The property insurance market is undergoing significant changes as major insurers scale back in high-risk regions, prompting a surge in demand for excess and surplus (E&S) lines coverage. Responding to these industry challenges, Nationwide has announced the expansion of its footprint in the E&S market with the launch of a new Brokerage Property unit. This initiative, set to be operational in the latter half of the year, underscores the growing importance of surplus lines carriers in providing solutions where traditional insurers have retreated.
Addressing Hard-to-Place Property Risks
The newly established unit will focus on providing coverage for commercial properties that face elevated risks and do not fit within standard underwriting guidelines. Led by industry veteran Tonya Courtney, the unit aims to bridge the gap left by admitted carriers that have withdrawn from markets due to rising catastrophe risks. Courtney, who brings over three decades of experience in managing commercial property portfolios, will report to David Nelson, executive vice president of E&S wholesale at Nationwide.
According to Nelson, Courtney’s leadership and expertise in the wholesale market make her well-suited to spearhead this strategic expansion. The unit is expected to provide tailored non-admitted wholesale products to properties that require more specialized coverage, particularly in states prone to hurricanes, wildfires, and other natural disasters.
Industry Trends and the Growing Role of E&S Markets
Nationwide’s decision to enhance its presence in the surplus lines market aligns with a broader industry trend. In recent years, insurers have withdrawn from certain markets due to regulatory constraints and unsustainable loss ratios, leaving property owners with fewer coverage options. Data from S&P Global Market Intelligence highlights this shift, showing that surplus lines insurers’ share of U.S. property premiums grew from 5% in 2018 to 9% in 2023, with even higher concentrations in disaster-prone states.
Regulatory challenges have played a key role in this shift. Many admitted insurers cite strict state-imposed rate regulations in states like California and Florida as a major hurdle to pricing risk accurately. These constraints have driven insurers to exit these markets, leaving surplus lines carriers as a critical alternative.
Challenges Facing Surplus Lines Carriers
While surplus lines insurers have stepped in to fill coverage gaps, they also face challenges of their own. Unlike admitted carriers, surplus lines insurers are not protected by state guaranty funds, raising concerns about financial stability in the event of large-scale catastrophe losses. Additionally, many surplus lines carriers depend heavily on reinsurance, which can be volatile in times of increasing claims frequency and severity.
Consumer advocates have voiced concerns about the long-term sustainability of the surplus lines market. Doug Heller of the Consumer Federation of America noted that some smaller surplus lines carriers may lack the financial reserves necessary to withstand consecutive years of high-loss events, highlighting the need for regulatory oversight and financial due diligence.
Regulatory Responses and Market Adaptations
State regulators are taking steps to address the changing insurance landscape. In California, new rules have been introduced to allow insurers to use forward-looking risk models and pass reinsurance costs to policyholders, with the caveat that insurers must continue offering coverage in high-risk areas. Meanwhile, Florida policymakers have attempted to stabilize Citizens Property Insurance Corp., the state’s insurer of last resort, though it still holds nearly one million policies.
As Nationwide proceeds with its E&S Brokerage Property expansion, the company enters a market that is evolving rapidly. Surplus lines insurers play an increasingly essential role in providing property coverage amid rising climate risks and shifting regulatory policies. However, the long-term sustainability of these solutions will depend on a careful balance between affordability, financial resilience, and regulatory adaptability. Nationwide’s latest move signals confidence in the surplus lines sector, but ongoing industry and regulatory challenges will continue to shape its trajectory.