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What Is the Insurance Hard Market?

08 October 2020

Through late 2019 and 2020, there have been increasing signs of a hardening in the insurance market in the UK. What exactly do we mean by a 'hard market'?


How Do We Identify a Hard Market?


Essentially it is an upswing in the insurance market cycle when premiums increase. It has several characteristics, such as a:

  • Reduced supply of insurance as some insurers will exit certain sectors.
  • Less flexibility from insurance underwriters.
  • A drop in service from insurers as there will be more referrals and marketing activity.
  • More scrutiny in claims as insurers look to have tighter control over their costs and also increases in policy excesses and in premiums.


What Are the Causes of a Hard Market?


Many factors bring us to the hard market position now being experienced. Here are few examples: -

  • Claims Driven Pressures

Lloyd’s of London has estimated claims of over $100bn across all insurance markets for 2020. The increasing numbers and severity of weather events continue to add pressure, as seen with Storms Ciara and Dennis. These hit in January & February 2020 resulting in an estimated cost of over £400m to insurers.

The average escape of water claim in the UK is 30% higher now than 3 years ago and injury compensation costs have increased significantly due to Government action on the way future payments are calculated. The tragic Grenfell Tower fire has also been a catalyst for significant challenges in professional indemnity insurance. Not only does this lead to increased premiums it makes underwriters more stringent and less flexible in their underwriting and acceptance of some risks.

  • Low Rates

Some areas of the insurance market have been underrated for years due to a highly competitive market place. While this has been seen to be true in many property risks, reinsurance (that is the insurance that insurers themselves purchase) rates are set to rise. Reduced margins for shareholders results in less new entrants in the market place and leads some to leave altogether reducing competitiveness.

  • Solvency II

Solvency II saw a set of regulations introduced to reduce the risk of insurer bankruptcies. Yet, a consequence of the need to hold higher levels of surplus assets is that it takes away a lot of spare capital and is a significant barrier to new entrants to the market. Introduced in 2016, the phasing completes in 2021.

  • Investment Returns

Insurers, like other companies, are dealing with interest rates at extremely low levels. A sign of a hard market approaching is when insurers’ combined ratios (total claims and expenses) exceed 100%. This can sometimes be absorbed as they would expect a return on equity of 10% to counterbalance their losses. However, when this reduces they need to collect more premium.

  • Covid-19

It is still too early to tell the full impact of the Covid-19 insurance losses. It is possible costs could run to £3 to £4bn in the UK alone.


How Do We Deal With a Hard Market?


At Bruce Stevenson, we have seen hard markets before. In the 1980s, 1990s and more recently in 2001, so we have experience and know-how to help in meeting the challenges they present.

There is the possibility more time may be required to negotiate with insurers in the current circumstance. We would ask clients to engage early and to bear with us as we may have to ask for more information than has been the case in previous years. It may also be worthwhile to consider investing in risk management, this may assist many organisations as insurers become more selective in the risks they accept.

If you have any queries regarding your insurance cover, please do not hesitate to contact your usual Bruce Stevenson representative. Or you can get in touch with us here.

Understanding the Insurance Hard Market

Scott Fairgrieve, Broking Director at Bruce Stevenson

Broking Director


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