The COVID-19 pandemic has had a notable effect on the insurance market, changing the current landscape of the industry in more ways than one.
You may have heard that the insurance industry is entering a ‘hard market’ period, but what does that actually mean?
Insurance is cyclical. Just like how the seasons change, the market fluctuates, with each insurance ‘season’ lasting anywhere between two to 10 years.
On top of that, there are two types of insurance cycle conditions – hard and soft – that can affect the status quo.
As businesses look to build themselves back up again post-pandemic, coupled with the already hardening market, the increased need for insurance protection means the demand will exceed the supply for the first time in many years. As a result, the implications of this are likely to affect commercial clients.
What’s the difference between a hard and a soft market?
Historically, the insurance market has been subject to cyclical changes, which broadly follow global cycles and global catastrophe events.
Whilst the market has always been in a ‘soft’ cycle for many years, the current move to a ‘hard’ cycle is compounded by the fact that insurers are facing the likelihood of prolonged financial turmoil, at the same time as dealing with the costs of ever more frequent extreme weather events.
In a soft market, you are likely to see:
- Low premiums
- Broad appetite and availability of cover
- Increased capacity, meaning insurers write a higher volume of business
- Higher limits on policies
In a hard market, you are likely to see:
- High premiums
- Reduced appetite due to stricter underwriting criteria
- Decreased capacity, meaning insurers write a lower volume of business
- Lower limits on policies
Why are insurance premiums rising?
During a hard market, insurers place more stringent limits on the cover they can write, which automatically reduces their appetite. This in turn means they are writing fewer policies.
As the insurers’ capacity is lower, it can be more in difficult to find insurance solutions and that leads to an increase in demand for cover, all of which drives premiums up.
What does this mean for me and my businesses?
During a hard market cycle, it can be more difficult for businesses to find cover, and it’s our role as your broker to guide you through the insurance landscape.
We have longstanding relationships with several insurers, which allows us to have conversations with the right people for your business needs.
We’re here to help
We act as your champion out there in the marketplace, whether it is in a hard or soft cycle, to get you the best cover for your business.
We always keep a close eye on any market fluctuations. We will get in touch with you ahead of your renewal date to discuss your personal circumstances and how any changes in the insurance cycle will affect you.
Get in touch with us today on 0121 270 5809 if you have any concerns and one of our experts will guide you through your options.