The future of specialty insurance: Unpacking the digital challenges and opportunities

The future of specialty insurance: Unpacking the digital challenges and opportunities

In the late 17th century, Edward Lloyd set up his famous coffee house in London’s Tower Street, laying the groundwork for modern insurance. Fast forward almost 350 years and insurance, now a $6trn industry, has evolved drastically. However, specialty insurers today grapple with unprecedented challenges.

hyperexponential, a pricing decision intelligence for insurers, has delved into these emerging issues and technological advancements driving industry transformation.

The advent of groundbreaking technology is redefining risk. Innovative advancements, from cryptocurrencies to autonomous submarines, are creating a completely new risk landscape. Specialty insurers are confronted with assessing and pricing these novel and complex risks, requiring a shift from traditional tools and practices towards advanced data-driven methods.

Amid the technology-driven changes, a massive influx of data from various sources presents both opportunities and hurdles for insurers. In the past two years, 90% of the world’s data has been generated, and by 2025, it is expected to reach over 200 Zettabytes. For an industry reliant on data for future risk modelling, this surge in data is ostensibly a positive. Yet, the challenge lies in transforming this data deluge into reliable ‘data assets’ that can be utilised effectively.

The digital revolution has also given birth to disruptive ecosystems and value chains. Brands like Google and Apple have transformed industries by creating new ecosystems for smartphones and map services. The insurance industry is no exception. A new generation of InsurTech companies is leading the transformation, creating potent decentralised ecosystems comprised of brokers, insurers, reinsurers and MGAs, fuelled by seamless collaboration.

As risk management becomes increasingly complex and real-time, the actuarial model is undergoing a paradigm shift. Autonomous vehicles, for example, will generate nearly 40 terabytes of data per hour, which insurers must leverage for real-time risk evaluation and portfolio optimisation. The need for agile, real-time risk management systems has led to a focus on creating platforms that enable swift model construction, modification, and release.

In conclusion, the specialty insurance industry is at a crossroad. The complexity and volume of risk and data have surged, making it essential for specialty insurers to embrace technology. By harnessing technology’s capabilities, specialty insurers can transform the actuarial model, converting disparate information into trusted data assets, and navigate through the digital era.

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