Alliant's Mark Goode on the Evolving Landscape of Public Entity Insurance

In Episode 7 of the Building Potential series, the Senior Executive Vice President and Managing Director of Alliant Insurance Services, Mark Goode, joins Archipelago's Founder & Chairman, Hemant Shah, to discuss:

• Public Entity Insights: Mark details his leadership role overseeing public entities and addresses the insurance needs of state governments, educational institutions, and special districts.
• Pooling Symposium Themes: From the annual Pooling Symposium, Mark emphasizes the importance of preparing for market shifts, accurate data collection, and strategic positioning to attract capital in a competitive market.
• Market Conditions and Predictions: Mark explores the tumultuous property market of recent years and predicts a more discerning approach to property risk, stressing the importance of high-quality, detailed data for better insurance submissions and policies.

Watch, listen, or read along to the full episode below:

Hemant Shah: Welcome to Building Potential, the series in which we explore new frontiers of capability across the risk management and insurance ecosystem.

I'm Hemant Shah, Founder and Executive Chair of Archipelago, and I'm thrilled today to be joined by my good friend, Mark Goode, the Senior Executive Vice President and Managing Director of Alliant Insurance Services. Mark, welcome to this episode of Building Potential.

Mark Goode: Thank you, Hemant. I appreciate it, and thank you for the invite to join you today.

Hemant: Mark, as I've gotten to know you, you've really given me a window into the public entities world, which is new for me. Can you tell us a bit more about your responsibilities and the segment that you lead for Alliant?

Mark: Sure. Glad to do that. As I haven't indicated, I'm the Senior Executive Vice President and Managing Director for the Public Entity Division East for Alliant. When I say east, my responsibilities are for everything east of the Mississippi.

I am domiciled in Charlotte, North Carolina, but have individuals who report to me who are scattered throughout that particular territory. And my responsibilities include any type of public entity, whether it's state governments, cities, towns, municipalities, special districts, whatever the case may be. All education, both public and private, K through 12 as well as Higher Ed, and then any pooling opportunities.

Hemant: So, Mark, for a guy from the eastern US, I'm thrilled that you organized your Pooling Symposium in my backyard in California. It was a thrill to be included and participate in your recent Pooling Symposium in Monterey, California, and to present as well to your colleagues and to your customers.

I thought that was a wonderful event, very engaging, and it gave me a window into the needs and expectations of the pooling community, which is a quite substantial segment of the global insurance industry.

What were some of the key themes from the Pooling Symposium that you'd care to share with the audience?

Mark: Sure. Well, first, thank you for joining us. It was a pleasure, you know, having you, participate in that. And we picked the right venue, so credit to my staff that worked on that while we were experiencing hundred-degree heat here on the East Coast out there in Monterey.

I don't think there was a day that got above seventy. So the temperature was a welcome relief and an absolute pleasure to be out there. We do the symposium annually, and we move it from location to location because, of course, we have pooling clients all over the country. And we combine this with both our west region as well as the east for one singular, presentation, and this year, was in Monterey.

We actually have a meeting later this week starting that quickly to start the planning for next year. So I'm not sure where it's gonna be, but there's some talk of maybe Maine, someplace like that. So it moves around from place to place. But the themes were pretty consistent. Anytime we do these, you got a large number of pools there of varying specialties.

And the main concern is always what is going on in the marketplace. What can we expect for next year? Because a lot of times, they've got to price their product well in advance. So that's always a big concern there.

Also, you know, clearly throughout the entire event, data is king. So we impressed upon them the need to collect data, make sure the data is accurate, because the world that we're living now is highly model-driven. So it's so critical to gather the data, to make sure that it's accurate to share with everybody else. And then also, there's a lot of talk, they always wanna know what can we do to better position ourselves to make our account more attractive than everybody else's.

In a very hard market, markets only have a certain amount of capital to deploy, and everybody is competing for that same capital. So what can we do? That's what clients are asking. What can we do to best position ourselves to make us as attractive as possible to the marketplace?

Hemant: That's wonderful. Let's explore each of those key themes. So first off, on the market conditions, I mean, the bulk of the 2024 property renewals are now behind us.

What was your experience in the first half of 2024 and what's the outlook for the coming year?

Mark: Sure. Everybody knows that's on this call how painful the last couple years have been in the property market. I mean, it's been it's been brutal. We faced numerous, you know, challenges over the last few years having come off of a very extended soft market. And all of a sudden, when the hard market hit, it hit with an absolute vengeance, and it was just awful. It was the most difficult market that I've seen in my entire insurance career. And I think there were a multitude of factors that seem to all come together at the same time to create that problem we were in.

There was a period even before the market hardened where there were deteriorating under results from the carrier's standpoint. I was actually warning clients for quite some time saying, "It's coming, it's coming." I felt like Chicken Little, "the sky is falling", but I'm looking at it and saying, really their pricing borders on being irresponsible for the last couple of years because there should be rate decreases going on right now, and there's not.

So we're taking advantage of the market that's out there when we can. That's our job as brokers is to find you the best deal that the market will bear. But at the same time, I was seeing that competitive market. We were also watching the results of carriers.

Their financial results were deteriorating. Their combined ratios were going up, and while they were going up, we were seeing ever-increasing CAT activity.

Seemingly, those five hundred year events were happening every five years. The models just weren't holding up. We were seeing an awful lot of CAT activity. And the world is simply a hotter place than it was, and that is fueling the the frequency and severity of of storms.

We can sit here and argue and debate all day long the calls, and I don't know. I'm not smart enough to figure it out, but I know for a fact it's happening. The world is simply a hotter place, and, again, we can avoid discussing reasons why that's true, but it simply is.

The carriers were also experiencing pretty dramatic insurance premiums as far as their reinsurance is concerned, and that was driving some of their price increases.

And when that happens and the market starts to deteriorate, you see certain carriers starting to back off. So we were seeing an exodus of some carriers from the property market.

And in a supply and demand economic system, when you have less supply and increased demand, obviously, that's going to drive prices up. And, also, during that period of time coming off when the market was soft, we were seeing very low interest rate environment. So carriers were not making any, underwriting profit, if you will, or investment profit rather. They simply weren't making any investment because of interest rates being as low as they were, so they had to rely on underwriting profit.

And sometimes the premiums that they were charging just weren't supporting that underwriting profit.

At the same time, we talked a little bit earlier about, marketplace conditions and the need for data and modeling. We were finding that the market or the modeling just wasn't holding up. Losses were far exceeding the models that were being used. So the carriers were having less and less, confidence in those market levels or those modeling. So they were adding their own factors in there to balance that out.

And when they started doing that, then they started increasing their retentions and doing other things, reducing the terms and conditions of the policy. So all these things coming together created just a firestorm, if you will, for

Hemant: Yeah, it was a perfect storm.

Mark: Absolutely. That's a good way to put it, Hemant. It was just absolutely, a perfect storm, you know, for the markets, all of this coming together at the same time. So and this went on for several years.

About the end of December of 2023 we were still telling clients that we were expecting further rate increases moving into 2024. While we thought they would start to moderate a little bit, that maybe we were getting into a situation of some level of rate adequacy.

And lo and behold, as quickly as the market went south, it started to improve. So in the first quarter of 2024 and now just having wrapped up the second quarter, there has been a pretty dramatic change. I'm not saying there have been wholesale price reductions. There haven't.

But we have seen some, and we've definitely seen a moderation in others. If there's rate increases, they've been more reasonable in line as opposed to some of the crazy increases that we've seen in the past.

What the future holds, I don't know. We're always that one storm away from having this thing turn. But right now, the carriers are starting to see a little profit. And, again, I think it's a product of having a couple years of fairly benign CAT activity.

Interest rates are tricking up. There's some level of rate adequacy that it's happened because of the premiums that they've gotten through this last hard market. So I think everybody is holding their breath and watching the situation.

And, also, instead of carriers looking across their entire portfolio and saying, we're trying to get ten, fifteen, twenty, thirty percent across the board, it's now almost more of an individual thing.

Prior to that, there wasn't a whole lot of underwriting going on, to be quite honest. A lot of times, it's what's it gonna take to get the deal done? That was, like, kinda how you negotiated. Now all of a sudden, it is underwriting. We're looking at the quality of the individual portfolio, the individual losses, and I think their rates moving forward will be highly predicated on how they are performing in the marketplace as opposed to their peers.

Hemant: Okay, so you're thinking that there'll be less broad brush approach to property risk.

Mark: That's my prediction. Yes.

Hemant: More discernment at the individual submission level, which raises the importance, as you say, of data quality differentiation, the specific characteristics of your risks versus others who are competing for capacity.

Mark: Absolutely. Absolutely.

Hemant: Yeah. And, you know, here we are, you know, at the climatological peak of the hurricane season. As you say, cautiously optimistic, but all it takes is, you know, one large CAT event, and we're still in the thick of hurricane season, and all expectations are this is gonna be an active season. One of the more active seasons is the forecast.

Hemant: And it has been fairly active, but fortunately, a lot of the storms have not - they stayed at sea. So we haven't had any huge ones. I mean, we've had a couple, but they have not been the hugely catastrophic ones that we might see. And there are they also have been early, which concerns us a little bit. But we also know too that the water temperatures here in the east and in the gulf, what have you, are probably at record highs, and everybody knows that feeds the storms.

So it's hot. It's very warm out there. The water is warm. So we we have some concerns, and sometimes I wonder if it's not a matter of luck as much as anything. Where do these storms go? And the only we can hope for is that, they they stay out to sea, and we wake up one day, and it's November, and we dodge the bullet.

Hemant: Yeah. As you say, the hurricane climatologists talk about the accumulated cyclone index, the ACE index. It's a hot basin, with potential for rapid intensification of hurricanes, and we'll we'll keep a close eye on this as we wrap up the hurricane season later this summer and fall.

You also mentioned, you know, the modeling and some of the gaps, between some of the modeling insights and the actual experience. I think as we discussed in Monterey, a fair amount of that comes not just from the peak perils of quake and wind, but severe convective storm, tornado, hailstorm, wildfire, flood. Some of these more bodied perils that expose a lot of your clients to more frequent moderate losses than just the possibility of a low probability of a very significant loss. And these these frequency perils, are this drumbeat of losses has also been weighing on the market as well.

Mark: And that's an excellent point, you know, because we typically think of these big CATs as hurricanes and what have you, but a lot of the events that we're seeing are not necessarily those type of events. We're seeing wildfires. We're seeing hailstorms. We're seeing, you know, you name it. Only we need is a good case of the locusts, and we've about run the table here as far as what can possibly go wrong.

Hemant: So I think modelers have got a product for that.

Mark: Yeah. They're gonna have to come out with one. But we are seeing a lot of other events, mudslides, earthquakes, you name it. There are any number of other things out there that are happening in addition to what we normally see as straight-line wind or flood.

Hemant: You mentioned the second key theme from the symposium was the importance of data, and data as the lifeblood of the process.

As I've gotten to know public entities a bit better thanks to to our relationship and your pooling customers, These are some very significant entities. They are not your typical property programs.

Often, they are very large programs with multiple members and vast amounts of data. What are some of the particular issues and challenges that the pooling customers face when organizing and managing their data and preparing for their submissions given the nature of these entities?

Mark: Sure. The exposures that pump any space, I don't think are dramatically different than what any other industry would face. Their portfolios may be different. I mean, we see a lot of portfolios. They're in the hundreds of millions of dollars and maybe billions of dollars of value, so they're very, very large programs.

And historically, public entities may have been a little bit behind the rest of the world in managing their data, and the markets were finding that they were grossly underinsured. The values that they were reporting because they were buying replacement cost coverage, but the values that they were reporting were way below true replacement cost. So carriers were getting panicked by that as they were seeing losses. Maybe somebody had it on their books for two hundred and fifty mil. Well, lo and behold, it was seven hundred and fifty mil. You know, it just was way, way below the actual cost. So that necessitated on demand of the carriers that they improve that, that they start reporting those values that were truer and closer to the actual replacement cost value.

We have been preaching that for years, so I think, Alliant as well as our clients knew that was coming, and we always kept preaching to them the need to better have control of their data and to make sure that the reported values were more consistent with and a little bit more accurate with the actual replacement cost values.

And but the problem with that, if they were grossly underinsured, even if the rates are flat and all of a sudden you have a much higher value, your premiums are gonna go up. If you were fifty percent underreported and underinsured and you adjust for that, that now sets a new floor because you're now insuring much higher values. And if you couple that with an ever-changing and hardening market as far as rates are concerned, they're getting crushed.

And so we were ahead of it with most of our clients to make sure that their values were being reported accurately. But the problem is on public entities, money is tight, budgets are tight. And trying to keep up with that data is is critical.

And most of the carriers will work with you. Again, the whole idea is to make sure your client looks better to the marketplace than everybody else's. So if you have a plan in place and saying, "We've identified the problem. We hear you. We're working on correcting that data." So we put a plan into place to make sure that they have an appraisal process, that their, you know, buildings are being physically appraised on a reasonable period. We try to suggest to them over a certain value that maybe they look at twenty percent a year rather than the cost of doing them all one year so that every five years, one hundred percent of their portfolio is appraised. And then the ones that are not being physically appraised in any given year, then we simply make market adjustments based on cost of living and a particular ZIP code that that property might be in.

And the whole idea is to avoid surprises.

Surprises to a client are unacceptable. There simply is no excuse for it. That's the job of the broker, to keep them educated on what's going on in the marketplace and to have them avoid those shocks, surprises when they get hit with these these large increases.

And, also, when they do that over time, it narrows the scope a little bit of any one given year of how bad their quote might be. Again, they have to position themselves being a little bit better. Also, when budgets are tight, one of the things that often happens is perhaps a loss of emphasis on maintenance.

They don't have the money to do it. They're not maintaining their buildings. Groups are in bad shape, that type of thing. But that also pays dividends. So we always try to encourage them that's not in the area that you wanna skimp on. You wanna make sure that you're doing the proper maintenance of the structure of the building, that you have appropriate safety conditions in place.

Maybe you have an appropriate CAT plan in place. In the event that there is a big event, we're ready to go, and you're not responding late by trying to deploy CAT repair individuals at current pricing after a loss that you've already got this taken care of on the front end. So there are any number of things that, that the clients can do. And some of the infrastructure, to infrastructure, to be quite frank, and some of these public entities is much older than it might be, in other industries. So that also is an issue. But all those things coming together perhaps makes the public entity world even a little bit less attractive than some of the non-public entity, facilities might otherwise be.

Hemant: Yeah. You're really flagging the importance of these entities in these pools having proactive data management and improvement plans.

And, you know, I was struck talking to some of your clients, the pooling managers, how switched on they were about their understanding of the importance of not only the valuation, the appraisal data, but the COPE data, the roof data, the construction data, the fire protection systems.

You know, even though they have - some of them have vast portfolios of members, They do see the importance of this and clearly have been attending to this through this tough market cycle because they know it's a differentiator.

Mark: Absolutely. And you mentioned, you know, secondary characteristics. While they're doing the appraisal work, also capturing all those secondary characteristics. If they're not captured, the market's gonna look at it as a worst-case scenario.

If it's not there, you know, the whole thing, if it's not writing, it didn't happen. Well, if it's not there, they're gonna default to a worst-case scenario. So that can only serve to help you. Then we slice and dice the data after that and kinda give them an idea.

It can never be perfect.

You can't do all these things, but there are certain recommendations that we can make to you based on what we're finding to give you an idea where to spend your money because there will be a payback on those. Where some others and maybe you're hitting the the most important ones first and then trickling it down, knowing you can't, you only have it so many dollars. You can't do everything. So let's make sure we're spending our dollars to make the improvements that are gonna reap benefits for you.

Hemant: And I know that's an important emphasis on our work together, Mark. Archipelago and Alliant is to power your ability to make more discerning recommendations to your customers so they get the 80/20. They don't boil the ocean, but focus on what really matters. They use AI and data and technology to focus in on creating more efficient impacts, to really move the needle, because I was really struck. Some of these, some of these pools have dozens of members, some have hundreds of members, some have thousands of members.

Mark: Yeah. Yeah.

Hemant: And it's quite an ecosystem of data flows and workflows and data collection, data management.

And it's great that you're deploying this kind of capability with us and Archipelago to make that whole process, more efficient and productive for you, your colleagues, and your clients.

Mark: Absolutely. And I'll tell you, Hemant. Our partnership together has definitely been mutually beneficial. It's been beneficial for you. It's been beneficial for our clients. It's been beneficial for us.

And every once in a while, a product comes along that moves the needle. And I think the offering of Archipelago is just one of those. It's one of those products that helps everybody along the way. Having one place to go to manage your SOV, to upload claim data, loss control data, your premium information by location, all the secondary characteristics, all the things that we've talked about into one location that we can then share with whatever stakeholders we so choose, directly with the client always, but with the markets as well, that we can then slice and dice that information, in a format that the markets wanted.

And all of a sudden, your particular submission looks great compared to everybody else. And carriers are sitting out there with all these 7/1's, and they got files everywhere. When we could pull ours up, and they know we got the submission from, you know, Alliant, and that we know when we look at it, it's gonna be complete. It's gonna have all the data that we want.

It gets their attention a lot quicker than perhaps somebody else's that does not have the robust data that we're able to collect in partnership with you.

Hemant: Well, it moves things at the top of the pile and creates impact for your client. It's a real thrill, Mark, to be your partner. Thank you for that opportunity. Thank you for your thoughts and views on the market and for sharing your time and perspectives on this episode of Building Potential. I really appreciate it.

Mark: Thank you for the invite, and I've enjoyed our relationship and very much look forward to furthering that in the future.

Hemant: Okay. Thank you, Mark.

Mark: Thank you.