Why the current challenging insurance market 'is going to favor the bold' | Insurance Business America
The year is 2023, but it seems like the same problems are plaguing the insurance industry once more.
The COVID-19 pandemic’s economic impacts remain sore spots for many businesses, natural disasters seem to be getting worse each year (in fact, Guy Carpenter recently announced that global natural catastrophe losses in 2022 could hit $112 billion), and inflation continues to put further pressure on the markets. While major insurance companies might be able to weather the effect of these issues, the same cannot be said of smaller insurance underwriting operations.
How can underwriters navigate this difficult period?
Once more, Insurance Business turned to Jeff Rake (pictured), CEO of insurtech Accelerant, for his insights on the current state of P&C insurance, and how his company plans to support underwriters in this challenging time.
Can you tell us about yourself, your route into insurance – and the core responsibilities of your role at Accelerant?
I have been in insurance and reinsurance for decades and decades. All that time has given me perspective on how painful and how expensive the industry can be for its participants and its customers – in every dimension: monetary, emotionally, and service-wise. I think a big portion of that pain and expense comes from the outdated technology being used to try and do the business. The industry is trying to run everything from daily operations to back-end stuff with an old stack of legacy technology.
It felt like Monday to Thursday was spent trying to fight data gremlins and only one day – Friday – was available to try and serve your customers. It really is soul destroying. Thankfully, I realized I and a number of other experienced but forward-thinking insurance operators had a unique vantage point to actually do something about it. To make specialty insurance better. This was the reason we formed Accelerant in 2018 and it remains our purpose today.
As the CEO of Accelerant, I am responsible for making sure we are executing against our mission of creating the risk exchange for the 21st century, so that the basics of insurance work better for everyone.
On one side of our platform are the specialty underwriters. We are redefining their experience, making their jobs easier, faster, more rewarding. These specialty underwriters are the unsung heroes of this industry. They’re the ones that best understand the niche needs of policyholders but all too often have been beset by challenges like unpredictable capacity and an absence of data to drive decisions.
On the other side of the platform are the providers of capital, those taking the insurance risk. We are improving their experiences by providing high-fidelity exposure data on the portfolio with total transparency across the value chain and sharing the risk in a fair way with our risk capital partners.
At Accelerant, we have a great team to execute on this ambitious vision. We have assembled a team of experts to be sure the service we provide specialty underwriters and risk capital providers is unmatched. And we continually add colleagues to the team; most recently we announced Paul Little joined our Board of Directors. Together we are rebuilding one of the world’s oldest — and still most essential — industries.
With a new year upon us, where would you say the US P&C market currently stands?
The two main drivers of change are natural catastrophes and inflation/interest rates.
Natural catastrophe losses in recent years have been much higher than has been seen in the past. This is driving risk capital to explore specialty insurance, especially low volatility products to a greater extent than ever before. We credit a meaningful portion of the pronounced increase in interest from risk capital in Accelerant’s portfolio to this dynamic.
Inflation is driving costs higher and faster in most markets, undermining underwriting profitability throughout the insurance landscape. As premiums grow commensurately, we are all feeling the pressure as customers look for savings. This dynamic makes technology driven operational efficiency even more important.
This environment is going to favor the bold. You cannot stick your head in the sand and continue to do business as usual. The momentum has been building for almost a decade – small, owner-operated firms linked by efficient technology sending data across the value chain will beat the pants off big, monolithic companies that cannot or will not modernize.
Would you say the segment has fully recovered after years of the pandemic?
Many would argue that the inflationary environment we find ourselves in was a result of our reactions to the pandemic. In that way, the effects are still very much impacting the industry. The industry overall is also feeling the difficulty in attracting talented people.
You can imagine the drudgery in most jobs in the industry sitting, as they are, on top of a legacy data stack. We even have a term for it – ‘Swivel Chair.’ The act of taking information from one system and spinning in your chair to type that same information into another system that cannot talk to the first.
One thing that is really evident is that in this time of social and financial volatility the best companies with the most nimble, data driven strategies are pulling ahead of the rest of the players in the industry.
What are currently the biggest challenges faced by underwriting teams as they support complex/niche lines of business?
To answer this question, you need to take a step back and look at which kind of organization the underwriters sit in. Some of them are in-house with large insurance companies. We have talked about the challenges facing these old-line legacy carriers. Poor technology, inability to harness data, bloated bureaucracies, the drag of service business written decades ago. All combine to make the experience a challenging one for underwriters.
Not surprisingly, a growing number of underwriters have set out their own shingle, underwriting business on behalf of insurance companies. It is this type of underwriter that Accelerant serves. And this segment is growing much faster than the industry overall, with over $60B of premium flowing through these independent underwriters today.
These independent specialty underwriters are underwriters without an owned balance sheet. They have distribution relationships, excellent risk selection capabilities, and experience. What they don’t have is reliable support from insurance companies when it comes to the insurer providing long term, predictable capacity or data and analytics to grow their portfolios profitably.
How does Accelerant hope to support these underwriting teams?
We support specialty underwriters – we call them our Members – with a support system that spans underwriters’ needs across a number of dimensions: insurance capacity, data & analytics, growth capital, and operational needs.
As a Member of the Accelerant platform, you receive long term, committed capacity. You have access to our portfolio data and analytics that help our Members grow their profits roughly 3x faster than the average.
Accelerant provides its Members with advice and capital to grow their business via acquisitions or hiring of teams. Finally, we work with our Members to ensure that our interactions are as efficient as possible, keeping their costs down and profits up. While we provide our Members many benefits, make no mistake – each of our Members is fiercely independent and that is a primary driver of their ability to achieve such great outcomes.
Accelerant’s Members have had great success to date, driving the growth of Accelerant. To support this growth, we raised over $200 million of capital at a valuation of $2.25 billion. For Accelerant, the question remains the same, how do we support our underwriter Members and risk capital partners better today than we did yesterday? It’s an exciting thought starter that continues to drive us.