Given the difficult environment for primary property/casualty carriers, the efficient use of excess and surplus (E&S) lines capacity is providing a safety valve for the declining capacity for certain lines and risk classes in the U.S. personal and commercial lines segments of the industry.

For property insurers, rising loss costs from catastrophe and secondary peril losses have been driving combined ratios higher, negatively affecting underwriting results. In the 10-year period to 2023, property/casualty insurers had been able to augment their bottom-line results by cutting underwriting expenses (by approximately three percentage points off the combined ratio). In 2023, underwriting expenses were down a fraction, but the ratio was relatively flat as acquisition costs didn’t change much and any meaningful impact from recent streamlining of costs and efficiencies has yet to be recognized.

The majority of expense dollars for insurers—other than salaries and related payroll taxes—is spent on agents’ commissions and brokerage fees, and insurers pay about 33 percent more in commissions and brokerage fees for homeowners than they pay for personal auto coverages. The commission ratios for workers compensation, a compulsory commercial coverage, are similar to compulsory personal auto insurance. Contingent commissions are paid to agents and brokers as an incentive to provide an insurer good business. The deterioration in overall results in the past two years, driven mainly by the two key personal lines coverages, has led to a drop in these commissions.