This article is by Mike O’Connor, Chief Commercial Officer and Co-founder, Crux Underwriting
A risk can look perfectly attractive from an underwriting perspective. The exposure makes sense, the pricing is right and the potential return stacks up. But that doesn’t necessarily mean it’s good business.
Once you factor in the cost of acquiring, placing and servicing that risk, the economics can look very different. Distribution costs, manual processes and the friction involved in getting business from broker to underwriter can eat into margins that were already tight.
I think this distinction will become increasingly important as the specialty insurance market moves into 2027. Capital is available, competition is increasing and pricing is beginning to soften across significant parts of the market. In that environment, writing good risks will remain essential, but understanding the full cost of writing them will matter just as much.
The businesses that perform best won’t necessarily be those writing the most premium. They’ll be those that understand the economics of their portfolios, make sensible underwriting decisions and find more efficient ways of getting business onto their books.
More capital, more pressure on margins
Looking ahead to 2027, I expect more capital to enter the specialty insurance market. Strong underwriting results over recent years have created opportunities for existing participants and attracted new investors looking to deploy capital. More capacity isn’t necessarily a bad thing. It allows insurers to support more risks and gives brokers and customers greater choice. But when additional capital enters a market where rates are already softening, competition can intensify quickly.
Underwriters face pressure to maintain growth and market share, while the pricing available for new business may no longer offer the same margin for error.
That said, I wouldn’t apply one market outlook to every specialty class. Conditions remain very different depending on the risks involved. Geopolitical developments and concentrated exposures can still create significant capacity shortages and sharp rate increases in areas such as marine war and energy-related risks in the Middle East.
The point is that the market is becoming increasingly fragmented. Conditions can change quickly, and businesses need to understand what’s happening in their particular classes rather than relying on a broad market narrative.
But across much of specialty insurance, the prospect of softer pricing means there will be less room to get the economics wrong.
A good risk isn’t necessarily a profitable transaction
Underwriting discipline has always been important, but I think it’s worth looking at what we actually mean by it.
Traditionally, much of the focus is on the quality of the risk itself. Is the exposure understood? Is the pricing adequate? Does the expected loss experience justify the premium? These are fundamental questions, and they aren’t going away.
You can price a risk correctly and still end up with an unattractive transaction if the cost of bringing that business onto your books is too high. There might be several layers of distribution costs, unnecessary administration or manual processes that take up too much time. Each adds to the expense of writing the business which is particularly important when underwriting margins are under pressure.
When a portfolio is operating close to that 100% threshold, relatively small changes in claims experience or expenses can make a significant difference. Even a few additional percentage points in acquisition or operating costs can turn an otherwise attractive piece of business into one that no longer makes commercial sense.
That requires a clear view of the portfolio, good data and the ability to challenge assumptions. Historical claims experience can be useful, but it shouldn’t be treated as a guarantee of future performance. Specialty insurance has benefited from a relatively benign claims environment, but that won’t last forever.
As pricing softens, businesses need to be particularly careful about relying on favourable experience or chasing additional premium simply to maintain growth. Data can help inform those decisions, but it still needs to be supported by sound underwriting judgement and a willingness to walk away when the economics don’t work.
Technology can change the economics of writing business
This is where technology becomes much more than an operational improvement. It has the potential to change the economics of the transaction itself.
A lot of the conversation around insurance technology focuses on speed, automation and user experience. All of those things have value, but I think the bigger opportunity is reducing the cost and friction involved in getting a risk written.
In wholesale specialty insurance, there can be several stages between a broker identifying a risk and an underwriter ultimately binding it. Information is passed between different parties, submissions are reviewed and processes are often repeated, which takes time and adds cost.
Digital trading platforms can simplify that process by connecting brokers and underwriters more directly, improving the flow of information and removing unnecessary steps from the submission, quotation and binding process.
Consider a risk that is perfectly viable from a pricing and exposure perspective. If the distribution and administration costs attached to it make the transaction uneconomical, it may not be worth pursuing. Reduce those costs, however, and the same risk can become commercially attractive.
It can also help specialist underwriters access markets where they don’t have a physical presence, giving them better access to information and a more connected view of the exposures they’re taking on. That doesn’t replace specialist expertise or local knowledge, but it can extend the reach of underwriting capabilities without creating the same level of additional operating cost.
As margins tighten, these efficiencies become increasingly valuable. Businesses that can connect capital with risk more efficiently may be able to compete for opportunities that would otherwise be uneconomical to pursue.
Profitable growth needs to be the priority
We’ve seen softer specialty insurance markets before, including the period following 2012. If we move into a similar environment over the coming years, I think the businesses that perform best will be those that understand their costs as well as their risks.
That means being clear about what you want to write, why the pricing is adequate and what it actually costs to acquire and service the business.
Technology will be an important part of that, but it isn’t a silver bullet. It can’t compensate for poor risk selection or inadequate pricing. Equally, strong underwriting judgement alone may not be enough if the cost of distributing and administering business leaves too little margin.
For me, that’s one of the biggest considerations for specialty insurers and MGAs heading into 2027. Growth is important, but growth for its own sake isn’t particularly useful. Writing more premium doesn’t automatically mean building a better business.
The real opportunity is to bring together good underwriting, sensible pricing and a more efficient way of transacting. Because ultimately, a good risk only becomes good business when the economics work from beginning to end.
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