Delegated Authority Market Dynamics: An Exclusive Discussion with Joel Cavaness, President of Risk Placement Services

Video Transcription

George Bucur: Hello ladies and gentlemen. I’m George Bucur, Managing Director and Co-Head of MarshBerry’s specialty practice. Today we’re here to bring you an interview with Joel Cavaness, President, and CEO of RPS (Risk Placement Services), which is a division of Gallagher. Joel started Risk Placement Services a couple decades ago and has made significant traction in the overall marketplace. Joel, thank you very much for being with us today.

Joel Cavaness: Absolutely! Thanks, George, appreciate the opportunity to be here.

Bucur: Excellent, pleasure is all ours. So, there are many dynamics impacting the overall insurance distribution segment, and one of the very clear trends that we have seen is the movement of value from that of the underwriting segments from carriers, risk takers in other words, to that of the insurance distribution sector. And part of what is driving this is the fact that the brokers, frankly, are just getting very, very large and, frankly, accumulating a lot of clout– part of what is supporting that is the partnership of retail distribution, in other words maybe at Gallagher with that of specialty firms such as Risk Placement Services which is comprised of programs, binding, and wholesale brokerage. This movement and accumulation of premium is really putting a lot of power into the hands of brokers. Joel, maybe you could go into a little color and detail in regards to how Gallagher and, specifically, RPS leverage that premium volume and clout that comes with it?

Cavaness: Yeah, so obviously a lot has changed over, say, the last you know even five years. Really the use of data, we’ve all been collecting masses, mass amount of data and information on the particular placements that we do, categories of risk that might be similar, homogeneous for instance, that might be similar. And that’s really allowed us to use that data and that information. It really gets pretty granular, of course, to be able to– I probably would stop short of leverage, because that’s a tough word to use, but it does allow the flexibility to go in and really view these large blocks of business whether it’s on almost any distribution company side and be able to create something that is more proprietary or exclusive or creative or different or maybe even has additional bells and whistles that the marketplace generally is not offering today. And that has truly been a game changer, you know, no one actually was in the past been able to accumulate and view their data in a different way– slice and dice it, use data scientists, use all the different tools that are available– and I think that that really has become a turning point in the marketplace and truly a competitive advantage.

Bucur: You know, one thing that we have heard over and over the last 12 months is the importance of data, and for firms that have it today you, are ahead of the game generally speaking. In two to three years that’s going to be table stakes, and in five or ten years, if you don’t have that data you’re out of the game. And so, I think it is very important, especially for those independent firms that are out there, to heed those words because it is it’s frankly mind-blowing to me how few firms, independent firms specifically, have access to the data and frankly some of the large consolidators as well. So, I think that’s very important highlight, or point to highlight there, Joel, thank you.

Cavaness: Yes, it is. It’s really, it’s fascinating we started studying data years ago inside of our organization, got a lot of help from the outside to understand exactly what we should do with it and we, candidly, we invested heavily inside of our organization to really you know hire teams of data scientists to actually tell us things that we would have never recognized.

Bucur: It is changing the face of the industry, no doubt. Now, Joel, as we think about the overall risk takers– the carriers, the markets– how have you seen the dynamics changing on that, or what are you hearing about those relationships as we are in the midst of association season with target markets and WSIA (Wholesale & Specialty Insurance Association) and several others? I think you probably would have a unique perspective on that, that most wouldn’t, and so what is the general theme or messaging you’re hearing from your career partners?

Cavaness. Yeah, I, you know, I guess I would tell you it’s still very cautious. There are still an awful lot of unknowns with the, you know– what’s going on in the economy, what’s going on with the court system still being clogged up from two years ago, and of course a lot of the jury verdicts that are still out there call them nuclear not on top of you throw litigation funding in there– all these concerns. You know, if there was, George, if there was just really one thing that was facing the insurance world, we could always navigate through that, but you have times today where, you know, rising costs of property it’s always a focus, it’s always a conversation of insurance to value because people necessarily may not have been keeping up with their valuations. So now you have you know that clash, that clash of rising rates on top of a clash of rising insured values and I give a lot of credit to the personal lines market. They’ve done a much better job of you know requiring insurance to value versus commercial, where it’s more complicated, there’s a lot of different types of construction out there. And so, they’ve done a pretty good job of doing it because you can’t go ahead and change your home’s value but when you submit an SOV (statement of value) there’s a lot of complicated factors out there, so there’s just you know I would tell you that it’s still cautious. I would also tell you that the common theme coming out of WSIA was pretty much more of the same. We’re still seeing rates increase and there still is a very cautious environment in the underwriting community.

Bucur: Excellent, thank you for that perspective, Joel. It actually is astounding to me the growth on the E&S (excess and surplus) side of things that we have experienced over the last several years, really unprecedented compared to historical norms. It is something that we are continuing to monitor especially in this inflationary environment, as this is a run that very well could continue for the indefinite future, and it sounds like that is the case from your perspective for the immediate future of what we’re seeing.

Cavaness: Yes, certainly all the signs point that direction. They’re forecasted of course the E&S business to be a hundred billion dollars in premium by year end. That is a big number and that’s triple what it was just a few short years ago so we don’t really necessarily see any change in sight, and I think the flexibility that we’re able to provide will just continue to fuel that growth.

Bucur: It is a very exciting time, no doubt, in a growing industry and one that, frankly, you were right on the front edge of. Again, Joel Cavaness, President of Risk Placement Services. Joel, thank you very much for your time, and to our viewers thank you for your time as well. Any questions on the presentation or what we’re seeing in the marketplace please do not hesitate to reach out. Until next time, be well.