Even after centuries of substantially aiding economies to grow and thrive, insurance still maintains a perception that it is conservative and slow to change. That's a gross simplification. As is the case with any complex situation, it's a mixture. Insurance tends to be conservative for various reasons. Chief among them is regulations. Insurance companies must comply with rigid state requirements regarding every aspect of their operations. Naturally, the regulatory situation becomes increasingly complex when operations include more than one state. Changes in premiums, coverage forms and rules for handling business are all scrutinized for compliance. No matter how agile or proactive an insurer may wish to be, its regulatory environment restraints its operations.

Another factor is that insurance is based upon contractual obligations. Insurers, legally acting as an insurance contract's Second Party, owe duties to their policyholders (First Party). When coverage involves legal liability to others, then financial obligation also exists to others (Third Party) who may have suffered loss or injury caused by policyholders. Maintaining these relationships consistently is important, and the need for stability also creates pressure to be conservative.

Lawsuits also contribute to insurance's conservative bent. Disputes often take years to resolve, and arguments are often based on how policy language and processes are interpreted. Once certain elements are established, changes in language and operations introduce uncertainty that may have unwanted financial consequences.

All the above contribute to insurance companies operating more slowly and deliberately than many other service sectors. However, there are still dynamic elements within a changing regulatory environment, such as standardization of laws, introducing new regulations and the appearance of new sources of loss. Besides reacting to these changes, insurers also make changes due to other important forces such as competition from sectors outside of insurance, technological advances that affect the areas they insure and technology that affects how it processes business.

Please see part two, which discusses two factors that arise out of the ecosystem in which insurance companies operate: emerging and silent insurance.

We discussed that insurance operates in an environment that contributes to it being a conservative service sector that is somewhat resistant to change. This part is about elements that arise from the other fact, insurance often faces and responds to evolving circumstances.

Insurance companies provide a dizzying array of products that address private and commercial needs for coverage. Along with continuously maintaining traditional protection against age-old sources of loss such as fire, windstorm, weight of ice/snow, collision, theft, vandalism and many others, insurers must also monitor the development of new sources of loss such as the following:

• Terrorism
• Nanotechnology
• Data Privacy
• Cyber Security
• Coverage for Digital Assets
• Sharing/Gig Economy
• Climate Change Risks
• Internet of Things Product Liability
• Driverless Vehicles/Deliveries

While insurers attempt to handle such challenges, adjustment is uneven and takes time. A typical arc involves recognizing a newer loss exposure followed closely by creating exclusions to bar coverage. As such exposures mature, showing patterns of claims, forms, or modified exclusions arise that provide limited protection. As time passes, additional experience accumulates, and available coverage often becomes broader and, eventually, wider spread.

However, the process of dealing with emerging-to-maturing exposures can create instances of silent coverage. The latter occurs when a given policy neither expressly mentions a source of loss as covered nor appears among specific exclusions; therefore, a policy is silent. Disputes arise as parties who suffer loss by such exposures will argue that silence equates to coverage. Silent situations, once discovered, are eventually resolved by including reference to them that results in either deliberate coverage or exclusion.

In any case, while inherently conservative, the insurance sector constantly faces and addresses change from a variety of sources. Constant communication with an insurance professional is a prudent move for monitoring changes in available insurance protection.

Even after centuries of substantially aiding economies to grow and thrive, insurance still maintains a perception that it is conservative and slow to change. That's a gross simplification. As is the case with any complex situation, it's a mixture. Insurance tends to be conservative for various reasons. Chief among them is regulations. Insurance companies must comply with rigid state requirements regarding every aspect of their operations. Naturally, the regulatory situation becomes increasingly complex when operations include more than one state. Changes in premiums, coverage forms and rules for handling business are all scrutinized for compliance. No matter how agile or proactive an insurer may wish to be, its regulatory environment restraints its operations.

Another factor is that insurance is based upon contractual obligations. Insurers, legally acting as an insurance contract's Second Party, owe duties to their policyholders (First Party). When coverage involves legal liability to others, then financial obligation also exists to others (Third Party) who may have suffered loss or injury caused by policyholders. Maintaining these relationships consistently is important, and the need for stability also creates pressure to be conservative.

Lawsuits also contribute to insurance's conservative bent. Disputes often take years to resolve, and arguments are often based on how policy language and processes are interpreted. Once certain elements are established, changes in language and operations introduce uncertainty that may have unwanted financial consequences.

All the above contribute to insurance companies operating more slowly and deliberately than many other service sectors. However, there are still dynamic elements within a changing regulatory environment, such as standardization of laws, introducing new regulations and the appearance of new sources of loss. Besides reacting to these changes, insurers also make changes due to other important forces such as competition from sectors outside of insurance, technological advances that affect the areas they insure and technology that affects how it processes business.

Please see part two, which discusses two factors that arise out of the ecosystem in which insurance companies operate: emerging and silent insurance.

We discussed that insurance operates in an environment that contributes to it being a conservative service sector that is somewhat resistant to change. This part is about elements that arise from the other fact, insurance often faces and responds to evolving circumstances.

Insurance companies provide a dizzying array of products that address private and commercial needs for coverage. Along with continuously maintaining traditional protection against age-old sources of loss such as fire, windstorm, weight of ice/snow, collision, theft, vandalism and many others, insurers must also monitor the development of new sources of loss such as the following:

• Terrorism
• Nanotechnology
• Data Privacy
• Cyber Security
• Coverage for Digital Assets
• Sharing/Gig Economy
• Climate Change Risks
• Internet of Things Product Liability
• Driverless Vehicles/Deliveries

While insurers attempt to handle such challenges, adjustment is uneven and takes time. A typical arc involves recognizing a newer loss exposure followed closely by creating exclusions to bar coverage. As such exposures mature, showing patterns of claims, forms, or modified exclusions arise that provide limited protection. As time passes, additional experience accumulates, and available coverage often becomes broader and, eventually, wider spread.

However, the process of dealing with emerging-to-maturing exposures can create instances of silent coverage. The latter occurs when a given policy neither expressly mentions a source of loss as covered nor appears among specific exclusions; therefore, a policy is silent. Disputes arise as parties who suffer loss by such exposures will argue that silence equates to coverage. Silent situations, once discovered, are eventually resolved by including reference to them that results in either deliberate coverage or exclusion.

In any case, while inherently conservative, the insurance sector constantly faces and addresses change from a variety of sources. Constant communication with an insurance professional is a prudent move for monitoring changes in available insurance protection.