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Aston Lark

27th April 2021

How the hard market affects your commercial insurance

Even if you’ve never heard the term “hard market” before, you may be about to experience the effects of one as a commercial insurance customer.

We’re entering a period where demand for insurance exceeds supply for the first time in a generation and conditions will become tough for some clients. Aston Lark wants to help you understand the context for the insurance industry, guide you through the process and work together to mitigate the impact as much as we can.

What is a hard market in the insurance industry?

Insurance runs on cycles called ‘hard’ and ‘soft’ markets. A soft market is a good time for insurers; this is when underwriting results are profitable and investment returns are buoyant, then supply exceeds demand and they compete aggressively to gain market share. For the customer, this means lower premiums, wider acceptance of risk, extended cover and other benefits for policyholders, such as long-term deals, low claims rebates, bursaries and attractive payment terms.

As insurers’ exposure to claims increases while premiums reduce, their financial results suffer but excess capacity and new entrants to the market prolong the competitive soft conditions as long as insurers can balance their portfolio to break even and achieve investment returns. Ultimately, adverse factors combine to make these losses unsustainable, then premiums must increase and terms and conditions become more restrictive. Demand then exceeds supply, and a hard market is created. This can create some challenging times for both insurers and customers. However, the measures insurance companies have to take during a hard market are not about protecting profits. They’re about making sure the company is financially secure enough to protect their customers.

Is this because of Coronavirus?

Partly. Lloyd’s of London estimate that Covid-19 pandemic will inflict record global losses on insurers. Conversely, lockdown also meant fewer claims for motor insurers. There was evidence that the market was already starting to harden even before Covid-19 hit.

There hasn’t been a hard insurance market for almost 20 years and there have been plenty of crises during that time. Several other factors have combined to overwhelm inherent market competition in the insurance industry, rates were rising and insurers started to become more selective before the pandemic.

How can a hard market affect commercial insurance customers?

While in some extreme examples, insurance becomes a risk itself – whether cover is available or affordable, it will typically become harder for the average business to source similar cover at a similar premium during a hard market. This is because insurers’ appetite for risk is much more selective, with fewer companies competing for new customers.

It also means, depending on the industry you work in, that your premiums are likely to increase at renewal. The performance of your individual policy and how much you paid last year may no longer be relevant pricing factors.

What can you do to minimise the effect of the hard market?

Speak to Aston Lark. We will start the process early enough to ensure we fully understand your business, the sector in which you operate and identify unique policy features your organisation needs. We have the scale, relationships, wide-ranging resources, expertise and time to spend on your insurance to solve problems and obtain the most suitable cover at a competitive premium.

We will do this by working with you to prepare a risk management strategy and tactical improvements to mitigate the impact of the hard market. This may be internal controls, site safety, supply chain management or contractual due diligence. In short, we’ll fight your corner at every opportunity and negotiate with insurers to help minimise the impact the hard market has on you and your business.

Produced in Kent members or industry partners are entitled to a 10% discount on our broking fee or commission, so if you have concerns about the hard market, or you’re worried your current insurance broker is not going to serve you well during this challenging period, please contact Ryan Henderson on 07815 199 598, or Iain Hall on 07554 661 861.