With inflation remaining stubbornly high and climate risks increasing, insurers in niche sectors face an impossible choice: put their underwriting profits at risk or drive customers away with high premiums. Insurers in specialty lines need new ways to reduce cost and drive efficiency to overcome a challenging market.
Due to high demand and volume of standard personal and commercial insurance, such as car or small business owners insurance, there is limited room for price and coverage variation. The converse is true for specialty markets, from high-value property assets to large-scale commercial cyber coverage and everything in between. Niche sectors face the risk of becoming prohibitively expensive in today’s market. Policyholders needing specialized coverage, such as complex commercial sectors, often act as a canary in the coalmine for the industry at large; they are the first to notice insurers raising premiums unsustainably or exiting niche markets. Currently, 78% of risk managers report rising insurance premiums as the biggest concern for their high-net-worth clients.
Every year, climate change brings even more unpredictable and damaging weather events. As of October 2022, there were 15 disasters with losses exceeding $1 billion. These include drought, flooding, storms, cyclones and wildfires. This is far above the average from 1980-2021 of 7.7 events. Supply chain issues associated with COVID-19 and the war in Ukraine make the task of rebuilding costlier and more difficult. According to Fitch, the cost of building materials increased 23% year-on-year in Q1 of 2022.
With massive catastrophes like Hurricane Ian laying waste to swaths of property, this year will be the second year that insured losses from disasters exceed $100 billion. As cost per claim soars, insurers find themselves stuck between a rock and a hard place. If insurers raise premiums, they risk pushing customers past what is affordable and widening the protection gap. If insurers lower underwriting capacity in unpredictable markets, they miss opportunities to capitalize on raised demand caused by extreme weather conditions.
If insurers want to successfully walk the tightrope between charging prohibitively and losing money on pay-outs, they need to be agile. Niche sectors with razor-thin profit margins require insurers to react immediately to the fast-changing market landscape. To generate a profit, tech-enabled businesses must operate at the highest efficiency. Stripping out legacy IT systems helps insurers eliminate technical debt and become nimble. These savings in turn enable insurers to keep premiums as affordable as possible while managing financial risks the economic and geopolitical climate bring.
See also: What to Do About Rising Inflation?
Many carriers are still stuck using antiquated IT infrastructures. Yet, modern digital core insurance platforms enable ease of integration and cloud-native operating systems offering continuous updates. No-code platforms provide flexibility and agility for insurers to provide greater personalization, usage-based plans, on-demand policies, and expanded portfolios. This flexibility unleashes the creativity of insurance professionals. Insurers can make and implement pricing and distribution decisions, tailoring their offering without relying on developers. The time saved translating business needs to technical users alone enables rapid launch of new products tailored to the fast-moving niche markets of the day.
Using API-enabled systems with the right data integrations, businesses can also support more accurate risk modeling in specialty lines and offer a more seamless quoting experience. Platforms built with integration in mind use available data sets to the full, enabling data pre-fill and straight-through processing. This can save agents and underwriters days or weeks of time, offer real-time service for agents and policyholders and increase underwriting capacity without increasing head count.
As just one practical example for keeping step with rapidly changing weather patterns, an aerial imagery property intelligence API can be quickly and seamlessly plugged into a SaaS platform. This way, insurers have up-to-date information on the state of a property and the risk characteristics associated with the surrounding area. With climate change making weather unpredictable and rendering historical risk trends obsolete, it becomes necessary to lean into the latest innovative technologies to collect accurate risk intelligence, underwrite profitably and speed up claims processing times.
Despite relentless challenges facing the P&C insurance sector, with API-enabled, digital-first, no-code platforms, insurers can not only overcome the current challenges, but set themselves up to overcome future headwinds. With the right technologies, insurers can outflank competitors, rapidly bring innovative products to market and insure otherwise underinsured customers.
