AI, data, embedded insurance and the E&S market

So much is changing in the E&S market. According to S&P Global, the sector has seen double-digit year-over-year growth for five consecutive years.

Admitted carriers are continuing to adjust their risk appetites to reflect changes in certain lines and regions. New delivery models, such as embedded insurance, are being tested. And insurers are increasingly turning to generative AI-powered solutions to help them bring new products to market faster.

E&S Insurer talked with Sachin Kulkarni, head of commercial and specialty insurance and MGA, Americas at Xceedance, to learn about the most significant challenges E&S insurers are experiencing and where the market is headed.

What are the biggest challenges you’re seeing E&S insurers having to overcome?

Three big challenges impact the E&S sector: staying ahead of the unknown, determining where to focus resources, and the talent shortage, which is affecting all areas of insurance.

Staying ahead of the unknown is always the biggest challenge in insurance. What new risks will have the most significant impact? We recently experienced this with the Baltimore bridge collapse. Will that catastrophe drive new products to enter the market to protect ships travelling through high-risk areas? Even areas we know about, like environment or cyber, are moving the goalposts. Something new crops up once we think we can handle critical risks in these sectors. However, I believe the advancements in AI will help insurers improve their predictive models and give them a better crystal ball into the future.

The growing capacity in the E&S market can also be an issue. Not only is there more interest from clients in the E&S space, but more entities, from established insurers to start-ups, are entering the market. But while capacity is up, money is finite, and there is more competition for reinsurance backing. Insurers need to make sure they are focusing on the right products and be prepared to supplement their risk decisions with both internal and third-party data to provide insight into the risks that can happen and the expected payouts.

Lastly, talent remains an issue for E&S insurers and the entire insurance sector. I think a lot of the talent issues stem from the industry’s reputation. Insurance is seen more negatively as something individuals and companies must have because of regulations. Most people don’t appreciate the benefits and, most importantly, the protection. E&S insurance enables innovation. We can’t innovate unless we have insurance to back us up. Without insurance, there would be no drones, electric cars, or wearable tech. Therefore, stakeholders across the industry need to work to highlight all the positives around insurance so it becomes something people pursue as a career rather than fall into.

AI and generative AI have been front of mind for all industries for the past year. What impacts has AI had on the E&S sector?

With all the hype and focus on AI technology over the past year, I think it is important to remember that AI isn’t new. It has been around for decades. Insurers have been using forms of AI for quite some time, such as robotic process automation and machine learning.

The developments and advancements in generative AI have certainly taken the world by storm, but insurers should make sure they are incorporating the technology in ways that add benefits to their operations – not just because it is the hot new tool. My advice for E&S insurers regarding AI is to look at their core processes – in my opinion, these are underwriting, claims and product design. Think about how AI technology can supplement the human intellect in your organisation.

Insurers should also not overlook the change management required for incorporating AI solutions. People are inherently scared of change, and AI can make people hesitant, as they might feel their role is at risk. Insurers will have to have good change management strategies to encourage their workforce to adapt to the changes and use the technology, and quell any concerns employees might have.

Are there any other tech areas E&S insurers should be focusing on?

Insurers can't forget about data, even with the AI hype. AI-powered solutions rely on good data to operate effectively. Insurers should focus on having a clear data strategy that is continuously evolving. With new data sources emerging daily, insurers must keep their strategy current. They should have a sort of playground for the data where they can assess what is happening with all the data points and what data feeds are being collected. From this playground, insurers can decide whether to move and utilise that data in their business.

Embedded insurance products are getting more attention. Will this type of insurance become more common in the E&S sector?

We are seeing a big push towards embedded insurance. While embedded insurance isn’t new, it’s still relatively early in adoption. I think bundling insurance at the time of purchase or transaction could be a new avenue for E&S products. When you look at the market forces, there is a trillion-dollar gap that embedded insurance can help fill, and it could help more people and companies get the coverage they need.