I'm at the beginning of chapter 3 on hard mode, and it seems like the game is too easy. None of the enemies are a challenge and I have lots of gold. Chapter 1 (boss fight, especially) was a lot harder.

A problem with a lot of single player RPGs is that your character can become overpowered by midgame. Here is my question: does the game become challenging again later on? I know there is some kind of "insane difficulty" mod, and I'm wondering if is necessary, or if I'm just at a low point as far as difficulty is concerned.

There's nothing as hard as the Chapter 1 boss fight, but there are a few fights that can be tough if you aren't prepared. The thing is, you usually have lots of powerful potions, weapon oils, and weapon rune stones that you can use in these instances that make the encounters relatively easy.

I can say that the penultimate fight in the game was tough and I had to try it several times, but it still wasn't as tough as the Chapter 1 boss fight. I was also playing on hard difficulty.

You might want to try the mod if you are finding the game too easy, but beware.. you can't change the difficulty setting mid-game, and the "hard" setting with the mod might be TOO hard. I would back up your saves just in case you want to remove the mod later.

You could try the Flash Mod mentioned in the Recommeded Mods sticky thread.

Amongst other things it enables you to make the game difficulty levels harder.

In fact it provides a further three levels of difficulty, above the 'standard' levels.

Cheers.