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Insurers are only now beginning to aggressively target small commercial, where no one company owns more than 4 percent of market share, despite it accounting for more than one-third of all commercial accounts. One of the less discussed alternative growth areas is mid-market and small specialty business, which offers significantly higher-margins because insurers are able to sell based on their expertise and value-based pricing instead of being beholden to bureau or filed rates. In fact, the global specialty insurance market is expected to grow significantly at a compound annual growth rate of 5.7 percent from 2019 to 2028. Certain specialty products expect to see even more growth, such as cyber risk insurance, estimated at an average annual growth rate of + 25 percent from 2019-2025.
Yet, many insurers have kept specialty business at arm’s length because of complex underwriting exposures and challenge of scale. As with any product, it is an insurer’s responsibility to ensure specialty offerings are every bit as tailored to the risks exposed or created by their customers’ business. However, specialty products are often custom built with very few pre-established rules and relevant data sources to leverage for more efficient decision-making. In an insurance era where ease of doing business and impeccable customer experience are becoming a competitive table stakes, there is an understandable hesitancy about this market. However, improving core system platforms, emerging technologies, and increased availability of niche third-party data sources are allowing insurers to operate specialty lines more in-tune with their main business.
Data Capture and Processing Enables Operational Consistency
With Celent referring to 2018 as “the year of the insurance platform,” it’s best to think about developing specialty projects within this context. Insurance platforms are similar to disparate core systems such as policy, billing, and claims, but are interconnected through better data capture and processing to enable more tailored user experiences. A new workers’ compensation product built on an insurance technology platform has pre-established hazard codes, rates, and burgeoning regulations that guide development. This makes basic data capture, processing, and rule development needs more uniform. That allows for an out-of-the-box solution to get to market quickly and be altered as feedback dictates. In other words, the number of relevant data sources that insurers can easily capture and process through APIs positively affects internal operations and opens up opportunities for better customer experience.
Most specialty business doesn’t have such a linear path to development. If insurance carriers are interested in offering professional liability coverage for lawyers, for instance, there are significant insurance product and coverage variations from one insurer to another. The variation in operations is reliant on expert individuals and impossible to scale without the use of technology. In a perfect world, insurance carriers collect information and know everything about the law firm including details on each attorney such as case history, win rates based on who the judges are, and type of cases. This level of detail often requires on-site visits to glean enough information to properly underwrite and bind the policy. There are now third-party databases that can populate insurers’ systems and streamline the policy administration process for this product. The additional data collected can help insurers develop a rating algorithm, which can be used by technology to evaluate risk and rate in real-time. It limits the need for specialists to manually review documents or perform onsite visits while requiring less data entry from customers. This enables the development of sophisticated policyholder and agency portals that were mostly only available to primary lines of business.
Emerging Technologies Can Evolve Highly Profitable Specialty Market Segments
In addition to new data sources, there are also new ways to capture data that can help support these highly profitable specialty businesses. The inland marine insurance sector, for example, is one of the property/casualty industry’s most profitable and consistent lines of business over the last ten years, largely due to the numerous specialty inland Marine product offerings that create greater diversification compared to other property lines. More incumbent insurers and start-ups are seeking to carve out a niche in this fast-growing and diverse market.
The insights that can be captured from blockchain and IoT will be instrumental for this line of business. Connected devices attached to shipping packaging and telematics can offer insurers full delivery route and checkpoint information, monitor container temperature and weight to significantly increase the information available to adjusters in order to make decisions and reduce the time and hassle of the claims process. Limiting the cost associated with lengthy, challenging claims, diminishes risk of scaling the business. Coupled with blockchain and smart contracts to further improve information sharing and trust, these forms of data can be invaluable beyond inland marine to support almost any type of supply chain insurance program offerings.
Data and analytics are fundamentally changing all of property/casualty insurance, making personal and commercial lines of business simpler to operate, easier to scale and more profitable as a result. But new technologies are helping specialty businesses go well beyond their current place within the insurance market. Smaller, more siloed business opportunities can now become a sustainable revenue generator for insurance carriers. In most cases, becoming “normal” is hardly an aspiration, but in the case of specialty lines, it’s transcendent.