In the niche of time

AM Best’s Dawn Walker says specialized lines of business are driving growth in the delegated underwriting authority enterprise sector.

Although a heavy focus in the delegated underwriting authority enterprise (DUAE) market is on top-line growth and scaling of existing programs, several niche markets have contributed to the healthy premium expansion seen in recent years.

With specialty lines business having become a pivotal growth driver, these DUAE collaborations are driving an overall increase in premiums sourced by MGAs. DUAEs play a significant role in the specialty lines space, and these new distribution partnerships have helped fuel the growth of newer surplus lines entities as well.

As new and evolving technologies present emerging and more complex risks to businesses, distributors with the experience and proven acumen to address these issues are becoming increasingly necessary and valued.

These niche markets are not just flourishing, they are also reshaping the segment’s ability to approach these underserved and emerging risks. Consequently, continued growth that supports overall market expansion can be expected. Based on observations and discussions with companies operating in these markets, these niche lines of business are ones to watch:

Cyber

Cyber insurance is a standout specialty line contributing to expansion in the sector, despite a recent slowdown in growth. The market’s rise has been fueled by an exponential increase in the volume and sophistication of cyber threats and continuous data breaches.

The desire of MGAs and other DUAEs to work with carriers to develop customized coverage solutions has provided a boost for E&S-structured carriers. According to AM Best, nearly 60 percent of the cyber market is now being written by surplus lines carriers.

While the CrowdStrike outage appears to be manageable for affirmative cyber writers, the event highlights the kind of aggregation risk the industry is worried about and why clients/insurers need to be on top of emerging issues in such a dynamic market.

The cyber market is forecast to grow to $116.7bn by 2032, according to Allied Market Research, representing a 25 percent compound annual growth rate. This represents a significant opportunity for MGAs and other DUAEs looking to operate in the cyber sector.

Parametric

Parametric insurance and the advantages of rapid trigger-based payouts, transparent policies and recent innovations in the space reflect the growing diversity and application of parametric solutions across different risks and geographies, highlighting the industry’s evolution toward more responsive and technologically integrated risk management strategies.

For example, the emergence of new and innovative channels to market and sell microinsurance (e.g., cell phones, embedded products) illustrates the industry’s ongoing digital transformation, with insurers finding opportunities to collaborate with insurtech to sell products more efficiently. As payouts on parametric microinsurance are triggered by physical damage, the elimination of traditional loss assessments allows payments to be made faster and with lower transaction costs that improve the product value.

Although predominately a feature in developing markets, parametric covers for natural disasters may also become more attractive in mature markets that are confronted with the impacts of changing climate trends. The utilization of parametric covers can be expected to expand into management liability, financial lines and cyber. New emerging risks continue to arise, some of which are well suited to parametric solutions.

In 2023, the parametric insurance market was valued at approximately $14.8bn, according to a report on the segment by Global Market Insights. This market is expected to grow 39 percent by 2032 with the increasing natural disasters and awareness of climate change driving this growth.

Marine

Marine insurance is expanding given soaring trade volumes and is one of the fastest-growing segments in the specialty insurance market. This growth is notable across various regions as the market saw a robust recovery in post-pandemic premiums.

Amwins, which maintains a Best’s Performance Assessment of PA-1, stated that 20 percent increases in the mutual P&I market began as recently as Q1 2023, driven by accelerating losses and increased reinsurance costs. Amwins also noted that at the same time, new capacity had begun to enter into the market. Additionally, Straits Research has forecast annual premiums in this segment to grow to $36bn by 2030.

MGAs that can demonstrate expertise not only in logistics and transportation, but also an ability to deploy advancements in technologies like analytics and telematics to better monitor the sector, can fill a crucial role in catering to this growing demand.

Political risk

Another fast-growing niche segment during an era of unpredictable geopolitical climates, and one MGAs can contribute to given their expertise and flexibility, is in the political risk insurance sector. Rising instability in recent years from events such as Brexit, the pandemic or the Russia-Ukraine conflict, along with numerous high-stakes elections, have created additional risks for businesses, particularly those investing in projects abroad.

The complex global macroeconomic landscape is driving demand for political risk coverage. Capacity remains strong in this market and this is a good signal to MGAs that are looking to highlight their specialization and offer innovation in coverage offerings.

Fine art

Fine art insurance has carved out a significant space within the specialty lines market. With premium valued at $40bn in 2023, according to Verified Market, stakeholders from collectors to galleries are increasingly seeking tailored insurance solutions that aim to protect against myriad perils. This sector’s growth is underpinned by an increasing valuation of art and the complexities that come with underwriting these risks. The real driver of growth, however, is the rising number of high-net-worth individuals investing in art.

Specialty insurance segments that require an increased focus on bespoke insurance solutions tailored to specific industry needs present an attractive crossroad for DUAEs. The insurance industry tends to have a flight to quality, and it always will, but the flight to specialization offers a promising future, especially if it is underpinned by precisely executed use of technology platforms to identify, monitor and capture data trends that can help sustain strong DUAE premium growth.

Dawn Walker, associate director, industry relations (DUAE) at AM Best