Obtaining Traditional Insurance in a Changing Marketplace

The contemporary commercial insurance industry is a nearly 400-year old behemoth with many traditional practices ready for disruption, particularly now as technology evolves and the market moves to keep up with demand. KPMG, one of the largest global audit and consulting firms, released their annual report on the commercial insurance industry in June 2022 with key insights into the changing landscape for Insurers and Brokers alike. (Source: KPMG The Future of Large Commercial Insurance)

In their report, KPMG identifies five key trends that market participants should anticipate.

1. Client Broker Expectations - Technology has increased the sophistication of businesses and in turn client expectations for personalized and customizable insurance policies. In response, many Insurtech ventures have developed solutions to address clients individually with firm-specific underwriting and policies that consider the specific needs of the business owner. Many Insurtech ventures have also prioritized delivering quality customer experiences with clean designs and excellent customer service both of which are very important in this new market regime. These innovations have added pressure to traditional insurance carriers and brokers who are now trying to keep pace by offering more competitive premiums and policies.
2. Economic Uncertainty - There are several concerns in the broader market today including rising rates of inflation, geopolitical instability in Eastern Europe and Asia, the COVID-19 Pandemic, and localized incidents of extreme weather conditions in light of increasing climate uncertainty. These factors add uncertainty to the insurance industry with carriers still determining how best to address them in their underwriting.
3. Regulatory and Legal Globalization - The regulatory environment for global insurance providers has become more fractured and complicated as certain countries break from global standards and assert their own financial and regulatory regimes. Examples include the United Kingdom and their BREXIT initiative as well as Russia and their increasing isolation from the West.
4. Technology Evolution - Several new technological trends have become more popular in the marketplace including industrial automation, robotics, and artificial intelligence. These technologies are driving efficiency and encouraging innovation.
5. Environmental, Social, and Governance Activism - “ESG” is a new trend focused on examining the social and environmental impact of firms, pushing organizations to emphasize sustainable practices and policies. As a result, insurers are facing increased scrutiny from key stakeholders including regulators, investors, employees, clients, and the general public.
   

Three New Business Models to Consider

As these trends continue to evolve and impact the industry. KPMG anticipates that three new business models will emerge to emphasize flexibility, innovation, and personalization. Principally, larger and more traditional insurance carriers will work to integrate new digital and cloud-base infrastructure into their underwriting and account management processes. They will strive to decouple themselves from the Tower of Legacy on which their current products rely, creating a more streamlined and intuitive process for brokers and insureds. Smaller and more nimble insurance carriers will also likely emerge with a focus on nascent verticals which have been underrepresented and likely carry more risk. These innovative firms will use technology and data-driven practices to mitigate some of this risk and achieve outsized returns and opportunity in the marketplace. This is reflected well in the growing Cyber Insurance space where a number of smaller and less institutional carriers have grown to carry an outsized portion of the business. Finally, larger organizations will seek to share their risk assessment data universally, acknowledging that an open-source solution to underwriting benefits all market participants particularly at a time when there are larger, macro level risks to consider.

The commercial insurance industry is also expected to continue growing substantially with total revenues of more than $661 million by 2028, a nearly 100% increase from 2020 where revenues exceeded $349 million. Still, there are clear headwinds to the industry which should not be underestimated by insurance carriers and brokers. Laura Hay, Head of Insurance at KPMG, believes that the industry will face a radical transformation over the next decade in light of these challenges. She remarks, “Commercial Insurers need to evolve and build new differentiated capabilities that connect across the organization. Technology will be critical, but digital transformation goes well beyond technology. Insurers need a clear, client-led business design of their end-to-end process that should be driven by deep client, broker and market insights.” (Source: KPMG The Future of Large Commercial Insurance)

Apollo Brokers is well positioned to capitalize on this growth opportunity with a tech-enabled online platform that connects retail wholesale brokers to both larger traditional insurance carriers and several of the smaller, Cyber-focused underwriters. In the past 12 months, we have seen both large and small insurance carriers increase their digital offerings and client-focused customization, particularly as more retailers seek out partners who will work to meet their specific needs.

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