Industry Insights Vol V, Issue 1

How The E&S Market Became The Backbone For Emerging Risks

As the insurance landscape experiences ongoing inflation, climate volatility, and expanding litigation trends, traditional admitted carriers are reducing exposure to underperforming or hard-to-place risks. Consequently, the Excess & Surplus (E&S) market has become a formidable competitor in the property and casualty (P&C) landscape.

Over the past ten years, the E&S market has grown 223%, expanding from $40 billion DPW (direct premium written) in 2014 to $130 billion DPW in 2024, three times as fast as the broader P&C market’s growth of 86% over the same period.

E&S premium volume is projected to reach $140-145 billion in 2025, capturing an estimated 35 cents of every premium dollar in the domestic commercial P&C market.

E&S is expected to see more measured growth in 2026

The E&S sector is expected to continue expanding in 2026 and be a viable and often preferable alternative to the admitted market for many lines of business, particularly those focused on emerging risks. The core advantages of E&S, including nuanced risk selection, pricing flexibility, and the ability to exclude underpriced or uninsurable risks, are likely to help fuel its future growth.

While pricing momentum has slowed as broad-based rate increases have begun to moderate, particularly in property and select professional lines, the structural drivers of E&S growth remain, including ongoing admitted market retrenchment, nuclear verdicts related to social inflation, elevated catastrophe losses, and continued demand for flexible underwriting solutions. As a result, premium growth is resulting from exposure-driven and underwriting-driven expansion.

One of the key reasons for the E&S market’s continued growth is its underwriting strength. When E&S carriers generate lower loss ratios and stronger underwriting profits than the broader admitted market, capital tends to flow toward the segment.

From 2010-2014, E&S carriers maintained a 3.8 percentage point advantage (based on the 5-year average) in loss ratios compared to the admitted market. During this period, the admitted market’s net loss and LAE (loss adjustment expense) ratio was 72.8% (5-year average), compared to the E&S market’s 69%. By 2020-2024, that gap had widened to 8 percentage points or more than double. By 2020-2024, the admitted market had a 73.3% net loss and LAE ratio, compared to the E&S market’s 65.6%. Combined ratios consistently showed superior profitability, reinforcing the value proposition of E&S capacity, especially in an environment marked by volatility and inflationary pressure.

Emerging risks are redefining the market

In 2016, emerging risks included issues like distracted driving, aging workforce, and drones. Cyber risks were just beginning to emerge, with most of the risk being covered in the admitted market. Cyber coverage has now shifted to the surplus lines market, where 65% of such coverage is currently provided.

Today, there are very different emerging exposures that are rapidly reshaping the risk landscape and creating underwriting complexity. Here are some of those emerging risks:

• Artificial Intelligence (AI) liability, including issues around algorithmic bias, misuse of large data sets and copyright infringement.

• Driverless vehicles, whose technological problems can contribute to accidents without driver error.
  
• GLP-1 weight loss drugs and similar medications, which can cause potentially adverse health effects, including bone density issues and other health concerns.
  
• Social media/influencer liability, including instances where influencers are sued by designers and companies such as Prada after the influencers sell and promote their counterfeit luxury goods.
  
• Commercial drones, which are increasingly being used in agriculture, real estate, construction and logistics, have created the need for insurance to cover risks like liability and property damage.¹
  
• The regulation of harmful or objectionable online content, including challenges around moderation standards, platform liability, and evolving legal requirements.
  
• Parametric insurance solutions, including products that provide rapid, transparent payouts for weather-related, seismic, and business-interruption events for which an actual loss does NOT have to be substantiated.

These risks are expected to generate strong demand for tailored E&S solutions in areas that the admitted market is unable to address.

There’s opportunity for MGAs and program administrators

With its more flexible regulatory framework and increasingly data-driven underwriting models, the E&S carrier marketplace is well-positioned to support continued growth in non-standard risks, especially as market volatility, litigation trends, and capital constraints continue to challenge the admitted market. With the surplus lines market commanding a growing share of total premiums and delivering superior underwriting results, managing general agents (MGAs) and program administrators have an opportunity for greater growth and market share, driven by robust capacity from E&S carriers, and an increasing willingness from investors to back delegated authority models.

Contributions to this article by: Gerard Vecchio, Managing Director, Specialty Practice Co-Head, MarshBerry.

Sources:

1. https://finance.yahoo.com/news/drone-insurance-market-expected-reach-165700867.html

The Reclassification Of Cannabis Could Reshape Insurance Access

A recent executive order signed by President Trump in December 2025, proposing the reclassification of cannabis from a Schedule I to a Schedule III controlled substance, represents a potential inflection point for the cannabis insurance market in the U.S.

While the reclassification would not legalize cannabis at the federal level, it would narrow the gap between federal and state regulations, reducing legal ambiguity and possibly unlocking broader financial system access.¹ For insurers, this could mean improved pricing dynamics, and shifts in where and how coverage is placed. Currently, the medical use of cannabis has been legalized in 42 states and the District of Columbia.²

Current market structure: reliance on E&S

For over a decade, cannabis operators have relied on the excess and surplus (E&S) market for insurance coverage. With traditional admitted carriers largely remaining on the sidelines, primarily due to federal illegality and regulatory concerns, the E&S market has provided custom solutions including crop and property, general liability and product liability.

Cannabis-based businesses include wholesalers, retail distributors, hydroponic shops, and dispensaries. Most policies cover theft, property damage, crop loss, and liability claims. This risk segment has commanded elevated premiums due to:

• Cash-heavy operations lacking formal banking infrastructure.
• High-value inventory susceptible to theft or spoilage.
• Emerging product liability exposures (e.g., edibles, vape devices).
• Lack of long-term loss data for actuarial modeling.

Why reclassification of cannabis matters

The proposed federal reclassification would reclassify cannabis from the Schedule I category (which includes heroin and LSD) to Schedule III, recognizing medical use and likely reducing the severity of federal penalties.³ This could lead to cannabis businesses gaining access to banking services, federal tax benefits, and commercial credit. However, because the reclassification would not federally legalize marijuana, cannabis firms would still be subject to federal anti-money laundering regulations.

According to AM Best, the executive order does not guarantee access to banking or insurance, but could reduce the perceived risk profile of the cannabis sector. Increased financial access generally leads to a more formalized and less risky business environment, which ultimately leads to more capacity and better pricing for insurance coverages.

Strategic implications for the insurance sector

Here are four ways that the potential reclassification of cannabis could impact the insurance industry, including more competitive pricing, increased opportunities for brokers with expertise in the sector, and greater participation by admitted carriers.

1. Admitted carriers may play a larger role in the sector. Reclassification may create regulatory clarity and a more favorable compliance environment, leading to national carriers entering select lines. This would diversify capacity, potentially reducing the concentration of cannabis business in the E&S sector.
   
2. Pricing could become more competitive. More entrants, particularly from the admitted firms, could increase rate competition. While beneficial to cannabis operators, this would likely decrease premium margins for E&S carriers and MGAs currently writing the business.
   
3. MGAs will continue to play an important role. Even with broader market participation, managing general agents (MGAs) will remain critical. Expertise in cannabis-specific underwriting, claims handling, and regulatory nuance will continue to differentiate those that have developed technical depth in the space.
   
4. M&A activity could increase in the sector. Improved access to insurance and tax normalization could enhance valuations and reduce cost of capital for cannabis operators. This could accelerate M&A activity in the sector, potentially putting smaller accounts at risk but also creating strategic growth opportunities for brokers and MGAs with deep expertise and relationships in the sector.

Conclusion

If fully enacted, the reclassification of cannabis to Schedule III could influence the insurance landscape for an industry that has operated in regulatory ambiguity. It would represent a move toward normalization, potentially enabling greater access to capital, stabilizing coverage, and expanding carrier participation.

The insurance brokerage firms with underwriting expertise, claims infrastructure, and carrier relationships built during cannabis’ high-risk era will be best positioned to benefit in the next phase of market maturity.

Contributions to this article by: Pete Kampf, Vice President, MarshBerry.

Sources:

1. https://www.debevoise.com/insights/publications/2025/12/federal-cannabis-developments-executive-order-on
2. https://mjbizdaily.com/map-of-us-marijuana-legalization-by-state/
3. https://vicentellp.com/insights/cannabis-rescheduling-explained/

Lowering WASA: The Key To Stronger Growth And Succession Planning

Weighted Average Shareholder Age (WASA) is one of MarshBerry’s Critical Performance Indicators (CPIs) – ratios that reveal a firm’s true operational health. But WASA is more than a demographic metric — it is a leading indicator of ownership risk, perpetuation readiness, and long-term equity stability within an insurance brokerage. WASA measures the average age of shareholders, weighted by their ownership percentage. In other words, it reflects not just the ages of the owners, but how much equity is concentrated among older shareholders.

As WASA goes down, organic growth tends to go up

According to data from MarshBerry’s proprietary financial management system, Perspectives for High Performance (PHP), insurance brokerage firms with younger shareholders tend to grow faster. The average weighted shareholder age across all firms is about 54 years and drives an average organic growth rate of 8.0%. However, firms with the youngest WASA (youngest 25% of firms) have an average age around 47 and achieve a higher organic growth rate of 8.8%, suggesting a positive relationship between younger ownership and growth performance.

WASA has been declining over the past few years, decreasing from a high of 55.9 since 2019. This trend signals that more firms are investing time and effort into equity succession planning. Firms that haven’t implemented a perpetuation plan or identified their next generation of leaders should look deeper at the business’ WASA.

Why WASA matters for long-term business health

With an average WASA of 54, there will be a significant portion of insurance industry leaders approaching retirement in the next ten years. To ensure these companies can sustain their growth and success, organizations must identify and nurture the next generation of talent to fill these leadership voids. Top performing companies hire and develop producers with a plan for creating future shareholders – rather than simply limiting them to a traditional employee track. At the same time, the most successful producers are often entrepreneurial and have a desire for ownership.

Firms use WASA not only to understand their current state, but also to set realistic goals comparative to peers of similar size. A younger WASA indicates a firm has a clear plan for growth, is identifying the next generation of leaders quicker, ensuring those folks have enough runway to purchase stock, and increasing the likelihood of retaining top talent. This doesn’t mean younger is better as there are benefits to retaining experienced top performers. However, leaders should groom newer producers to become stakeholders and decision-makers, hiring talent who can eventually move up and replace retiring leaders.

In addition, the value and appeal of a business stems from its ability to drive future growth and profitability. Potential acquirers may see a limit to the potential growth and profitability of a company when there is a shorter runway with existing leadership.

How to improve WASA

Sharing ownership can be a difficult proposition for existing shareholders. However, it is not only helpful for the recruitment and retention of producers, but it is key to overall growth in value. Here are some ways a firm can lower their WASA.

• Establish and communicate a structured ownership perpetuation plan. Develop a formal, transparent ownership roadmap that outlines how shares will transition to younger producers over time. Clear communication improves retention, motivates emerging talent, and enhances firm valuation.
  
• Accelerate ownership transition to younger generations. Provide earlier ownership opportunities and intentionally rebalance equity away from older shareholders through gradual buyouts or partial exits. Earlier succession empowers younger producers and strengthens long-term organizational stability.
  
• Integrate younger leaders into long-term strategic planning. As WASA decreases and the firm gains more strategic flexibility, involve up‑and‑coming talent in shaping growth, leadership development, and future partnership decisions. This brings energy, innovation, and forward-looking thinking into the firm’s strategic direction.

These approaches not only lower WASA but also boost growth, retention, and valuation, making WASA a powerful strategy metric, not just a demographic one.

Contributions to this article by: Brooke Liu, Senior Vice President, MarshBerry.