The Hardening Insurance Market - by Scott Norton
At Norton & Co Insurance we have over 35 combined insurance experience and have seen both the good and bad of market conditions. Despite what many customers feel the insurance industry has been in a soft state for some years with clients enjoying premiums at an all-time low. However, this trend has now reversed with the industry hardening.
We are experiencing premium increases across most policy classes. Excesses on policies are also increasing, and underwriting guidelines are tightening.
Here are some frequently asked questions and answers to help understand these changes;
What is a Soft Market?
The characteristics of a soft market in the insurance industry include:
- Lower insurance premiums
- Many insurers are competing for business
- Multiple options for cover with new insurers battling for market share
- Underwriters are flexible and willing to negotiate coverage terms
- Broad coverage is available with some extensions available for free
- Underwriting guidelines are relaxed
Ultimately the rate reductions associated with a soft market affect the insurance company’s bottom line. So when the risk and demand for insurance increases, the company must make more money to cover the cost of claims.
What is a Hard Market?
The characteristics of a hard market in the insurance industry include:
- Higher insurance premiums
- Relatively few insurers offering coverage/ reduced capacity
- Coverage is difficult (or even impossible) to obtain
- Underwriters are reluctant or unwilling to negotiate coverage terms
- Broad coverage is difficult to obtain. Some extensions may be available for an additional premium
- Underwriting guidelines are strict
What type of premium increases/policy changes should we expect?
Currently we are noticing general increases of up to 10-15%. At times this can be more depending on claims, locations etc… We have been advised that premiums are going to continue to increase at a similar rate into the foreseeable future. To reduce the impact of a higher premium some insurers are moving towards increasing their minimum excesses. More insurers are also declining to provide quotes for higher risk occupations/locations due to the hardening market.
Why are we in a hard market?
A series of catastrophic events, a litigious legal environment and/or a poor economy can set the stage for hard insurance market. Such events tend to reduce insurers’ capacity to write new policies. The attributing factors that push the industry into a hard market are:
World weather events: Major events like hurricanes, cyclones, earthquakes and bush fires can generate huge property insurance losses. Insurers that have paid large claims for certain risks may be reluctant or unwilling to insure those risks in the future. Moreover, many catastrophic losses are shared by re-insurers. Re-insurers that have paid large losses may be unwilling to renew re-insurance contracts with insurers. Without access to re-insurance, an insurers capacity to write new policies is reduced.
Legal climate: In a litigious environment, insurers may be hit with many large lawsuits. Poor loss experience may cause an insurer to sustain an underwriting loss. A liability insurer’s capacity may be further reduced if re-insurers are unwilling to renew the insurer’s reinsurance contracts.
Economic downturn: During the insurance industry’s soft market when rates were extremely low, insurance carriers relied on their return on investments to make money. Carriers are no longer making the investment income they once had. As a way to counteract these investment losses rates have begun to escalate.
The amount of capital available for insurance providers. Insurers rely on the global money markets to provide the capital required to operate an insurance company. As with other financial products, such as home loans, investors providing this capital are seeking investment returns. If the insurance market has poor investment returns, capital providers invest their money elsewhere. This translates to the higher cost of capital for insurers leading to increased premiums.
What is the market outlook for the next 2 years?
Insurance pricing will continue to increase between 10-15% for policies through 2020. We are also expecting this pricing cycle of increases in premiums to continue at least until the end of 2020. This is primarily due to the increase in both claims and reinsurance costs.
What is Norton & Co doing for clients?
Norton & Co is continuing to do what we always do for our clients which is to offer:
👉Complimentary no obligation insurance reviews
👉Advice and Recommendations based on your individual circumstances
👉Marketing and Re-marketing of your insurance to local and international insurers
👉Claims advocating meaning you don’t have to deal with insurers
👉Premium funding and extended credit terms
👉And most importantly a Personal Account Manager to handle all your enquiries