Everything you need to know about the hardening insurance market

Hardening-market

After over a decade of soft market conditions, the insurance industry is starting to experience a hardening market – with reduced capacity, fewer providers in the market and diminishing appetite for risk.

We take a closer look at the factors behind the hardening market and what insurers and brokers can do to ensure they are offering clients value in such conditions.

What has caused the market to harden?

Market hardening isn’t typically caused by just one event, but rather a combination of factors that all place increased pressure on the insurance industry. There is, however, often a catalyst which speeds up the process – for example the 9/11 attacks in the early 2000s and the coronavirus pandemic today.

Factors contributing to hardening the market in 2020 include:

The Covid-19 pandemic – There’s no denying the ongoing pandemic has been one of the biggest factors. Insurers have been hit by unprecedented pay-outs, with Lloyds of London estimating the total global cost to the insurance industry will be around $203 billion [i] – almost double that of Hurricane Katrina in 2007.

Solvency II – Legislation introduced in 2016 means that, by 2021, all insurers are required to hold certain levels of cash to ensure they can meet their liabilities. This need to have a certain amount of capital at all times is reducing the cumulated exposure that insurers are willing to carry.

Low interest rates – With the Bank of England’s base interest rate at a record low of 0.1% since March 2020, many insurers have taken a loss on investment income in recent months, which, for some, has reduced their capacity to underwrite risk.

Rising motor claim costs – As cars advance technologically, they become more expensive to repair and the costs associated with motor claims go up. We’re currently seeing motor claim costs rise by around 4-5% each year, which in turn leads to rising insurance premiums.

Climate change – The frequency of natural disasters related to climate change is becoming more common, leading to significant pay-outs for the global insurance industry. In the first half of 2020 alone, there were more than 200 natural disasters across the world [ii], including Cyclone Amphan in the Bay of Bengal, floods in Indonesia and the Australian bush fires.

Restructuring within the insurance industry – In recent years we’ve seen many insurers withdraw from certain lines of business to concentrate on core markets, and withdrawing or reducing capacity for certain risks. This naturally leads to less competition.

Offering value to your clients in a hardening market

A hardening market can pose significant challenges for brokers due to higher premiums and a more limited product range. Plus, it’s difficult to predict how long the market will stay this way, with previous ‘hard’ periods lasting anywhere from a couple of years to a decade.

In such circumstances the focus should be on providing value for clients, who’ll be looking for insurers and products that offer something extra.

It’s also the case that in a hard market, insurers are more likely to apply acceptance criteria, terms and premium increases more strictly. The more brokers evidence positive risk features which give underwriters an insight into how well managed, protected and generally well looked after a risk is, the more appealing it will be to underwriters and the more likely they may be to take on the risk or provide favourable terms.

Added value from NIG

At NIG we pride ourselves on offering customers added value when they sign up for our policies. Some of the ways we do this include:

Risk Assist – Risk Assist offers an easy-to-use and comprehensive range of online tools to help manage and reduce risks in your client's business. These include sector specific health and safety guidance, downloadable HR information and templates, relevant news updates, round-the-clock access to our Ask the Expert service and eLearning modules on health and safety topics like manual handling, fire safety and slips, trips and falls.

Business Interruption Cost Calculator – This free, easy-to-use tool helps minimise the risk of under-insuring your clients by helping to determine the correct sum insured and indemnity period for business interruption insurance. Brokers can access a step-by-step guide to using the tool and can also send the comprehensive question set direct to clients using the email link facility.

Risk Control Team – Our in-house Risk Control team visit thousands of locations each year to carry out risk assessments and offer customers valuable insights and practical guidance on managing risk levels and reducing exposure to potential future loss.

Authored by NIG

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