You may not have heard the phrase “hard market” before, but chances are you’ve experienced the effects of one. Richard Hastings, Group Development Executive at Alan Boswell Group, explains what a hard insurance market is, why we’re experiencing a hard market right now and the different ways your insurance broker can help your business navigate through it.
What is a hard insurance market?
Well, first off, it’s worth explaining the insurance cycle. So, the insurance market is no different to other industries in that we see periods of expansion and contraction. These happen in cycles and the market fluctuates from times of soft market conditions to hard and vice versa. A soft insurance market tends to favour businesses; it’s essentially a buyers’ market. Insurance rates are stable, terms of coverage are broad and underwriting criteria is relaxed. There are lots of insurers in the market which drives competition and makes it easier to obtain coverage at a good price. On the other hand, a hard insurance market is more volatile. Insurers withdraw from certain sectors of the market. This reduces competition and sees remaining insurers raise their premiums and apply stricter underwriting criteria. As a result, businesses generally find it harder to get good levels of cover at favourable prices.
Why are we in a hard market right now?
Insurance markets tend to harden following a major disruption. Of course, the most major disruption has been the Coronavirus pandemic, which has wreaked havoc on livelihoods, businesses and economies across the world. While the full extent of the effect on the insurance industry is still largely unknown, we do know that the costs are likely to run into billions of pounds. It’s inevitable that this will filter through to the insurance premiums businesses pay and the terms they’re able to secure.
It isn’t just the pandemic causing this shift though, we’ve been experiencing a soft market for quite some time. Long-term low interest rates yielding low investment returns, the Ogden review impacting settlements to injury claimants, and stricter regulation, have resulted in insurers having reduce capacity levels to write new business.
There are other factors, like historically low premium rates being charged for certain types of insurance, and increased reinsurance costs. These are passed through to the policyholder and contribute to insurers having to adjust their underwriting strategies.
All these factors together have created something of a perfect storm. That’s why it’s essential that businesses choose their broking partner carefully, and work with one who can help mitigate these risks.
It’s essential that businesses choose their broking partner carefully, and work with one who can help mitigate the risks.
What can businesses do to mitigate the impact of a hard market?
Having good risk management is important. It’s vital that businesses spend time making sure their risk management programme is as strong as can be. Having an established and robust risk management programme offers underwriters that extra layer of reassurance. It also helps set businesses apart from their peers.
Timing has an impact too. In a hard market, underwriting criteria becomes much stricter – they will ask more questions and require more detailed information. So, engaging in renewal discussions in good time and certainly earlier than normal, is advisable.
Another area is innovation. As costs rise, businesses have the opportunity to review how their insurance programmes are set up. Alternatives, such as self-insurance or higher deductibles, are worth considering. From an insurers point of view, the higher the level of risk held by the insured, the further away the insurer is from being called upon to pay a claim. It can be a good way to negotiate additional premium discounts with insurers.
Lastly, close broker relationships and open dialogue are key. It’s essential that the broker understands the nuances of the company and its risk profile, including all the positive risk features, so they can communicate these to insurers.
Does anyone know how long this hard market will last?
It’s difficult to say how long this hard market period will last. Historically, hard markets have lasted for between two and ten years, which is a wide range! Some think we might start to see an easing of current market conditions towards the middle of 2022, but who can say for sure? We do know it’s here to stay for the foreseeable future, so businesses need to be prepared.
Historically, hard markets have lasted for between two and ten years, which is a wide range!
How can Alan Boswell Group help businesses get the best cover during a hard market?
Hard markets present a range of challenges which places added pressure on businesses to make sure they’re suitably covered. Partnering with Alan Boswell Group will help businesses withstand these new challenges, as we are on hand to offer guidance and expertise during this period.
It’s worth bearing in mind that as carriers look to boost underwriting profits, their focus on added value services may decline. This reinforces the focus businesses ought to have when selecting their broking partner. We have a large range of in-house services available to businesses who partner with us. These include claims management, large loss support and consultation, risk management, health and safety consultants, financial planning, credit insurance, a full dedicated account management team with direct contact and schemes which are exclusive to our clients.
We have a large range of in-house services available to businesses who partner with us.
Finally, what is your message to businesses who are worried about the hard market?
It is a concerning time, but being prepared and following the steps mentioned in this article can help alleviate some of the pressures. At S-Tech, we always seek to deliver expert, friendly advice and genuine added value. We welcome any business to get in touch to discuss their current insurance and risk management programme. We’ll work with them to understand their business and help evaluate the risks they face. From there, we can create a programme tailored to their individual requirements to ensure they’re well placed in the long term to secure optimal terms from the market.