Navigating the hardening insurance market

The state of the insurance industry continues to fluctuate. This can be confusing for business owners trying to forecast future insurance costs while industry experts monitor the market and try to project whether insurance premiums will rise and by how much.

What is clear is that risk management, loss control and safety continue to be crucial to the success of any business insurance package, regardless of market conditions. Now is a good time to evaluate your business’s risk management plan as a whole to ensure your business can attain favourable pricing regardless of market conditions.

What a hardening market means for you

During times of a soft market, like the past few years, business owners see cost reductions in their organisation’s insurance premiums, even without a reduction in their risk. As a result, business owners are often unwilling to spend time and resources on loss control and risk management because they already see their insurance premiums dropping. This reduction in pricing is deceptive, setting businesses up for a shock when the market takes a turn.

It is important to take advantage of the opportunity to get ahead of the game by proactively addressing losses and risks now. When insurance prices begin to climb, those organisations that have taken the initiative to address losses and mitigate risk will see modest increases in premiums. Whereas those that simply rode the market without working to reduce risk will have a harder time placing cover and will not be offered as competitive rates. As a business owner, a 15 per cent increase in cost will still be unpleasant, but a 40 per cent increase in addition to a reduction in cover could end up affecting your company’s well- being in the short and long term.

Even if the market does not harden soon or hardens gradually, a business with effective loss control and risk management initiatives will always pay less to secure their firm, even in the softest of markets.


Soft market
=
lower premiums
+
increased capacity which means insurance carriers write more policies and higher limits
+
wide appetite
+
increased competition among insurance carriers
+
relaxed underwriting criteria which means underwriting is easier


Hard market
=
higher premiums
+
limited capacity which means insurance carriers write less insurance policies
+
limited appetite
+
less competition among insurance carriers
+
more stringent underwriting criteria which means underwriting is more difficult and data is key


Risk management, loss control and safety continue to be crucial for the success of any business insurance package, regardless of market conditions.

Several factors influencing the hard market

  • Coronavirus will be one of the largest loss on records for non-life insurers together with loss of investment income.
  • Insurer Solvency II –the legal requirement to set aside a significant proportion of earned premium to ensure there is enough money to pay future claims. New and emerging risks will need to be considered e.g., driverless cars, increase in crime and cyber-attacks, digital addictions, etc.
  • Interest rates are at an all-time low in which investment income cannot be relied upon
  • Property insurance rates were far too low before 2020 and were already running at a loss. An increase in frequency of severe property losses such as the floods caused by storms Dennis and Ciara. Climate change have insurers struggling with correctly predicting floods and they need to build up a pot of money to take care of the next set of severe floods.
  • Ogden Discount Rate resulting in significant additional costs to Insurers in the settlement of injury claims. The Ogden discount rate is a calculation used to determine how much money insurance companies should pay as compensation to people who have suffered life-changing injuries so that it will cover all their predicted future losses.
  • Reinsurance is a key component of an insurers pricing model and rates will rise significantly leaving insurers with no option other than to reflect these increases in their rates and to reduce their market capacity.

Take charge of loss control

The best approach to control losses is to prevent injury and illness, manage claims effectively and implement cost containment strategies. If you work to reduce risk and prevent loss now, the increase in your premiums will be minimised later.

The best advice is to ensure that your insurance broker provides a consultative approach to accomplish the following:

  • Pinpoint your exposures and cost drivers.
  • Identify the best loss control solutions to address your unique risks.
  • Discuss a risk retention strategy that accurately reflects the business’s risk tolerance appetite and investigate alternative risk retention options such as higher excesses and/or deductibles.
  • Create a solid business continuity plan to account for disasters and other unpredictable risks.
  • Build a company culture focused on safety.
  • Manage claims efficiently and challenge reserves where appropriate to keep costs down..
  • Start renewal negotiations early to manage expectations
Heather Coupland
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Heather Coupland

Heather has over 20 years' experience in the business insurance and risk management sector providing protection for companies. She is passionate about helping companies of all sizes to protect and grow their business through bespoke insurance and risk management programmes. Her focus is on being an extension to your business for you to enjoy enhanced insurance protection, competitive premiums as well as a professional and efficient service.