Hardening Insurance Market

Hardening Insurance Market

Insurers appetite for risk is diminishing

What you need to know about the hardening insurance market

For more than a decade the insurance industry has operated in soft market conditions. Now, however, it is starting to experience a hardening market. That means reduced capacity, fewer providers in the market and a diminishing appetite for risk.

What are the factors behind the hardening market?

A hardening insurance market is typically caused by a combination of factors that together put pressure on the industry. There is, however, often a catalyst that speeds up the process such as the 9/11 attack in 2001 and the coronavirus pandemic today.

The factors contributing to today’s hardening of the market include:

  • The Covid-19 pandemic – The ongoing pandemic has been one of the biggest factors with insurers having been hit by massive pay-outs. Lloyds of London estimates the total global cost to the industry will be about $203bn.
  • Solvency 2 – In 2016 legislation was introduced which means that by 2021, all insurers are required to hold levels of cash to ensure they can meet their liabilities at all times. This requirement has reduced 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, many insurers have taken a loss on investment income, which for some, has reduced their capacity to underwrite risk.
  • Rising motor claim costs – Cars are advancing technologically, which means they become more expensive to repair. The costs of motor claims therefore go up. With motor claims costs rising by about 4.5% each year, insurance premiums will increase.
  • Climate change – Frequent natural disasters relating to climate change has led to significant pay-outs for the global insurance industry. In the first half of 2020 alone, there were more than 200 natural disasters in the world including floods in Indonesia and the Australian bush fires.
  • Restructuring within the insurance industry – In recent years many insurers have exited certain lines of business to concentrate on core markets, withdrawing or reducing capacity for certain risks. This has meant less competition.

The importance of adding value in a hardening market

A hardening market can pose challenges for brokers and clients alike due to increasing premiums and a more limited product range. It is also difficult to predict how long the market will stay this way.

In such circumstances, brokers will looking to provide value for clients in the form of insurers and products that offer something extra. Towergate Insurance Brokers’ strategic relationships with a number of preferred insurers, our scale in the market and our structured interaction with them, means we can secure differentiated products and services. This means we can deliver the best outcomes for clients.

In a hard market, insurers are more likely to apply acceptance criteria and terms more strictly. The more your broker can evidence positive risk management controls which can give underwriters an insight into how well managed, protected and generally how well looked after a business is, the more appealing it will be and the greater the likelihood of them accepting the risk or getting favourable terms.

By offering the best technical advice and risk management consultancy, Towergate evaluates the risks you face and advise on how best to either avoid them, reduce them or handle them. We constantly keep clients up to date about the latest developments in the market, legislation, H&S advice and how they might impact your company. 

To find out how we can help mitigate the affects of a hardening insurance market, talk to your usual Towergate Insurance Brokers adviser or email TIB@towergate.co.uk.


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Mark Brannon Cert CII, commercial, sales, broking and client directorAbout the author

Mark Brannon Cert CII is a respected industry leader with over 17 years’ industry experience in a variety of roles within the business insurance sector. He works across a wide spectrum of insurance product and policy development, delivery and optimisation for clients, including claims, insurer relationships, marketing and communications, and risk management.

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 For more information or for a full review of your insurance needs, please see our insurance specialisms, contact your usual Towergate Insurance Brokers adviser or email TIB@towergate.co.uk.

The information contained in this bulletin is based on sources that we believe are reliable and should be understood as general risk management and insurance information only. It is not intended to be taken as advice with respect to any specific or individual situation and cannot be relied upon as such. If you wish to discuss your specific requirements, please do not hesitate to contact your usual Towergate Insurance Brokers adviser.