The Hard Market. This is a term many of you will have heard over the last 12 months from those of us trying to provide context to increasing insurance premiums.
Like many other markets, the insurance market follows a cyclical course driven by the principles of supply and demand; for a time now we’ve experienced something of a golden period in terms of the “soft” market characteristics that are beneficial to customers – increased competition, broader policy coverage, flexible underwriting criteria and lower premiums.
This pendulum does swing and over the past year we’ve seen this in earnest – particularly with Professional Indemnity, Commercial Property & Liabilities – to the point that tougher hard market conditions proliferate which results in diminishing insurer capacity, stricter underwriting criteria and drastically higher premiums in many cases.
There isn’t so much as one identifiable cause for this than rather a combination of factors: –
- Under-pricing of some premiums and exponential increases in claim costs– particularly ones associated with severe weather events and protracted litigation.
- Regulatory changes in the form of increased solvency demands and the requirements placed on insurers regarding the safeguarding of spare capital.
- Insurers diminishing return on investment income and uncertainties related to Covid-19 pandemic.
You’d be forgiven for reading this and thinking, “I can’t do much about that” and there’s an element of truth about that as these conditions will impact every insurance buyer, but any increases can be managed with the proactive assistance of your broker. To this end, we’d encourage you to engage with us early on renewal processes and consider a holistic approach to risk management to try and mitigate the consequences as best you can.
Insurance should be the final part of your risk management strategy; firstly, you should seek to remove risk. Obviously, this isn’t always possible and therefore you should look to manage the residual risk and then your insurance programme should be optimal and cost effective.
For us, it’s crucial you’re informed and prepared at the earliest opportunity to weather such conditions and so to this end, an early discussion can go a long away as will ensure we fully understand your business, your insurance requirements are suitable and not excessive and we have the chance to undertake the most comprehensive exercise on your behalf.
The good news is that hard markets don’t last too long and at some stage the pendulum will swing back!
By Simon Wright Dip CII – Account Executive