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What is the TAM for insurance underwriting software in the U.S., by segment (i.e., life, health, property & casualty, etc.)?
Hello! Thanks for your question about the TAM for insurance underwriting software in the U.S. by segment. In short, while there was not a clear breakdown of underwriting software spending within industry reports, I was able to find the market size for underwriting software ($8 billion in 2016), and industry growth for different segments of the insurance industry. I was also able to calculate approximate spending on underwriters through labor statistics. However, the industry segmentation of these statistics did not line up exactly with the segmentation of growth in the industry reports, so I have included them separately. Below you will find a deep dive of my findings.
METHODOLOGY
I used industry reports in order to determine the current market size and growth by segment. However, I should note that growth rates included the overall industry segments and were not specific to underwriting. I was able to calculate approximate spending on underwriters utilizing labor statistics for 2016. To do so, I took the total employment and multiplied it by the average annual wage. Then, I created a custom report that broke down the employment and wages of underwriters by industry. I did the same calculations to determine spending in each industry. However, I will note that the industries were broken down differently than that of the industry reports. Therefore, I have included how these statistics were broken down separately. To better understand some of the major forces affecting this volatile industry, I also included a section summarizing the impacting forces.
MARKET SIZE & GROWTH BY SEGMENT
According to IBISWorld, the current market size for underwriting software is approximately $8 billion, with an average growth of 0.4% from 2011-2016. According to the 2017 Insurance Market Outlook, segments are expected grow/decrease at the following rates:
Property: Flat to 10% decrease
CAT property: Flat to 10% decrease
Primary general liability: Flat to 10% decrease
Primary auto liability: Flat to 15% increase
Umbrella liability: Flat to 10% decrease
Excess liability: Flat to 10% decrease
Loss-sensitive workers' compensation: Flat to 10% decrease
Guaranteed-cost/low-deductible workers' compensation: Flat to 10% increase
International: Flat +/-5%
Environmental: 5% decrease to 5% increase
Aviation: Flat to 10% decrease
Public company directors' and officers' liability: 5% to 10% decrease
Fiduciary liability: 5% decrease to 5% increase
Private/non-profit management liability: Flat +/- 5%
Employment practices liability: Flat +/-5%
Crime: Flat +/-5%
Medical malpractice: 5% to 10% decrease
Kidnap, ransom and extortion: Flat to 5% decrease
Representations and warranties: 5% to 10% decrease
Technology and professional errors and omissions: Flat to 5% decrease
Cyber: Flat to 5% decrease
Contract surety: 5% to 10% increase
Commercial surety: 5% to 10% increase
As you can see, the industry outlook is not incredibly optimistic. Overall, the market is not expected to be as robust as in prior years. As a result, insurers will likely sustain underwriting profitability, resulting in the continuance of a buyer’s market.
UNDERWRITING TOTAL ADDRESSABLE MARKET
According to Labor Statistics, spending on insurance underwriters was approximately $6.9 billion in the U.S. Furthermore, spending can be broken down by the following industries:
-Credit Intermediation and Related Activities: $343.5 million
-Securities and Commodity Contracts Intermediation and Brokerage: $53.9 million
-Other Financial Investment Activities: $82.6 million
-Direct Health and Medical Insurance Carriers: $283.4 million
-Direct Insurance (except Life, Health, and Medical): $3.1 billion
-Insurance Agencies and Brokerages: $1.5 million
-Other Insurance Related Activities: $477 million
Please note that these statistics are purely spending on the employment of underwriters, as information regarding spending on underwriting software was not available.
MAJOR IMPACTS ON THE INDUSTRY
According to different industry reports, the insurance market is in a state of flux. Many segments are expected to remain flat or have minimal increases or decreases in the next year. This tenuous situation is due to a number of factors, including "significant changes to the insurance ecosystem." Still, favorable conditions are expected to exist in commercial sector, and personal lines premiums are also expected to increase.
In both the US property-casualty and life-annuity segments, technology is the top external force impacting the market. Other external forces include:
-customer expectations
-cyber risks
-competition/pricing
-economic conditions
-regulations
These are the forces driving the uncertainty in the insurance market. However, it is clear that the industry is moving to adjust strategies for an increasingly technological world. Likely, profits will be made by increasing digitalization. This includes rethinking operations from underwriting to customer service to claims management. A German case study showed that an insurer that adopted these technologies could increase its revenues up to 28% within five years and cut policy administration costs by as much as 72%. This aligns with the industry outlooks, in that companies will increase revenue by increasing monetary efficiency.
Cyber insurance is expected to show immense growth ($20 billion or more) by 2025, due to a rising vulnerability of cyber attacks. However, this marketplace is fairly new and lacks standardization. It is also much more risky than many of the other segments, because it is primarily insuring against the criminal behavior of human beings. Also, traditional commercial liability policies have begun to include similar coverage, specifically because of the rising concern of cyber vulnerability. Therefore, this growth may be absorbed into other segments as well.
CONCLUSION
To wrap it up, the total market size for insurance software was $8 billion in 2016. Spending on the employment of insurance underwriters was approximately $6.9 billion. While I was unable to triangulate growth in the industries specifically regarding underwriting, industry outlook reports suggest that companies will continue to sustain underwriting profitability as the market enters a tenuous year. Thanks for using Wonder! Please let us know if we can help with anything else!