Specialty Lines Insurance: Innovating at the Edges of Society and the Economy

Emerging risks with little or no claims history can be notoriously difficult to underwrite—but many specialty lines companies are finding ways to put their toes in the water to insure these new risks, especially when customer demand is there.

In interviews with Carrier Management, two insurers and one broker shared their experiences of their new specialty teams that are providing innovative coverage solutions for their clients.

Aspen, AXA XL and Aon have all seen their specialty business units grow rapidly over the past year.

A case in point is the Aspen Crisis Management team, which is selling a new product called “Active Assailant.” The coverage, which is known generically in the market as “active shooter,” has only been available for about two years.

“The market is growing exponentially. We’ve doubled our book in the first six months of this year compared to last year, and we don’t see any signs of it slowing down,” said Peter Bransden, who leads the Miami-based Aspen Crisis Management team, which has oversight for the entire Americas region.

It’s certainly a reminder of the times we’re living in, Bransden said, noting that he spends most of his time underwriting for the Active Assailant product in the U.S.—a large portion of that being coverage for schools and universities.

“The three main sectors that have an interest in buying the protection are education, healthcare and hospitality. We’re finding interest from any industry that has a public or an employee exposure,” he said. “It is a sad state of affairs, but … that’s where we are.”

Aspen’s crisis management team has always focused on identifying the emerging risks. “We were one of the key underwriters during the Somali piracy boom of the late 2000s. We created products very quickly to counter that emerging risk.”

Then after three or four years, the shipowners put into place effective security practices such as traveling with armed guards, which reduced the risk considerably, he continued. “We then focused our efforts and cover elsewhere.” Similar to other insurers, Aspen’s “Active Assailant” product is being written by underwriters with experience in kidnap & ransom and terrorism.

Aspen came to offer Active Assailant after spending time listening to brokers and agents and their clients, Bransden said. “It’s hard to escape the tragedies that are unfolding in the U.S. on a regular basis. Clients came to us and said, ‘We want to be able to cover this. What have you got?'”

Aspen’s Active Assailant cover comes with complimentary pre-incident training as well as post-incident crisis management to guide clients through the aftermath of a shooting. It also includes property damage, business interruption and liability protection. Clients are buying policy limits ranging from $1 million to $10 million and beyond.

Aspen’s Active Assailant cover kicks in immediately so that victims are proactively cared for, whether they are students, employees or simply guests on the premises. “We want to be there from day one to provide financial and consultancy experience and advice to help you put victims right,” said Bransden, describing the cover as an “immediate and proactive response.”

“Traditionally in insurance, the insurance kicks in once you’ve been sued. So if you’re a school and there’s been a shooting, you’re only protected when parents and victims file a lawsuit. Our theory is by that point it’s too late. By that time, people have already incurred medical costs.”

“It makes sense that if you can proactively take care of victims they’re less likely to sue,” he added.

Bransden explained that after the worst incidents of school shootings, “many schools decide to demolish and rebuild the classrooms in which the shootings took place, as was the case in the Sandy Hook and Parkland, Fla. shootings.”

“Under traditional insurance coverage, there has been no protection to cover the cost of demolishing and rebuilding a building that has not suffered structural property damage,” Bransden said. “Yet, we find that these schools are having to go to their state governments or even send out a charitable request to ask for money to do this. So, clearly this was an exposure that the industry hadn’t covered.”

Aspen’s spin-off “Demolition and Rebuild” product is designed to put the decision whether to rebuild in the hands of the policyholder. There is no requirement that the premises be structurally unsound. “It’s a different way of thinking about indemnity, which the industry needs to do more of,” he said.

Aspen provides the Active Assailant cover in the U.S. via the excess and surplus lines market, bringing the product to market via brokers and agents.

“Traditionally, when we create insurance products, we look to the past to try and predict the future,” but such data wasn’t available for Active Assailant’s development.

“This is the art of underwriting, I suppose. We try to gather as much data about prior incidents and estimate the associated losses had they been insured by our product, which is a very challenging thing to do,” he said.

“We have access to a number of different public and private databases as well as intelligence sources. We investigate locations that are looking to be covered and we compare crime statistics.” In addition, Aspen underwriters analyzed liability trends following previous mass shooting incidents as a proxy for future events, Bransden said.

While the Active Assailant book has had some losses, it is not a risk that aggregates, said Bransden, explaining that, unlike a hurricane, it is rare to get two active shooter events in one location.

Another specialist insurance innovator is AXA XL, which has been developing products for startup companies in the sharing economy.

About three years ago, Mukadder Erdoenmez was involved in a project to identify potential growth areas. The end result was the formation of an internal underwriting called NEAT (New Economies, Autonomy & Technology),which aims to design insurance solutions for startup companies in the sharing economy sector with online business models.

AXA XL’s sharing economy companies range widely from e-scooters to asset sharing platforms, which offer cameras or clothing, to a virtual college counseling platform. The list goes on.

His team quickly realized that companies in this sector have very particular insurance needs that are not met via traditional products. Because they’re in the startup phase, these companies focus on financing, marketing and development—and less on insurance.

If, however, insurance can enhance a company’s value proposition, then it becomes more important to clients. Erdoenmez explained this by saying that one of the keys to successful companies in this sector is trust and security—the trust platform users have that their assets will be protected.

Consequently, he said, if someone wants to rent out their professional camera or drilling machine on an asset sharing platform and their equipment is returned in a damaged state, trust and security is raised in that platform when the transaction is protected by insurance.

AXA XL also provides insurance for New York City-based myKlovr, a virtual college counseling platform, which, for a monthly fee, uses artificial intelligence to guarantee that a student subscriber will be accepted by one of nine colleges in a specific tier.

“If you’re not accepted by one of those nine colleges, you’re going to get your money back. We insure myKlovr and its promise,” Erdoenmez said. “Our insurance promotes the platform’s value proposition.”

By insuring the transaction, rather than the product, the potential for these platforms is unleashed because you’re taking away the fear that assets will be damaged, or that the platform will fail to provide what it promises, he noted.

“We’re moving away from a person-driven coverage model to a transaction-driven model. That means the entire transaction—all liabilities that arise out of that transaction—are covered.”

Erdoenmez explained that AXA XL’s products are embedded into the process of the shared economy platforms that it insures. “It’s not an opt in nor an opt out process. It’s embedded and provided for everyone who’s trading on that platform.”

Developing a product for a risk from the sharing economy is a challenge. “We don’t have any claims data to start from. So, we needed to build a dataset, based on proxies and assumptions from traditional products,” Erdoenmez said.

“AXA XL wanted to be in a sector that is growing, and we want to enable that industry to grow. At the same time, we need to make a profit. As the sharing economy is still in the early stages of development, we cannot yet evaluate its profitability based on historic data.”

The solution is being innovative with products. Citing the example of e-scooter insurance, Erdoenmez said that AXA XL based its initial pricing on UK numbers for motorcycle and bike claims. “There’s always a starting point. Now that we have a data exchange agreement with our e-scooter platforms, we get, on a monthly basis, data about the usage of the assets and the claims experience. We are now able to adapt the pricing based on constant data exchange.”

As AXA XL has been focusing its shared economy capacity on smaller startups, about 70% of its global business comes in via social media. Some of those companies may not yet have a relationship with a broker.

“For the startups, it’s an evolutionary process. At some point in time, when they expand successfully, a broker may approach them, or they will approach a broker,” Erdoenmez explained.

A broker, however, is always involved with larger sharing economy businesses that have more complicated needs, or cover larger territories, he said.

Speaking from the perspective of one of those value-creating brokers is Jillian Slyfield, Aon’s digital economy practice leader, a unit that was formed in May 2018 in response to the unique risks that exist in the digital and mobile world.

The practice, she said, has seen massive growth. “We set a sales goal for our team that I thought would be a stretch, but we ended up doubling that in our first year,” she said.

“Our practice is focused on businesses that are derived exclusively out of the digital world, or because of new digital capabilities, they have found their risk profile has changed. So, it could either be a sharing economy company, such as an Uber or an Airbnb, but it could also be a mobility unit inside a legacy OEM [original equipment manufacturer], like a Toyota or Ford or Nissan, as an example.”

About two-thirds, or 60 percent, of the practice now is focused on mobility-related risk issues “because they’re so challenging and their regulatory needs often require bespoke insurance solutions.” Slyfield described mobility as ride sharing, car sharing and micro-mobility, such as scooters and bikes.

Her team works closely with clients to determine their business strategy and what could go wrong that would make them unable to reach their business goals. Then they weigh how those potential problems can be addressed either with an insurance product or with a tailor-made solution. “Sometimes traditional legacy insurance products fit very nicely,” while at other times they need a “traditional product with a twist,” Slyfield said.

Of course, the policies need to provide value for the customers, and profits for the underwriters, which isn’t always easy in a market with little loss history.

To find a balance between the needs of the customers and the underwriters, Aon has developed a policy with different durations. “In many cases an insurance policy does not have to be 12 months, so we created an insurance policy with either a shorter time period or a stopping point if something happens that is predetermined.”

Slyfield cited the example of a global client that is operating an emerging business in the mobility area with a new business model, which is “taking off like a rocket.” “They’ve only got about a year-and-a-half of data and nothing before that, which is really hard for a carrier, particularly at this scale,” she said.

To help out both parties to this mobility risk, Aon included stopping points in the policy, which in this case are based on claims activity and revenue. If either of those thresholds is reached at any time during the life of the policy, then the policy is stopped and rebooted.

“This provides a refreshed limit to the client or their claims, and it gives the carrier ongoing premium for what is a rising exposure. So, it protects the carrier on one side, and it protects our client on the other.”

Other policies have been created that will stop when claims hit a certain level. “We’ll create the exact same policy, provided by the same carrier, but with a higher rate or in some cases a lower rate if we find that the carrier overpriced the policy the first time around.”

Slyfield said she has found her work in this area to be gratifying because clients value such bespoke work. It’s a big growth area.

“Carriers are saying the same thing. Most have set up some sort of innovation team, which is doing this kind of bespoke work for sharing economy risks,” she continued. “All of them are finding that whatever amount of business they thought would flow through that team, they should have doubled it. They can’t hire fast enough to handle the business.”

This article was first published in Insurance Journal’s sister publication, Carrier Management.