Global economic and geopolitical shifts are forcing insurers to rethink how they assess and price risk, with commercial lines facing particular pressure as new exposures, data sources and business models disrupt established underwriting practices.
In a recent Earnix blog, Mark Breading, senior partner at ResourcePro, argues that the fundamental principle of matching risk to price remains unchanged, but the environment in which insurers operate has become significantly more volatile.
Breading points to conflicts in Ukraine and the Middle East, trade and tariff uncertainty and changing supply chains as factors reshaping commercial risk. Shipping routes and energy costs are also being affected, while the insurance industry has experienced six consecutive years of catastrophe losses exceeding $100bn. Inflation and the continued movement of people and property into high-risk areas are adding further pressure.
Financial markets are creating another layer of uncertainty. Interest rates have moved sharply from a prolonged period of near-zero rates to significant increases, affecting investment returns and changing the behaviour of businesses and consumers.
At the same time, insurers are facing new opportunities and exposures as technology changes how risks are created and managed. Telematics and the Internet of Things are generating more detailed data on vehicles, properties and individuals, while parametric, embedded and on-demand insurance are creating new approaches to risk transfer.
AI is adding another dimension to the challenge. Increasing automation could alter workforce requirements and, in turn, the premiums associated with products such as workers’ compensation. At the same time, insurers will need to develop new approaches to assessing risks created by AI itself.
These changes are putting pressure on rating, pricing and underwriting models that were historically updated on a quarterly or annual basis using relatively consistent datasets. That approach is becoming harder to sustain as exposure levels and market conditions change more rapidly.
Breading argues that carriers will increasingly need to adjust underwriting appetite and rules as new information emerges. Real-time telematics and IoT data can provide more granular insight, while greater precision and personalisation could allow insurers to move away from broad risk pools towards more individualised pricing.
The excess and surplus market is also gaining importance, with managing general agents developing specialised programmes to address complex commercial exposures that may not fit traditional underwriting models.
According to Breading, the next stage of insurance pricing will increasingly involve AI-driven and real-time approaches. Insurers that invest in the technology and talent required to respond quickly could be better positioned as the risk environment continues to change.
As highlighted in the Earnix analysis, the growing availability of data and AI capabilities is giving insurers the potential to move towards more dynamic decision-making. For carriers, the challenge will be turning those capabilities into practical underwriting and pricing strategies while maintaining accuracy, governance and commercial discipline.
Read the full Earnix analysis here.
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