The insurance industry works in cycles and moves between what is termed ‘soft’ and ‘hard’ market conditions.
Put simply – in a soft market
- insurance rates reduce
- Insurers are keen to write business
- investment earnings are high for insurance companies
The other side to this is a hard market which is characterised by increased premium and reduced capacity in the market. This can be caused by several factors –
- Interest rates are low and therefore investments earnings reduce
- Increased and frequent large losses
- Reduced capacity meaning it becomes harder to place some insurance risks in this market.
- Cost of reinsurance
Presently we are most definitely in a “hard” market.
Even prior to the pandemic striking in February 2020 and the bushfires of 2019, insurance premiums were increasing in both commercial and personal lines. With such low interest rates, investment income for insurance companies was falling and to turn things around, insurers were forced to raise premiums. Throw in the 2019 catastrophes of bushfires, floods, hailstorms and a pandemic and the insurance companies were forced to act.
What we are seeing now is insurers increasing rates to recoup some of their losses and also to prepare for the future of natural disasters. Whilst we may not see the bushfires of 2019/2020, we know of the predicted La Nina cycle which may result in further losses through storm and floods.
Another factor is the cost of reinsurance. Reinsurance is the insurance that insurers purchase to protect their themselves when catastrophes strike. The cost of reinsurance is increasing due to the large number of catastrophe losses around the world. This additional cost is then passed down to the consumer.
In a hard market the Insurance companies also look at their book of business and make decisions to reduce their overall exposure and therefore reduce their “risk”. This can result in Insurers no longer offering cover for certain occupations or not insuring in certain areas and perhaps increasing excesses. You may have heard in the news of some activities such as the trampolines on the Lorne foreshore cannot get insurance and are therefore closed.
In the end, Insurance is a business and shareholders are looking at their returns. Premiums must be rated according to the losses and risks.
What does a hard market mean for consumers?
A hard market presents a challenge – we understand that the affordability of insurance is paramount to our customers. As always, the team at RIB will be doing all we can to review your insurance program and make the necessary changes to get the best result both in cover and price. We may be asking to review your insurance a bit earlier than usual and may need some of your time over the phone for clarification as insurers want to know more information about the risks they insure.
There are some hard times ahead but as your insurance broker, we will strive to do our best for you.
