It would be an understatement to call 2020 a year of change: between COVID-19, the consequent economic recession (depression?), and sociopolitical instability, nothing has stayed the same. Change has come to the specialty and large commercial insurance segment as well, which needs to respond to emerging risks and provide products to mitigate them.
This year has seen shifts in the regulatory environment and the way companies sell products. Modifications to coverages that support the sharing economy, a more significant push for IoT availability, and mandatory digitization during the pandemic are all accelerating change.
COVID-19 and the Regulatory Environment
State regulations, e.g., CCPA, NY DFS, are pushing organizations to increased cyber risk coverage, especially financial institutions and their third-party business partners. Federal and state governments have relaxed some regulations in the wake of COVID-19. Legislators have proposed a federal pandemic backstop or alternatives (e.g., the terrorism backstop in TRIA, National Flood Insurance) to reduce the burden of pandemic-related business interruption claims on insurers.
COVID-19 has increased demand for cyber-liability insurance. Several states have also proposed making insurers cover pandemic losses under business interruption coverages even if there is exclusion language in place. Courts being closed has also affected liability lines and claims resolution.
Distribution
Specialty and large commercial products are “specialized” by nature. Specific underwriters within MGUs or carriers have knowledge of certain products, and certain brokers sell those products. Social distancing and stay-at-home ordinances have upended the in-person business meetings, lunches, and handshakes that help build relationships between brokers and underwriters.
The question for specialty insurers is whether the way they sell specialty products will revert to pre-2020 “business as usual” as states relax stay-at-home orders. Could additional waves of COVID-19, and subsequent lockdowns, push specialty insurers to rely more on video, emerging technologies, and vended solutions?
Emerging Risks
Cyber-liability rates depend on an organization’s security practices and claims experience. Willis Towers Watson forecasts that rates in 2020 will range from flat to 10% increases. Terms and rates are most competitive for the middle market. Insurers are managing limits for cyber-liability, though they are more willing to accept manuscripted policies and negotiated coverages.
Insurers are addressing bodily injury, BI, cyber extortion, physical damage due to breaches, and reputational risk. Some are offering combined cyber-liability and E&O. Others are offering business interruption and system failure coverages for critical infrastructure outsourcing providers with small sub-limits. Additional coverage expansions include forensic accounting coverage, reputational damage coverage, and reinstatement of limits provisions. How the pandemic evolves will impact the way insurers design and implement these coverages.
On-Demand Insurance
Consumers and businesses are “renting” services or goods for a defined period (e.g., minutes, hours, days) on demand and require a range of insurance coverage. Some peer-to-peer sharing economy offerings (e.g., home-sharing (Airbnb), rideshare (Uber/Lyft), loanables) may require insurance above and beyond their typical property, liability, or accident coverage.
- Buckle insurance provides Uber drivers with a combined policy to cover personal and Uber usage.
- Slice recently announced a deal with Nationwide to license its on-demand insurance platform for ridesharing coverages. It also partnered with The Co-Operators and Progressive to provide a platform for home-sharing coverage.
- Sure and Trov are also making their platforms available for on-demand offerings. Sure is offering on-demand renters’ coverage and coverage for luggage, collectibles, jewelry, and fine art.
How the peer-to-peer sharing economy evolves in 2020 will drive how the carriers that provide these types of coverages develop.
The Internet of Things
Specialty insurers are using the IoT to develop new offerings to cover risk and avoid future losses. Advances in sensor technologies have led many insurers to embed and network with them for a range of applications; some insurers are taking advantage of the resulting real-time data.
- Hartford Steam Boiler, for example, alerts boiler equipment owners and their primary insurers.
- Ascot and Beazley are partnering to form a small-to-midsize enterprise cargo consortium with $50M in capacity, offering Parsyl’s cargo monitoring devices.
- AXA XL’s construction ecosystem uses Pillar Technologies’ environmental data sensors.
Specialty insurers can investigate uses cases for sensors like detecting hazardous substances or defects in aircraft, offering reduced environmental policy or aviation rates to prospects in exchange. Insurers are also turning to AI-based self-service inspection applications. These technologies can guide users through the process of capturing inspection results, reducing the need for insurer employees or third parties to visit physical locations.
Upcoming Special Interest Group
On July 23, my colleague, Chuck Gomez, and I will host our Virtual Special Interest Group to discuss the latest challenges for specialty and large commercial insurance. Register to join us and industry peers in the conversation.
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