United Fire Group Adapts to High-Risk Events in Insurance
California’s insurance market is experiencing significant volatility marked by severe events like wildfires, landslides, and earthquakes. This environment presents considerable challenges for insurers, resulting in increased claims and instability in financial performance. Some insurers have responded by withdrawing from the market, while others have tightened their underwriting standards to the point of restricted accessibility. However, United Fire Group (UFG) Insurance has adopted a different approach.
According to Clan Salazar, vice president of specialty at UFG, “We are a national carrier, and California is one of our biggest states, alongside Texas and Florida.” He noted that all three states represent the largest contributors to premium income but also pose considerable challenges.
Rather than retreat, UFG is diversifying its exposure across different geographical areas and business lines. Their strategy aims to maintain competitiveness in high-risk regions while preserving long-term stability for the company.
Strategic Underwriting and Risk Management
A key element of UFG’s approach centers on a disciplined underwriting strategy. The company, once heavily invested in wildfire coverage, reassessed its position when the market conditions changed.
Salazar explained, “We used to write a significant amount of wildfire exposure. But when the market dynamics changed, we stepped back.” Exiting when premiums no longer justified the risk may have shielded UFG from more substantial losses as conditions deteriorated.
Embracing Technology for Enhanced Risk Assessment
UFG has incorporated technology to handle the turbulent conditions in the insurance sector. Advanced catastrophe modeling has become essential in the company’s ability to assess risk effectively.
Salazar mentioned, “We’ve improved data capture and integrated new CAT modeling tools, allowing us to better analyze exposure and decide where we want to grow.” The models integrate internal company data with industry benchmarks, offering underwriters more precise insights into potential vulnerabilities.
Salazar cautioned that technology isn’t a comprehensive solution. At UFG Specialty, data-driven models are used in conjunction with human expertise. “We rely heavily on the judgment of our people,” he added, emphasizing the nuanced decisions that experienced underwriters bring to the table.
Investing in Expertise and Training
Retaining expertise presents its own challenges because, like much of the industry, UFG is experiencing a generational shift. Veteran underwriters are nearing retirement, while younger professionals are entering the field. Bridging the knowledge gap is critical.
Salazar noted, “We have a lot of younger people hungry to learn, but we also need to pass on the knowledge from our experienced team.” To address this, UFG invests in mentorship and training programs to guarantee new underwriters are proficient in technology and equipped with the judgment needed for sound decision-making.
Outreach to Brokers and Clients
Education extends beyond the company. UFG prioritizes outreach to brokers and clients, especially as more businesses transition from standard insurance markets to the excess and surplus (E&S) market. This shift can be difficult, particularly for clients who are not familiar with the process.
Salazar stated, “We see clients who’ve never dealt with E&S before. Brokers are essential in helping them understand why their business is moving out of the standard market.” Brokers play a vital role in this situation by acting as communicators, educating clients about rising premiums, restricted underwriting, and the new realities of risk transfer.
Navigating a Competitive Market
Despite increased competition, Salazar views the E&S market as an opportunity. The E&S market is attracting fresh capacity and new Managing General Agents (MGAs), which provides an influx of products and underwriting talent. However, UFG stays cautious. “There’s more capacity, but it will weed out situations where losses can’t be absorbed,” he observed. He underscored the necessity for disciplined underwriting in a crowded field.
For UFG, success isn’t about avoiding risk; instead it involves strategy recalibration, investing in its people, and embracing technologies to stay agile. The blend of resilience and foresight may offer the ultimate advantage in California’s increasingly uncertain insurance market.
