Protecting your business in the hard market – what is it?

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.