Building excess towers has become more complex, more labor-intensive, and more fragmented - and brokers are feeling the pressure. As capacity shrinks and pricing remains elevated, brokers and underwriters are being forced to rethink how they structure and place coverage, especially for high-hazard or distressed classes.
“Anybody who’s trying to build a high tower is doing a lot more marketing,” said William Cote (pictured), vice president of Greene & Associates, an excess liability underwriting specialist and specialty lines broker based in Buffalo, NY “Clients are answering a lot more questions just in order to get the limits done. Carriers are definitely reducing their capacity on any one account, and they're raising their prices.”
Cote pointed to Greene’s role as an underwriting manager for four different excess programs, fielding business from 49 states and Washington, D.C. That wide lens, he said, shows a market in flux. Brokers are working harder just to maintain placement standards, and underwriters are managing more accounts to hit premium targets.
The layering of excess coverage has become increasingly granular. “Ten years ago, if you wanted to build a $50 million tower, you’d go to two carriers - maybe one for $10 million and another for $40 million,” said Cote. “Nowadays, the chances are very good that you're going to build that tower in $5 million layers. So it’s going to take you 10 carriers.”
He recalled a broker structuring a $250 million tower who resorted to physically cutting out paper squares to model each layer. “You can do something more sophisticated than that with computers now, but the point is, that's the kind of play it is right now.”
This shift toward thinner, more distributed participation has implications across the board - from carrier negotiations and pricing consistency to operational overhead and claims management.
Nowhere is that pressure more acute than in the lead umbrella position. These carriers are setting tone and pricing for the rest of the tower but facing rising exposure on multiple fronts.
“The lead umbrella carrier is going to set the terms and the premiums. Then other carriers are going to follow from that,” Cote said. “But they get exposed.”
Lead carriers can find themselves “price trapped” if they offer terms that are undercut - or far cheaper - than upper layers. “You're at $10,000 per million, and the layers above you are at $25,000 per million,” he said. “There's a significant inequity there.”
Some carriers try to insert pricing subjectivities that allow them to adjust rates later, depending on how the tower builds above them. But that’s not always possible - particularly when towers are bound in phases. “Sometimes not all of those excess layers are placed at binding,” said Cote.
Lead positions are also more vulnerable to losses, especially defense costs. “We're frequently seeing losses penetrate the lead umbrella,” he said. “Not always as pure loss, but as extremely expensive defense claims.”
The claims process itself can become adversarial, particularly in complex or high-value cases. “Sometimes the excess carriers... simply try to preserve their own paper from loss and put pressure on the lead carrier to settle under the threat of a bad faith claim,” he said.
That dynamic forces lead carriers to think strategically. “Is it an account they really want, or would they rather be one of the excess players?” Cote said.
Despite hopes for a market correction, Cote said the trend is heading in the opposite direction. “Carriers who offered $25 million before are offering $15. They offered $15 before, they're offering $10,” he said. “Even some of the lead umbrella markets that are offering $5 million are splitting their limits up in $2 and $3 million chunks.”
While Greene & Associates can sometimes stack multiple affiliated programs to offer a larger total commitment, that approach is becoming less common elsewhere. “Each of those markets, on any given account, is probably going to want to limit themselves to a $5 million limit,” Cote said.
He added that large wholesalers and managers with access to multiple facilities are more likely to succeed in this fragmented environment. “People like us who can offer access to more than one market at a time... are going to be the most successful,” he said.
Layering and stacking - once more common in the E&S space - are now routine in retail placements. “Even the larger retailers have risks that require - as I said, a $50 million limit is not atypical anymore,” said Cote.
Often, even a single layer has to be split among multiple carriers. “Say, for example, 10 million excess of 15 million, but no carrier is willing to take more than five million,” Cote said. “In order to induce them to do it, you ask them to quote a share of that layer. So each of them takes 50%.”
It’s the same puzzle metaphor again - fitting square blocks of capacity into a seamless stack. “You start taking out squares of paper, color them, and start putting them together like a puzzle,” he said.
Reinsurers sticking to quota share
Cote noted that reinsurers have mostly stayed out of layering models, preferring to structure participation on a quota share basis. “The reinsurers basically are doing things pretty much on a quota share basis right now,” he said. “The layering and so on comes more on the insurance side of it.”
