GPS systems and things, and we've had insureds watch their equipment across country lines. And, you know, it didn't do any good, but they did have the GPS system on the backhoe as it went into Mexico. Yeah, or, you know, the GPS system is found on the side of the road, you know, a mile from the job site, because the thieves all know where they're installed. Sure. Wow. And so Dan, what do you think the insurance market will look like in one to three years? Well, it's hard for me to project the market. You know, really what I kind of see is what the result of the market is. And all indicators are that the claim volume and the claims severity is going to continue to increase along with these pressures. Until some of these pressures are relieved, really what's gonna differentiate people who are successful are those who can manage, you know, some of these different factors. You know, it really, as Kevin mentioned just a little bit ago, it really calls for partnership. It really calls for all the stakeholders to be invested in, you know, something like theft, take as an example. You know, the insured should have a standard practice for how they secure the job site at the end of the day. You know, are they putting in, you know, a clerk? Are they, you know, setting up a surveillance system? Are they securing as much as they can? Are they making sure the context boxes are locked? Are they installing telematics? You know, in some cases those have helped with the inexperienced labor situation where someone leaves a sink on upstairs and in a hotel project, and it ends up flooding multiple floors. Whereas there's some water detection capabilities, there's other kinds of telematics which can help reduce risk and reduce loss. And those things are gonna become even more important as these pressures, you know, appear to continue to manifest as we continue down this road. Okay. So we do have some questions. Is there, does there seem, Nicholas asks, is there, does there seem to be an increased pro-liquidity of insurance to retain more of the risk as they look to achieve a lower premium or possibly to self-insure some of the smaller claims? Maybe perhaps, Dan, you could talk about, are you seeing people, are you seeing a reduction in the small claims because people are self-insuring them? I'm not seeing that, but, you know, it may very well be it. It's so risk-specific, you know, as to what your appetite for risk is as a consumer and how you set up your risk management portfolio. You know, what selections do you make for your deductibles? How do you, you know, gatekeep what gets reported to the insurer and what you retain and handle on your own? I don't know, Kevin, maybe you can speak to that better than I can. Sure, no, we are seeing a pressure for deductible increases. So for best-in-class insurers, they, you know, without losses, they can kind of dictate what they want a little bit, although we're getting pushback from our insurance partners. But yeah, anyone with a loss or, you know, anyone with some hair on their loss runs is being required to retain more risk, for sure. Especially on the theft line. And share in the loss on a percentage basis for larger pieces of equipment, for sure. We have lots of clients with six and seven-figure-valued pieces of equipment on their equipment lists, and insurers are scrutinizing that more closely in recent year and years. So yeah, definitely seeing it in both directions. But it can be a cost-saving tool. If you believe in your risk management and you have a strong security protocol in place that's been, you know, kind of bought in from the bottom up and the top down of your company, it can be a way to reduce your total cost of risk, for sure. Yeah, okay. So do you have, I would like to move on to just our general, we've made excellent use of our time, I'd like to move on to just some, you know, the remaining questions within, you know, that have been raised. Did any of you have any final comments on that outlook? No? Well, the only thing I would say, and I don't really know if it falls into the category of a final comment or not, but one of the things that the insurance industry has had to deal with in recent years are these extreme weather events. And when you have a situation where supply chains are tight, where you have a labor shortage, such as what we have now, there's real potential for these large CAD events to have ripple effects throughout the entire economy nationwide. Most recently, Ian, what we're seeing there, $70 billion hit to the industry. Obviously, there's going to be a huge amount of construction rebuilding going on there, resiliency hardening, and so on. And really other events that have taken place, the wildfires in the Western U.S., it was about a year ago, we had that wildfire event take place outside of Denver. So, you know, as these events take place, they're putting more and more pressure on the economy and certainly the insurance industry, and, you know, certainly won't make our job any easier going forward. Okay. One topic that we didn't touch on that I'd just like to make a note of is the wood frame, is the wood frame market is very difficult to insure, to get participation. Increasingly, we are using four, five, six, seven, eight insurers, depending on the size of the project, the wood frame project. And the security requirements, which cost real dollars to the insurer, the developer, the owner, are increasing. Everyone's getting a little more savvy about it. They now know to load your bid with full-time security, monitor cameras, but we are seeing, connected to the supply chain issue, questions around, hey, we want infrared cameras. Well, no one can get their hands on an infrared camera. I mean, there's an 18 month backlog on those. But I would just say that the wood frame marketplace continues to be challenged. It continues to be a difficult place to insure, but it's so much cheaper to build with wood than it is concrete and steel. And for things like school construction, it's simply not an option. They have to build with wood. So, you know, continue to get it done, but at increasingly higher costs that may eventually push them to a different construction type in the future. And we're, I can definitely say, categorically say for the insurance company, we're okay with them doing better than frame or joint-based construction. So we still have a number of questions. So I'll just go down the list and jump in whomever has some thoughts about it. So are we seeing, this is from Chelsea, are we seeing any trends pertaining to lender requirements for new construction? This might be in your wheelhouse, Kevin, simply because. Yeah, we are and it oftentimes it has to do with the financial consequence of a delay. We are seeing, and here in California and Northern California, earthquake requirements that are, you know, oftentimes we consider them to be, you know, kind of over the top, like, you know, they want 50 percent or 100 percent of the total insured value to be, you know, include earthquake on a, you know, $150 million dollar structure or structures that are being built. But yes, as a broker and any brokers on the call, the first thing we should be asking for when a developer or a contractor comes to you with a project is, what does the bank want? Are there lenders involved? Because their requirements are typically pretty outlandish to start. If there's any bankers on the call, I apologize, but they want to protect their risk. But the costs are usually so great that it does take some time to discuss and negotiate them off of where they start in order to get to what we consider to be a kind of a reasonable sharing of risk between the bank and the developer and the builder without having costs spiral. So, yes, lender requirements continue to be onerous, but there is room for negotiation as long as you catch it on the front end and give yourself enough lead time to do it. Okay. In regards to contractor's equipment, are you seeing more coinsurance penalties being applied to scheduled, on scheduled forms because values of equipment has increased due to limited supply? Perhaps Dan, could you answer this one? I think it's really part and parcel of just an overall discussion that we are having more and more about valuation in the contractor's equipment space, right? Equipment isn't available. The equipment that's there is more expensive and the coinsurance can be the mediator between the insured being satisfied with the settlement and not. I'm not seeing more per se disputes over coinsurance, but I am seeing a lot more disputes over overall valuation. Okay. And Kevin, have you? Yeah. The approach I think that a lot of brokers and agents take is that try not to let, not to have coinsurance on the equipment piece of it. The insured typically puts down the value of the piece of equipment and then never changes it year after year. They're not depreciating it on their equipment list. So they feel like, look, I've been giving you the benefit of the rate against the value that hasn't changed, even though we're beating the hell out of this piece of equipment day after day. And so to get hit with a coinsurance clause can be again, another difficult discussion during a claim scenario, because the question always comes back is, why didn't you tell me? That's usually the answer. Or the question is, why didn't you tell me about this? And even if we did, everybody gets amnesia when it comes to claims. So yeah, the typical answer is, yeah. I mean, typical answer is try not to have them or have a really in-depth discussion around the implications of what it means. Because quite frankly, there's a bit of an ignorance gap with coinsurance. Not a lot of insureds understand it. Honestly, a lot of brokers probably have a pretty dim view of exactly what the implications are, but it can have a material impact on the claim. And so yeah, the stance is usually try not to have it and just have a higher rate. Give you more premium, no coinsurance is our goal. And not even some of the adjusters completely understand it to some degree. And so are you seeing, Dan, an increase in coinsurance penalties being applied? I'm not, but I'm seeing a lot more discussion. And coinsurance can be used, as Kevin said, it can be the discussion point. It can be the point that everyone galvanizes around when you're trying to settle a claim. It's so difficult now with the market that we're in. And contractors equipment for less common pieces are sometimes very limited in manufacturing, very limited in availability. So those discussions are just more complex now, given the supply chain, given the flux in valuation, given inflation. Coinsurance is just one small piece of that. Mm-hmm. Okay. Dora asks that you had mentioned, I believe, Tim, you were the one who mentioned it, Ian and CAT losses. What changes in capacity terms do you see coming, do you see for 2023? And same thing actually with you, Kevin, what are you guys seeing occurring in the market base due to the CAT events? Somewhat of a difficult question for me, because I'm not an underwriter per se, I would say that with respect to what's going on in certain parts of the country, it's a big issue, capacity. Obviously, what's happening in Florida, much dramatic, significant situation than in other parts of the country. Beyond that, I mean, I don't – I think as the industry continues to experience more severity, I think it's going to correspond to capacity and rates down the road. So although it was interesting with 2022 from a CAT standpoint, it was relatively benign until Ian hit. But we also had a number of other significant events that took place in 2022, these extreme rain events that took place in Kentucky, St. Louis, Dallas had one this year. So I think these climate-related pressures will continue going forward. The comment I would make is that in terms of capacity, we saw – we are seeing here towards the end of 22 that insurers that are paying claims on Ian are starting to withdraw from offering terms or considering offering terms where they otherwise might have deployed capacity or want onerous rates in order to deploy capacity. I'm thinking of WoodFrame because I deal with that market pretty regularly. I have contractors that bid frequently, and they do large WoodFrame project bids. And the rates I'm giving them are like, these aren't – as soon as I'm sending this email, this is not a good rate, because the insurers are either saying that they're going to need more or they're unwilling to support a WoodFrame project just because of the kind of – what they're seeing elsewhere in their book. So in terms of the impact, it's indirect, but I'm just seeing a withdrawal of capacity or the willingness to extend terms without significantly increased rate and deductibles for projects like WoodFrame. Okay. I think that's what we – we have a few questions, but they're not necessarily ones that you would be able to answer. So do you – any of you have any final thoughts before we finish up for the day? No? Okay. I guess the one thing I would say is, for those who are – if you're a buyer on the call, if you're an insured or a contractor or developer, is to start your communication if your broker isn't reaching out earlier, if the insurers aren't reaching out earlier. Start communication around renewals earlier than you anticipate and earlier than you're used to in order to get ahead of some of the kind of shocks we're talking about. And if you're not reaching out earlier, get ahead of some of the kind of shocks we're talking about or the potential impacts we're talking about on what could be a withdrawal of terms or circumventing of terms or increasing rates or requests for increased deductibles. The more time you have to kind of outline why you're such a good risk is going to be important in the next year, two, three years down the road in order to kind of maintain your understanding of what your cost of risk will be. A lot of our clients bid jobs that are one, two, three, four years long, and we strive to provide them stability around what their insurance costs will be. And so, we're already starting those communications earlier and earlier in order to kind of build a best-in-class mission for when we are working with our carrier partners. So, that would be my recommendation and request to those that sit in my shoes or adjacent. Okay. And Tim or Dan, did either of you have any last thoughts? Nothing I can really add. Grateful to have been part of this and hope the discussion was worthwhile. And Dan? Yeah. Thanks for having me as well. My feedback would really just be, you know, don't be siloed. No matter where you are in the chain, communication, you know, this is all going to change in ways we can't predict right now. We just know, you know, sort of where we are right now, and we can kind of forecast where it's going, but we weren't predicting this three years ago. So, communication is key, whether you're, you know, at the insured end or whether at the claim or, you know, risk management, underwriting, you know, all those different spots in the way, broker. Talk to people as much as you can. Get as much information as you can. Be as selective and networked as you can. It really does help. Great. Well, thank you. I'm going to turn over. We're concluded for the day. I'm going to turn everything back over to Lillian. To Lillian? Go ahead. Thanks, Michelle. On behalf of IMUA and our audience, I want to thank our panelists, Tim, Kevin, and Dan, and our moderator, Michelle, for a relevant and engaging discussion today. Touched on so many topics that, you know, are really important to our members, and thank you so much for that. My colleague, Ali, has posted in the chat an online survey to provide your feedback to IMUA. It'll also be emailed to you after the presentation today. Your feedback is important to IMUA, so please take a moment to provide it to the San Francisco region of the Pacific Coast Advisory Committee, and we'll use your feedback to plan future programs for IMUA. All right. Let's give away some Amazon gift cards. We've randomly selected two winners from the pool of attendees who asked questions today, and our winners are Dora Williams and Mitch Ehring. So, congratulations, Dora and Mitch. Thank you so much to our audience for your participation and your interesting questions. This ends today's webinar hosted by the San Francisco Regional Committee. Until next time, bye. Thank you. Thank you. Bye-bye. Bye, everyone.

virtual panel discussion

inflation

economy

inland marine insurance

supply chain constraints

labor shortages

catastrophic events

construction industry

wood frame construction

insurers

risk management