2011: Property-Casualty Specialty Insurance Markets - Profiting from Intelligent Design


Price : $1,750.00



“Specialty insurance” is generally perceived to be more profitable than non-specialty insurance offerings, and insurers have been increasing their specialty capabilities in response. Yet specialty insurance is a term used variously for line-of-business specialists, customer niche insurers, or high-risk insurers. In this study, Conning presents an overview of specialty insurance markets, defines the segments, and develops estimates of the premium potential and underwriting profitability for these markets. Further, the study analyzes trends in specialty product distribution dynamics, product development trends, and other key success factors for specialty insurers.



1. Introduction

2. Executive Summary

3. Superior Underwriting Results from Specialty

  • Superior Underwriting Performance Opportunities from Specialization
  • Combined, Various Types of Specialty Insurers Have More Than 40% of the Property-Casualty Market
  • Specialty Insurers SWOT
  • Summary and Implications

4. High-Risk Specialty Markets

  • High-Risk Defined Market
  • High-Hazard Market Premium Is at $50 Billion in 2010
  • Excess Exposures Market Is at $6 Billion
  • General Nonstandard Risk Market Is Both Large and Volatile at $40 to $60 Billion DPW
  • Bespoke Market: Unusual Loss Exposures Premium Is About $3 Billion
  • Quantifying the Total High-Risk Defined Market
  • Excess & Surplus (Nonadmitted) Have Substantial Share of High-Risk Market
  • Summary and Implications

5. Specialty Distribution Dynamics

  • Value Chain for Specialty Insurance Products Distribution
  • Key Distribution Channels for Specialty Insurers
  • Developing Conditions in Distribution
  • Summary and Implications

6. Specialty Market Strategic Implications

  • Multi-Specialty Path Leads to Increasing Complexity
  • Rising Specialty Increases Potential for Unintended Risks
  • Increasing Distribution Complexity Requires Efficiency Solutions
  • High Segmentation versus Specialty
  • Advantage in Innovation That Supports Execution and Efficiency
  • Summary and Strategic Implications

Appendices

A. Profile of Interviewees for This Study
B. Information on MarketStance
C. Special Contributors
D. Export Lists 


Introduction

“Specialty insurance” is an imprecise and inconsistently defined term and marketplace. Insurance professionals and industry analysts use this and similar terms to describe classes of insurers, classes of customer markets, and distribution processes. These include, at times, E&S (excess and surplus) insurance, high-risk insurance, customer niches, and also insurance provided by single-product providers. These markets often overlap, a factor in the imprecise definition.
 
Specialty insurance is interesting because many insurance professionals and financial analysts perceive it to be more profitable than the rest of insurance, despite its amorphous market definitions.

The initial goals of this research project were to define parameters of specialty insurance markets and to develop estimates that quantify the premium potential and underwriting profitability for these markets. The study provides these estimates, noting deficiencies and gaps in supporting data.

Our examination of these markets reveals developing environmental conditions, some of which indicate fundamental shifts among providers of specialty insurance products and how insured customers and retail agents access these products. Trends of increasing volume and complexity in specialty products and distribution channel access are likely to continue into the foreseeable future. “Circling the wagons” among traditional providers and distributors is unlikely to be effective. While insurers and distributors look to innovation to drive solutions, we explore which directions are more likely to achieve lift.

We have organized the study to begin with an examination of commonly defined specialty markets and insurers. A drill-down into one of the major components—the high-risk market—follows. Next, we explore distribution dynamics. Finally, we analyze the implications of the combined conditions for insurers and distributors.

More specifically, Chapter 3 provides definitions and quantification of major classes of specialty insurance and tests the often-stated belief that specialty insurance is more profitable than general insurance. We conclude the chapter with a SWOT (strengths, weaknesses, opportunities, and threats) analysis of specialty insurers.

In Chapter 4, we examine in detail the high-risk specialty market. This includes the E&S market, which is insurance written by nonadmitted insurers. Because much of the high-risk business migrates between admitted and nonadmitted insurers, the so-called “gray market,” we developed other mechanisms to quantify the market size. Our principal high-risk submarkets include high-hazard customers, nonstandard customers, and the custom (bespoke) market that includes emerging risks. The chapter ends with an analysis of strategic implications of cycle conditions on E&S.

Chapter 5 focuses on distribution of specialty business, beginning with the specialty insurance distribution value chain. We examine the major distribution channels and how conditions of expanding distribution channels are affecting the traditional multi-tiered distribution system for high-risk and customer niche markets. We also study developing trends in the wholesale distributor environment, including the growth in large wholesaler/MGA (managing general agency/agent) companies. Our analysis of the strategic implications explores changing regulations in the nonadmitted market, the increase in specialty products, and the further development of electronic exchanges.

Chapter 6 takes a big-picture view of the developing conditions. It explores how these conditions are likely to continue and how they will affect insurers and the distribution value chain. Expansions into additional specialty products and distribution are exposing their insurers and the market to what may be inadequately anticipated distortions in data and fading of expertise. Increasing complexity also is a critical challenge eroding distribution efficiency. We explore where opportunities in innovation are more likely to drive lift. The chapter concludes with a high-level view of the principal drivers in the specialty insurance marketplace and their major implications.