Brace Yourself for The Hard Market

“Hard Market”.  This is a term that you are going to hear quite a lot when dealing with your commercial insurance renewals.  But what does it mean?  I will give you a brief definition and explanation of why this is happening but at the end of the day, what matters to you as a business owner, is that you are likely to see your premiums increase and for those in high risk sectors, possibly by margins you have not previously experienced.  Working with an insurance broker who will help steer you through these stormy times is essential.

A Simple Definition

The commercial insurance market, like many other sectors or industries, undergoes trends which are dictated by several factors.  These trends are known as hard and soft markets and they fluctuate over a period of time – anywhere between 2 and 10+ years.  When the market is soft, competition is fierce and premiums are low.  The opposite happens in a hard market where capacity is reduced and premiums increase.

The characteristics of each market can be seen here:

For the past 16/17 years, the insurance market has been soft, meaning that there has been a glut of insurers all fighting for market share and actively keeping premiums low and in some cases discounting them. Over time, profits start to reduce, loss ratios begin to increase and the sustainability of insurers is threatened.  To rectify this situation, insurers re-think their books of business and their risk appetites.  Underwriters endeavour to correct any adverse loss ratios developed during soft market conditions.  They do this by increasing premiums or worse still, from a policyholder’s and broker’s point of view, withdrawing from the market.  This is why we are witnessing insurers pulling out certain markets such as Design & Construct Professional Indemnity and High Risk Liability.  This is the effect of a hard market.

Why Now?

Prior to the COVID-19 pandemic, a number of factors were already having an impact on the commercial insurance market.   In ‘The Perfect Storm’, a Chartered Insurance Institute webinar I attended, Alan Chandler, CEO of Alan Chandler Training summarised these factors as follows:

  • Solvency II
  • The negative Ogden table rates
  • UK Property Rates 2020
  • Storms Dennis and Ciara
  • Reinsurance rate will rise significantly, and capacity will reduce
  • Interest rates are at an all-time low
  • COVID-19 will be the most expensive event ever to hit the insurance world

Click here for more details on each of these factors.

As rates rise and capacity shrinks, it is more important than ever to start renewal discussions early with your broker.  This will enable them to negotiate with your current insurer and look for alternative solutions.

As an independent broker and member of The Broker Network, the UK’s largest broking network,  I have unrestricted access to the insurance market including bespoke and unrivaled products.

If you would like to find out how I can help you to navigate your business upwind into the storm, please call me on 01235 868535 or email jo@spencerinsurance.co.uk.