Insurance industry trends: what lies ahead for commercial underwriters in 2023?

As the dust settles on a challenging 1:1 reinsurance renewal period, underwriters are looking ahead to 2023 with some trepidation.

Rising inflation, cyber insurance capacity, climate disasters and underwriting expertise shortages are just some of the biggest challenges set to test the mettle of insurers in the year ahead.

To adapt and respond to these challenges effectively, insurers must be on the front foot and closely evaluate how market scenarios might impact their underwriting approach. As McKinsey highlights in a 2022 report: “Insurance carriers that can stay at pace or ahead of market cycles tend to emerge as winners.”

With this in mind, we looked ahead to 6 insurance industry trends set to dominate the market in 2023, and the technologies that will help insurers to navigate these.

1. Managing Inflation Risks

According to Fitch, though headline inflation is set to fall “significantly” in 2023 as food and energy prices stabilise, core inflationary pressures are set to persist.

For insurers, this is compounded by several additional factors; contracting capacity in certain lines of business, consumers stripping out cover to save costs, underinsurance and rising claims costs. Insurers have been operating in a hard market for the last few years, and the pressures of inflation have only exacerbated the challenges they face.

Some lines are affected by inflation more than others. For example, the aviation market is particularly exposed to the increasing cost of materials used to repair and construct aircraft, such as magnesium and titanium. The cost of some aerospace-grade materials has already increased by between 50 and 100% and will have a knock-on effect on the cost of claims and renewals.

In a recent study by GlobalData, 36% of insurance industry insiders highlighted the effects of inflation as the standout challenge for 2022. With inflation in the insurance industry set to continue to challenge insurers in 2023 and an ever-changing risk landscape, how can underwriting teams keep pace?

In order to write more profitable risks and manage inflation risk premiums in a hard market, commercial underwriters need the right tools to help them write good, profitable risks. They need to reduce the time they spend on non-value-add tasks such as admin and rekeying, and streamline the extraction and management of both structured and unstructured data, helping them to make insight-driven decisions. Modern AI-enhanced insurance platforms offer a beacon of hope. Underwriting Workbenches can reduce admin tasks by up to 40%, while offering seamless integrations to third-party data providers.

At a time when underwriters need accurate data at their fingertips, technology can integrate data across from legacy and third parties, to drastically shorten underwriting timeframes. With investment in Insurtech reaching US $2.4 billion in the first two quarters of 2022 alone, inflation and the need to deliver premium savings will focus priorities and decisions in 2023.

2. Prioritising Cyber Risk Insurance Management

With global economic losses attributed to cybercrime expected to reach roughly US $10.5tn in 2025, but predicted premium values totalling US $22bn, the availability of capacity for cyber products is set to remain a challenge in 2023. Addressing this challenge is no mean feat. While the demand for cyber insurance policies has accelerated in line with the rise in sophisticated attacks, so has the number of claims. As a result, insurers are starting to rethink their policies and models, and some have withdrawn capacity or stipulated stricter conditions.

So, what can be done to keep pace with dynamic cyber risks? Real-time underwriting could offer an answer. With new vulnerabilities needing to be addressed instantly, cyber risk scanning must occur across policy lifecycles. Real-time inputs from a range of stakeholders including data scientists, cybersecurity experts and breach response specialists can offer a solution. Yet without a sophisticated platform with the ability to seamlessly integrate these data streams, writing cyber risk will remain retrospective.

With automated underwriting platforms based on a continuously updated data analytics engine, underwriting decisions can be made in real-time. With sustainable coverage required both imminently and long term, we expect to see investment this year, with Insurtech leveraged for the integration of real-time data to proactively manage cyber risk models.

3. Embracing Ecosystems and the Value of Collaboration

Industry executives have understood the value of insurance ecosystems for years, and while nothing new, the function and complexity of the ecosystem are set to accelerate in 2023.

The agility and speed required to underwrite profitable business in 2023 are much more difficult with the monolithic legacy systems many established insurers use. However, ripping out and replacing a system can be costly, time-consuming and compromise the years of data held within them.

Composable systems create best-of-breed models that retain the functionality of a single entity – but with inputs from different, seamlessly connected systems. According to Gartner, in 2023 composable technology will afford carriers 80% quicker feature implementation. With reactivity set to be key in 2023, the adoption of modular systems and third-party integrations, technology ecosystems will continue to grow, shaping the insurance value chain.

4. Coping with Data Deluge

Within an ever-changing risk landscape, underwriters face a challenging dilemma: they have all the data they need to write good, profitable risks, yet traditional systems struggle to manage the sheer volume of data available. How can underwriters maximise the value of this data and their productivity to write better risks?

The data deluge problem is one that has been discussed consistently over the previous year. At Commercial Lines Innovation Europe 2022, one underwriter was clear that the ‘fragmentation of systems’, the volume of raw, unstructured data, and double-keying were daily challenges. As Chief Underwriting Officer at RSA, Mandy Hunt suggested: ‘data ingestion must be easy to give underwriters more time’. With the availability and granularity of data set to grow, fuelled by IOT devices, which are due to total 50 billion by 2025, the data deluge is an issue set to challenge insurance underwriting models for the foreseeable future.

Intelligent data processors can support data identification, extraction and standardisation. Yet without growth in underwriters’ skills to “synthesise and analyse data” from a myriad of formats, transformations will be limited. With success contingent on this in the upcoming years, upskilling to capitalise on the transformative value that advanced technology makes possible, will continue to dominate.

5. Introducing the Exponential Underwriter

2023 will be the year of the exponential underwriter, or as we call them, bionic underwriters. To go bionic is to accelerate the parts of the underwriting process that make the most difference, honing in on the areas that deliver the best benefit and augmenting them.

This new breed of underwriters can augment the depth and breadth of technical expertise and knowledge they have honed over years of perfecting their craft. The bionic underwriter embraces smart AI and automation to eliminate some of the tedious and labour-intensive processes that can hold other underwriters back from realising their true potential.

Underwriters needn’t fear being replaced by machines, however. Exponential underwriters can leverage the technology at their disposal to multiply their skills and develop enhanced responsibilities. Far from science taking over the art of underwriting, today’s technology is a perfect fusion of the art and science helping underwriters to do more of what they love.

6. Harnessing Insurance Expertise: The War for Talent

Whilst a wealth of skilled insurance experts is available in the market, a concerning reality is that 50% of workers in the London market are set to retire within the next 10 years. In the face of this looming shortage, there is usually only one winner in the battle for a robust and resilient pipeline of new talent- the company offering the best financial incentives. MGAs and smaller carriers unable to offer these incentives are subsequently set to face a greater challenge to attract new talent and retain their skilled underwriters.

Technology could, however, be a key differentiator for businesses. Leading technology is a top priority for all insurance employees, but particularly for underwriters. Technology can free up underwriting teams to focus on higher-value work rather than sinking hours into manual data wrangling. However, with underwriting teams set to elevate their technology IQ to leverage the power of greater automation to meet underwriting functions, this may require new insurance expertise from beyond the industry.

Despite this, Hélène Stanway, non-executive director of EDII, indicates that the talent gap will only continue to widen within the next ten years if a robust approach to training and upskilling is not met. As such, only firms that embrace talent nurturing and technological enablement together are likely to gain a competitive advantage.

The year ahead is set to be an exciting one for underwriters, but it comes with a number of hurdles for even the most talented of underwriters. However, with the support of the right talent and technology, underwriters will be able to rise to these challenges to improve underwriting quality and report better loss ratios.

We’d love to hear your thoughts on the key insurance industry trends you expect to see in 2023. Please get in touch!