Nationwide E&S pulls back from NY construction

Nationwide's excess and surplus lines (E&S) operation has exited the brokered New York construction market amid continued challenging underwriting conditions in the segment, The Insurance Insider can reveal.

The E&S giant took the decision to write no new business with New York construction exposure from 15 April, with policies expiring on or after 1 June 2018 to be non-renewed.

Sources described the carrier as a leading player in the market, with a book of business thought to exceed $100mn in premium volume.

The move applies to both primary casualty and excess/umbrella business attaching below $10mn written by Nationwide E&S, which was formerly known as Scottsdale Insurance Company.

It only applies to brokerage business, and not the E&S specialty contract - or program - business written by the surplus lines operation, or business written by Nationwide on an admitted basis.

In a communication seen by this publication, Nationwide E&S brokerage underwriting senior vice president Tom Jurgens said the unit remains committed to the construction market and will serve the segment outside of New York.

But the executive commented: "Following an extensive review of the New York construction book, we have decided to exit the New York construction market. This decision was not made lightly.

"Our underwriting leaders have attempted many corrective actions, but based on our current analysis, the market cannot support the rate increases necessary for us to write this business profitably."

Nationwide's withdrawal from the brokered E&S segment comes as underwriters continue to face challenging conditions in New York construction, despite its status as a perennial hard or hardening market in recent years.

This is because of significant unfavourable development for workers' compensation and, most notably, general liability losses in the state's construction sector that have often outpaced rate increases.

The main driver is New York Labor Law section 240/241 and its impact on claims against controlled insurance programs (CIPs), or "wrap-ups" as they are more commonly known.

A wrap-up is a program where one party - typically the general contractor or owner - buys insurance on behalf of most or all of the parties working on a specific construction project or site.

They typically include builders' risk, commercial general liability, workers' compensation and umbrella liability coverage.

New York Labor Law section 240/241, often known as the "Scaffold Law", imposes strict liability upon contractors and property owners for all "gravity-related" injuries.

The law does not take into account potential fault on the side of an injured employee, which effectively puts the contractor or property owner at fault even if a worker's negligence contributed to an accident.

The "Scaffold Law", which no longer exists in other states, means that the cost of insuring a construction project in New York is typically 10 times higher than in the rest of the country, according to a recent Willis Towers Watson report.

And, according to benchmarking analysis by insurer Zurich, New York City construction claims can be up to 27 percent higher than in comparable metro areas, including Denver, Boston, San Francisco and Chicago.

In a February 2018 report on the construction market, broker Aon said that CIP placements for New York projects were experiencing rate increases and higher retention levels as carriers sought to manage exposures.

The report noted that primary casualty markets were offering limited transfer with high retentions of typically $1mn or more to fully fronted general liability programs with no risk transfer.

Meanwhile, in the umbrella/excess casualty market, underwriters now seek to attach at $5mn, with few as high as $10mn, forcing primary market selection to be contingent on lead excess conditions.

Nationwide did not respond to a request for comment.

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