The specialty insurance market continues its rapid evolution as insurers adapt to changing regulations, emerging risks, and technological advances. Despite pockets of hard markets in areas like coastal property and cyber insurance, rates in many lines of business continue to moderate, putting pressure on insurers to find efficiencies.
Market Dynamics
Specialty insurers are operating in a market with increasing underwriting capacity and moderating rate increases for many lines. Economic, political, and regulatory uncertainty are impacting several lines, while social inflation continues to drive liability lines. Newer exposures, such as ethylene oxide as a potential contaminant, are emerging, as are opportunities in carbon capture, storage, and sequestration.
The excess and surplus market’s flexibility positions it well to address coverage gaps, particularly for small and midsize businesses facing increased casualty and property risks. The property insurance market is still absorbing losses from the 2024 California wildfires, estimated between US$135 billion and US$150 billion.
Key Technology Priorities
Specialty insurers are focusing on five main technology priorities:
- Business intelligence, analytics, and AI: Insurers are implementing cloud data warehouses, reporting tools, and data science investments to optimize portfolios and improve underwriting. ChatGPT and other large language models have spurred conversations about broader AI strategies.
- Policy administration and rating: Upgrading to highly configurable, rapidly deployable systems is helping improve underwriting and product development flexibility.
- Billing, ERP, and core financial systems: Legacy systems reaching end-of-life are driving upgrades that improve access to financial data and operational efficiency.
- Agent and customer access: Digital broker platforms and API catalogs are enhancing automation and easing business processes.
- Intelligent document processing: Insurers are increasingly investigating automation support for ingesting new business application documents, leveraging AI, machine learning, and natural language processing.
Evolving Regulatory Landscape
Data protection, privacy, and AI regulations continue to evolve globally. While the Trump Administration revoked the White House Executive Order on AI, other jurisdictions are moving forward. The European AI Act, which went into force in August 2024, promotes responsible AI development through a regulatory framework classifying AI systems by risk level.
The Digital Operational Resilience Act became applicable in EU member states in January 2025, requiring financial institutions to implement internal governance frameworks to manage IT risk. Canada is developing a framework through the Digital Charter Implementation Act, which would create three new laws focusing on consumer privacy protection, data protection tribunals, and artificial intelligence regulation.
Digital Transformation in Underwriting
Specialty insurers are making strides in underwriting automation. Datos Insights found an average of 11% of specialty lines insurers had implemented at least some automation for specialty lines underwriting as of 2023, up from an average of 3% in 2021. This increase is driven by rising catastrophe losses and reduced reinsurance capacity forcing carriers to enhance risk assessment capabilities.
Some insurers are seeing dramatic improvements. Mosaic Insurance implemented a GenAI-powered, API-based underwriting platform for complex specialty lines that reduced quote generation time from two to three hours down to five to seven minutes, doubled the quote ratio, and freed up 66 hours per month per underwriter.
The Rise of Insuretechs and Managing General Agents
Insurers and private equity firms continue to establish and acquire managing general agencies to gain expertise in attractive markets without the expense of infrastructure costs. Several insuretech firms have transitioned from managing general agents to full insurers, especially in the cyber-insurance space.
Recent examples include MS Transverse’s arrangement with Ledgebrook to support general casualty and excess products and investments in insuretech firms by companies such as Intact Ventures, Nationwide Ventures, American Family Ventures, PruVen Capital, and Zurich Insurance Group.
Cyber Insurance Evolution
Despite an increase in breaches and ransomware incidents, the cyber-insurance market remains competitive with plenty of capacity. Insurers are offering a range of approaches to war exclusions and wrongful data collection coverages, with some markets offering sub-limited coverage for SEC disclosure costs following 2023 SEC rules.
Insurers underwriting cyber insurance for different sectors have specific concerns:
- Manufacturing firms need proper segmentation between IT and operational technology networks
- Higher education institutions must demonstrate protections for end-of-life systems
- Construction firms remain highly exposed to wire transfer fraud
Looking Ahead
Taking the following steps will be critical for specialty insurers to succeed in this evolving market:
- Prepare to leverage predictive analytics capabilities
- Deploy highly configurable policy administration and rating systems
- Extend self-service capabilities to brokers and policyholders
- Leverage APIs and digital automation for data exchange with distribution partners
- Begin proofs of concept with large language models to improve submission ingestion, underwriting analysis, and claims processes
As specialty insurers navigate these changes, the ability to test new specialty lines without significant upfront investments will be crucial to determining profitability and driving technology investments. For more information, read Datos Insights’ report, Business and Technology Trends, 2025: Specialty Lines, March 2025, or reach out to Mitch Wein, Eric Weisburg, or Steven Kaye.
