The U.S. market is ever-changing, with new niches expanding continuously and creating opportunities for insurers. But the IT systems of the past hold back coverage providers from expanding their product offerings.
With the increased use of digital capabilities during the pandemic, ransomware attacks have hit a record. In the U.S., the volume of ransomware attacks surged 185% in the second half of 2021, compared with the first half, while the average cost of recovering from a ransomware attack stayed at a staggering $1.9 million. The global cyber insurance sector is expected to hit $36.85 billion by 2028. Insurers need to be nimble to help clients deal with cyber attacks, including the expected surge in premiums.
Catastrophic coverages are seeing major changes, too. In the U.S., Hurricane Ida was last year’s costliest natural disaster, with overall insured losses of $36 billion, and scientists expect extreme weather and disasters to continue to increase in 2022. In the past few years, extreme events have outpaced experts’ predictions, turning climate change into one of the top emerging risks. Experts anticipate that the P&C sector will see the highest growth in written premiums in the past 18 years. 54% of Americans say they cannot afford disaster debt, and almost half of businesses are not able to reopen after a natural disaster hits. To tap into this expanding niche, insurers need to think about leveraging flexible and agile systems. Speed, cost and flexibility are needed now more than ever.
New risks need new systems
But many insurance companies are still leveraging systems that are primarily serving the back office. These monoliths rely on inflexible databases and have become obese systems that are difficult and costly to change. Developers have added custom capabilities and functions for each client, ending up with large code bases built by accident, not design. This has created more work for coverage providers, which now have to deal with heavy technology to develop and launch products. The downside of the monolithic architecture lies in the insurers’ inability to create products that serve expanding niches, such as cyber and climate insurance.
To maintain competitive pricing when entering niche markets, insurers have low-cost digital transformation in mind. Achieving this may seem impossible, because speed to market is key when trying to stay ahead of the competition. Insurers can balance both, by turning their attention to vendors providing platforms for curating insurance products. Software-as-a-Service (SaaS) systems are both speedy and flexible. They allow providers to customize their products without any coding or advanced technical knowledge. Insurers can save both time and money by adopting such systems and focusing their attention toward expanding their coverage umbrella.
It’s time to get personal
Personalized insurance products will be the winners in each niche market. Customer demand for usage-based insurance is on the rise: Consumers expect to have the ability to calculate premiums based on what they are using in real time. SaaS-based systems can facilitate these features
The user-friendly interface of SaaS systems allows insurers to build products that comply with back-office requirements and fulfill customers’ demand for personalization at the same time. In this way, insurers can keep up with the changing coverage market and offer the targeted services consumers want.
See also: Does P&C's Future Lie in Datasets?
Progress doesn’t have to be pricey
Having the right systems in place is crucial for entering niche markets with low-cost products. If insurers are not thoughtful and progressive with their innovation practices, they can end up spending millions on IT solutions that include features they do not even use. With SaaS systems in place, insurers only pay for the tools consumed.
Smart insurers will capitalize on the opportunities offered by niche markets, especially in the cyber and climate sectors. To stay ahead of the curve, insurers need to understand the importance of exploring new platforms. Monolithic systems are no longer a viable solution for developing flexible and agile insurance product lines: The future of insurance lies in the adoption of SaaS systems, and the forward-thinking insurer knows that.