API Insurance

Specialty Insurance Underwriting: Priorities, Challenges and Opportunities

To cope with record losses, many insurers are looking to expand into specialty lines, new geographies, and introduce new underwriting capabilities. Here’s a look at the challenges and opportunities.

Driven by new competitive threats and risks, rising re-insurance rates, and a record net underwriting loss of $26.9 billion for 2022 — the largest since 2011 in the U.S. non-life insurance sector, according to McKinsey & Co. — there are opportunities for profitable growth in specialty insurance.

New partnerships, wider distribution channels, and the evolving capacity to cover specialized risks are fueling insurers to build upon the right technical foundation and relationships to expand across geographical and business lines. Specialty insurance markets especially are expanding, in part due to disruptions such as natural catastrophes and cybercrimes.

Creating diversified product offerings that go beyond traditional pricing requires insurers to adapt and innovate.  To meet these challenges and remain competitive, insurers need advanced underwriting capabilities that are closely connected to a network of partners. In this blog, we’ll explore the current challenges in specialty insurance and consider several opportunities for insurers looking to expand into specialty lines.

Challenges in Specialty Insurance

Specialty insurance straddles the new boundaries of risk protection and risk mitigation, which requires product development flexibility and diversified product value propositions.

Because specialty often addresses risks not covered in the non-admitted market, insurers need to utilize different distribution channels, such as program business or wholesalers, and pursue specialized underwriting expertise. Insurers are already investigating options for automation tools to build this flexibility and streamline core processes, such as underwriting, submission, and quote/bind.

Despite these steps, the following challenges hinder insurers:

Limited underwriting capabilities

One of the most significant challenges facing insurers is the transition to a digital underwriting process. The increasing number of premiums and submissions requires a more efficient and customizable underwriting platform. However, insurers often struggle with integrating various underwriting processes and data sources, leading to a hodgepodge system that fails to mesh the larger range of data points needed for specialty underwriting. Additionally, limited information extraction capabilities hinder insurers from fully leveraging the data they have access to.

Manual submission processes

Specialty insurance involves complex underwriting tasks, including rating and document creation for custom policies. While these processes are essential, many insurers still rely on manual methods with human eyes scanning PDFs and spreadsheets. This manual approach is not only time-consuming, but also prone to errors. Insurers need a core platform that offers proper document management and accessibility for all staff involved in the underwriting process.

Reluctance to change

Despite growing interest around AI and innovation technologies, communicating expectations to teams hinders the technological foundation for specialty. Building the capabilities to expand into specialty insurance will be both an IT and business shift. Without enterprise-wide investment, such capabilities may either go unused or worse, incur additional costs. Tackling this challenge will need insurers to embrace an agile approach, smaller blocks and sprints for proof of concepts, and continuously communicate quick wins to teams while being specific about the value of such enterprise-wide change.

Three priorities for specialty insurers

To be competitive in the specialty insurance market, insurers must prioritize technical investments to improve their core underwriting, submission, and quote and bind capabilities. This approach lists critical priorities that combine advanced technologies and innovative strategies to streamline underwriting processes, enhance customer experiences, and drive value for all stakeholders.

Here are three areas of investment for insurers looking to excel in the specialty insurance market:

  1. Invest in intelligent document processing
    To automate data extraction and integration, insurers should invest in an AI/ML-powered underwriting platform and workbench with intelligent document processing. Machine learning algorithms can identify high-frequency, low-severity claims, enabling insurers to automate the underwriting process for these cases. This not only speeds up underwriting but also reduces the risk of errors. Critically, it can identify unique data points, ingest, and extract the right data to be viewable for underwriters and agents. 
  1. Enhance API capabilities for partnerships
    Application programming interfaces (APIs) play a crucial role in connecting insurers with distribution partners, such as brokers and agencies. Building better API capabilities is essential for ensuring repeatability and customizability in data exchange. Improved API integration can lead to more accurate data sharing, better collaboration, and a smoother underwriting process. Especially as insurtechs are leading the innovation of new risk pricing and mitigation technologies, API capabilities will be crucial to facilitate partnerships with insurtechs and access to new distribution channels.
  1. Choose a contextualized approach to app engineering
    Incorporating app engineering into underwriting should not be a one-size-fits-all solution. Insurers should invest in a contextualized approach that is configurable to the specific needs of their agency partners and customers. This personalized approach can significantly enhance customer experience, agency experience, and data quality. Brokers and underwriters must collaborate closely to align their strategies and effectively meet the market’s evolving demands.

Reinventing the Specialty Insurance Value Proposition

The specialty insurance market is evolving, presenting both opportunities and challenges for insurers. To thrive in this dynamic environment, insurers must prioritize the pursuit of a sound technical foundation that fosters enhanced underwriting processes and expansion into new partnerships and distribution channels.

By building AI-driven underwriting platforms, improving API capabilities, and investing in a contextualized app engineering approach, insurers can reinvent their value proposition to encompass both risk protection and risk prevention and grab their share of the specialty insurance market.

Ready to expand into specialty? Learn how ValueMomentum is helping insurers accelerate business expansion into commercial lines.