Specialty property/casualty insurers are now a dominant force in the market and generate more than half of the industry’s premiums, Conning Inc. asserts in a new report.
Two-thirds of individual insurance companies are specialists, accounting for about 56 percent of total direct premiums written, the research firm said in its 2016 report, “Specialty Insurance: Survival of the Fittest.”
That’s a big jump from just a few years ago. In 2011, 40 percent of the industry’s premium consisted of specialty business, Conning said. It defines the sector as including product specialists (areas including workers’ compensation, medical professional liability or private passenger auto), high-risk specialists (including nonstandard risks, higher-hazard risks, customized products) and customer niche specialists (groups such as AAA or farm bureau members).
Conning predicts specialty insurers will be increasingly popular as carriers refocus on underwriting profitability to boost returns. The sector and its talent will be in high demand, Conning said, as insurers seek to grow through acquisitions and on their own.
Long-term, Conning said that advances in data analytics, emerging risks and the battle for underwriting talent will place specialty insurers at an advantage in terms of growth opportunities.
The increased embrace of specialty coverage has been significant, said Robert Farnam, vice president, insurance research at Conning.
“We identified over 1,500 individual companies that have fully embraced specialty strategies as a primary approach to the marketplace and are responsible for more than half of the industry’s premium,” Farnam said in prepared remarks.
He added that a specialty strategy isn’t a guarantee of success on its own, but “specialty insurers as a group outgrow and outperform generalists.” That makes them valuable in the current market, Farnam said.
“Specialized knowledge and superior underwriting have also placed specialty insurers and their teams in high demand as companies look to grow organically and through acquisitions,” Farnam noted.
Among Conning’s findings:
- While nonstandard auto specialists produced subpar underwriting results, high-risk specialists in general were the top-performing specialty category. Why the strong underwriting results? Disciplined excess and surplus (E&S) writers and lower-than-average catastrophe losses over the past decade helped.
- At the same time, high-risk specialists generated the slowest average premium growth due to a dip in E&S premium. That is an outgrowth of E&S stability, as writers in this class typically shrink premium to keep their underwriting profitable.
- Specialty subclasses with strong underwriting results (an average combined ratio below 90), had subaverage premium growth. That came from disciplined underwriting and carriers steering away from underpriced business. Along those lines, property catastrophe and fire and allied lines specialists both produced strong growth and profitability.
- At the same time, both personal and commercial auto insurance have underperformed over the last 10 years, with an average combined ratio above 100. Crop insurance has also had a multiyear average underwriting loss, but Conning blames 2012 results for most of this.