What’s Driving Boom in Specialty Insurance - Insurance Thought Leadership

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October 17, 2021

What’s Driving Boom in Specialty Insurance

Summary:

“There is an intense craving for customization and for partners who truly know what they’re doing."

Photo Courtesy of Pixabay

The specialty insurance market is on the rise. In fact, Market.US projects that the global market, which was valued at $229.6 million in 2018, will increase at a compound annual growth rate of 5.7% from 2019 to 2028. This steady, upward trajectory is driven by demand for customized solutions to help combat increasingly unusual risks across industries, from the young ride-share industry to the mature commercial property market. And this growth has the potential to touch all players in the insurance continuum – from MGAs and MGUs to brokers and agents – who are looking to the specialty market to solve very specific challenges for industries and organizations across the country. 

According to Chad Levine, executive vice president and chief strategy officer for Aon Affinity, “There is an intense craving for customization and for partners who truly know what they’re doing. For agents, being able to zero in on a specific client risk and provide coverage for it is a serious leg up. In fact, consumers no longer hope you have what they want – they expect it. Specialization is driving every facet of our lives – including what coverage we choose to protect our most important investments.”

Built for speed and innovation

Specialty insurance companies are typically among the first to bring a solution to market when an insurance need emerges. Designed to be nimble and forward-thinking, specialty companies aren’t looking at 50 industries and trying to understand the impact of an event. They’re often laser-focused in one area, and that enables faster evolution and innovation. 

The internal structure of a specialty provider differs from a more traditional insurance company in a way that supports bringing a product to market quickly. While a traditional company might need to own every part of the policy lifecycle – from the sales and marketing to the product launch to claims management – specialty companies often assemble a team of experts from different organizations to design and deliver a product that’s in line with unique or emerging client needs in a shorter time.

You can see this process playing out in real time as insurance experts work together to address early questions in the fine art world about the potential for coverage to help protect non-fungible tokens (NFTs), which are digital assets designed to show one has unique ownership of a virtual item. This conversation really started to gain momentum in March 2021 when digital artist Beeple sold an NFT of his work for $69 million during a first-of-its-kind auction at Christie’s. It was a moment that demonstrated what collectors are willing to invest in digital art and the need to make sure that investment is adequately protected. And while the specialty insurance world hasn’t arrived at an answer to NFT coverage, it is exploring a range of options – from how it might adapt traditional fine art coverage for the digital world to how coverage from the financial institutions market might work – to meet the needs of this emerging group of clients. 

See also: State of the Insurance Marketplace

Four industries leading the specialty charge

While there are many drivers moving the needle in the world of specialty insurance, there are four industries that are really driving demand for unique products:

Healthcare

Beyond the daily risks involved with delivering patient care, the COVID-19 pandemic created risks and has accelerated the maturity of those once simply deemed as “emerging.” As a result, as providers and practices navigate a more complex risk landscape, it is essential that they work with insurance specialists who understand these complexities and can deliver contemporary solutions for their clients. 

There are many forces that will continue to shape and reshape healthcare’s risk environment in the coming years, but four in particular stand out because of their projected scope and impact: changes in the delivery of care, particularly telehealth; the growth of the home healthcare industry; a rebound in the senior living industry; and the rise in demand for mental wellness services.

Mortgage Banking

Originally predicted to be a challenging year as consumers grappled with a spike in unemployment and an economic crash, 2020 saw a boom in the mortgage banking industry, which “had everything to do with low interest rates,” said Tom Delaney, president of Bankers Insurance Services (BIS), an Aon Programs solution. Across the board, Delaney notes a few key trends that will continue to propel insurance solutions for the industry forward, including the hot selling market, continued interest in refinancing and a new level of demand for mortgage impairment. 

Catastrophes

There’s a “great awakening” happening in catastrophe coverage. Commercial property owners are coming to understand their increased threat of flooding no matter where their property is located. Property owners typically arrive at this awakening because of increased access to data about the property’s true flood risk as well as personal experiences with flooding, a moment that usually brings about the understanding that flooding is the costliest catastrophe exposure for property owners, yet isn’t covered under a standard commercial property policy. 

And the awakening is in an early stage. “We’re beginning to see an increase of flood insurance policy purchases that aren’t lender-required, and this shift is introducing entirely new underwriting elements, such as using analytics to assess the risk of each individual property, to accommodate the request for higher limits and broader coverage,” said Casey Castagna, client service executive at Insurmark, a managing general underwriter that provides innovative property and casualty insurance products, an Aon Programs’ solution.

Nonprofit 

The pandemic intensified the need for the critical resources nonprofits provide as more people deal with serious issues like food insecurity, lack of access to educational resources and insufficient housing. Yet the pandemic also tested nonprofits, pushing them to their limits and exposing them to new risks as they seek to serve greater numbers with less funding, increased expenses and fewer volunteers.  

Beyond the myriad of risks, the rising price of insurance will continue to be a pain point for nonprofits – presenting insurance professionals with an opportunity to serve as a true counselor to their clients in this industry. These organizations are looking for protection options in the middle of a very fluid risk landscape and often don’t have the expertise to choose on their own. As risks continue to converge and press against each other, insurance agents will play a major role in serving as advisers to help their clients find alternate coverage solutions that can serve as an umbrella of protection. 

See also: 6 Cybersecurity Threats for Insurers

Conclusion 

The specialty insurance market shows no signs of letting up, providing tremendous opportunity for insurance professionals looking to expand or evolve their books of business. “There is – and will continue to be – a significant appetite for specialty products,” Levine said. “The last year certainly showed how important it is to be able to rely on expertise in the face of new challenges.”

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About the Author

Dave Zeornes is an experienced sales leader skilled in property & casualty insurance, strategic planning and team building. His experience in agency management and growing the agent channel for insurance carriers has provided a valuable perspective in supporting agents and brokers.

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