ACORD’s recent study, “Intelligent Growth: Intent, Decisions, Outcomes,” reveals that E&S/specialty companies don’t fare well over the long term. Here, CEO Bill Pieroni suggests possible reasons in an interview with Wells Media’s Andrew Simpson.

Q: You talked about the winners among the losers—the specialty companies. Why did they lose?

Pieroni: We found that the excess and surplus writers were growing but not profitable.

I think what happens is capital is a raw material for what we do. So, you’ve been given money either through private equity or funding or some seed money. The intent was, “I’m going to write this specialty business because specialty business should be profitable by its very nature. It’s specialty, not a lot of competition.” And I think they set up an operating model which says, “This is what I’m going to do.” And then they get in there and there’s an excess of capital sitting in that space. So, it becomes very hard to identify and exploit opportunities in the marketplace to make profit because it gets competed away because you’re all slugging it out.

True specialty should mean you’re one of the only writers on the planet. How do you say that I’m a specialty writer and there’s 10 of you?

Q: Do the specialty losers lack the data to be more profitable?

Pieroni: I don’t think it’s the data.

When you pass by a restaurant and there’s a line outside, the very first thought should be not that it’s good but they’ve mispriced it. So, you’ve got excess demand at that current supply. In theory, if you’re a specialty lines writer, you should be tapped out in the first 30 days because you bound it all. You shouldn’t have capacity there. If not, raise the price. Why don’t they raise the price? Because there is supply. You can’t raise the price because there’s 10 other restaurants…You can’t raise prices because it’s really not specialty is it? Yes, it’s specialty because you write something very unique, but you’re not special because there’s lots of capital. They’re chasing it.

I think that [explains the results]. We can dig in and find it out. But if you’re a specialty lines writer and there’s no one else with that, why the heck aren’t you charging [adequate prices]? Because you can’t. And why don’t we do something else? Because your whole business model was configured around that specialty line. What do you do? There’s nothing you can do.

Q: So, that was a surprise for you, too.

Pieroni: Shocking. Shocking…Maybe what it says is that specialty lines writers are having a difficult time over the long term. You remember this is 20 years; it’s not 20 months, right? Twenty years over the long term, it’s really counterintuitive that they didn’t really earn superior results.

See related articles, “Confessions of a Diehard Fan of Data: An Interview With ACORD CEO Pieroni” (Part 1 and Part 2) and “How ‘Intelligent’ Insurers Manage to Both Grow and Create Value: ACORD Study,” for more insights from Pieroni and the ACORD report.