How is the ‘Hardening Market’ Affecting Commercial Insurance?

Insurance runs in cycles of ‘hard’ and ‘soft’ markets ‒ both of which can have an impact on commercial businesses in different ways.

Currently the insurance market has been ‘hardening’ – which means the demand for cover is not matched by supply. A hard market can make it extremely difficult for a business to obtain commercial insurance cover at an affordable rate.

Why are Insurance Premiums Rising? 

Over recent years, a number of issues have had an effect on the insurance market ‒ resulting in a lack of supply, which is driving premiums up. The hardening market trend has been caused, at least in part, by some of the issues below:

• The Grenfell Tower disaster and the collapse of construction giant, Carillion. The resulting rise in claims has naturally seen premiums increase and left fewer insurers willing to be involved in the professional indemnity (PI) market, creating a lack of supply.
• It is estimated that Storms Dennis and Ciara cost the industry over £360* million in property damage and business interruption claims. Unfortunately, flooding may become more frequent and insurance rates will need to increase to reflect this.
• Reinsurance premiums (the insurance that insurers themselves purchase) are rising significantly, well into double figures. There have been less new entrants in the market, and some have left altogether, thus reducing competitiveness.
• Although most COVID-19 disruptions were not covered by insurers, the small percentage of business interruption coverages that will respond are estimated to cost insurers billions of pounds. The full impact on the insurance sector is yet to be established.

Despite these challenges, to simply reduce or even pause cover would be a false economy. Insufficient cover could leave your business financially exposed if the worst should happen. 

How Does This Affect Commercial Insurance?

The hard market has a negative impact on commercial insurance as insurers will write fewer insurance policies and some may pull out of certain markets altogether.

This means fewer insurers will be competing for new customers and as a result, it is likely that customers will find it difficult to find cover at a similar premium to previously, particularly if your business operates in a high risk industry.

It is also likely the underwriting criteria will become more stringent; which in turn will mean underwriting is more difficult.

Positive News
To help improve your chances of getting the best insurance deal:

Find specialist insurers who understand your overall business risk profile.

• Use a broker to identify preferential pricing and insurers who offer a range of payment options.
• Make sure you allow plenty of time to get the best deal and source the correct cover so that you don’t end up in a situation where you have to take an expensive option because you ran out of time.
• Take advantage of insurance health checks, which could help identify savings and ensure your business is fully protected.
• Make sure you highlight your accreditations and proof of competencies – this could help reassure insurers you are a risk worth underwriting.

 To find out more about the hardening insurance market conditions or to discuss your business insurance requirements, please get in touch – we’d love to help you.