Overcoming Underwriting Challenges: A Guide for Specialty Insurers

Periods of financial instability significantly increase the workload for all insurance providers. This article discusses how underwriting challenges for specialty insurers can be addressed.

Fremont, CA: Industry veterans will attest that they have not encountered a market of this nature in over four decades. A combination of elements—including inflation, economic instability, supply chain disruptions, and rising natural disasters—makes it progressively difficult for underwriters to evaluate clients' risk profiles accurately. Specialty insurers are also affected by these challenges.

Effectively evaluating risk in the current market, regardless of the specific niche, hinges on three established principles: collaboration, communication, and innovation.

Collaboration:

Establishing appropriate property values amidst inflation presents a significant challenge for all property and casualty insurers, including those in specialty lines.

This issue arises from two primary factors. The first is the soaring costs of construction materials, which are influenced by inflation and disruptions in the supply chain. The second factor is the long-standing systemic underinsurance problem that has recently affected the industry.

Historically, underwriters relied on replacement cost estimators to determine property values. However, many of these calculators only reflect current values and fail to incorporate inflation. Consequently, producers, carriers, and insured parties must collaborate effectively to ensure accurate property valuations for each policy.

The positive development for underwriters is the increasing collaboration among producers, carriers, and insureds. Such teamwork is advantageous for all parties involved. Carriers can more accurately assess their loss costs, insureds receive policies that provide full indemnification, and producers and agents significantly mitigate their exposure to errors and omissions claims.

Communication:

Periods of financial instability significantly increase the workload for all insurance providers. A primary factor contributing to this is the necessity for more challenging discussions with policyholders. These individuals are already under pressure from escalating expenses and are now faced with the additional challenge of comprehending the reasons behind the increase in their premiums.

Specialty insurers, catering to a distinct clientele, can swiftly identify the factors affecting their customers—such as modeling and catastrophe exposure or labor and material costs—more effectively than general insurers, who manage diverse business portfolios.

Innovation:

Underwriters focusing on a particular niche cultivate extensive knowledge regarding all elements that influence a policy, including property values, business revenue, inventory assessments, and restoration timelines. This expertise enables them to serve as reliable advisors to their clients. Furthermore, it promotes a culture of innovation that empowers them to assist their clients in enhancing their risk management strategies.