“Specialty insurance” is a broad term that describes a variety of insurance types. Specialty insurance covers surplus lines, program business, and business written through wholesalers, among many others. The common factor among these insurance types is that the business is typically not written through standard markets. Examples can include:
- Risks with unique underwriting characteristics, e.g., transportation, aviation risks
- Unique risks that require manuscripted forms to cover their exposures, e.g., inland marine, professional liability
- Risks where the policyholder needs an unusual amount of capacity, e.g., earthquake, coastal property
- Risks that cannot be covered in the admitted market and require marketing in the non-admitted market
- Businesses that use a different distribution channel, e.g., program business, wholesale business
Specialty insurers have lagged other sectors in terms of business automation, a function of complex and often highly customized coverages. The gap is beginning to close, however, as specialty insurers invest in data, digital, and core capabilities in product development, distribution, underwriting, and claims.
Specialty insurers are prioritizing reporting tools and investing in data science capabilities to optimize their portfolios and improve underwriting. They are upgrading to highly configurable policy administration systems to improve underwriting and enable product development flexibility to speed entry to profitable niches.
Specialty insurers are investigating automation support for ingesting new business application documents and building out broker platforms. Digital broker platforms and API catalogs are also assisting in automation.
The specialty market requires significant operational flexibility to accommodate a wide variety of risks and meet the needs of insurers and insureds. Most lines are seeing increased rates and/or reduced capacity. Social inflation is a driver for liability lines; insurer consolidation is also a factor, particularly for medical professional liability and surety.
At the state level, regulations such as the California Consumer Privacy Act are driving the need for increased cyber risk coverage. These regulations continue to be clarified and modified. Federal and state governments have relaxed other regulations in the wake of COVID-19, and legislators have proposed a federal pandemic backstop.
FEMA has announced plans to implement new rates for single-family homes nationwide under the National Flood Insurance Program beginning in October 2020. Those new rates will be based on private-sector data and include new sources of flooding, such as heavy rainfall.
Cyber-liability rates depend on firms’ security practices and claims experience; expectations for 2020 rates range from flat to increases of ten percent. Terms and rates are most competitive for the middle market.
Consumers and businesses are “renting” their services or goods on-demand for a defined set of time (e.g., minutes, hours, days) and require a range of insurance coverages.
Insurers have leveraged advances in sensor technology to embed sensors and network them for a range of applications. Some insurers have taken advantage of the resulting real-time data for boiler equipment, cargo monitoring, and defect or hazardous substance detection. Self-driving cars and trucks (and ships, in the long-term) are emerging niches that could require new coverages.
For an in-depth look at current trends in the specialty lines space, read Novarica’s latest report, Business and Technology Trends: Specialty Lines.
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