10 May 2019
You may have recently noticed that insurance premiums have increased and insurers are now becoming more conservative in their approach to underwriting.
This shift within the insurance landscape is identified as the transition from a ‘Soft’ Market to a ‘Hard’ Market.
These cycles relate directly to the premium and the underwriting attitude of insurers. The two major influencing factors are Natural Disasters and Economic Activity.
In a soft cycle, insurers provide lower premiums and have a more relaxed underwriting approach. During a hard cycle, it is quite the opposite, with insurers increasing premiums and providing reduced coverage as they adopt a tougher underwriting approach.
Our industry is currently undergoing a Hard Market.
Comparing the two Markets.
A summary of the main areas between a Hard and a Soft market are depicted below:
Why are we experiencing a Hard Insurance Market?
2017 and 2018 have been reported as the ‘‘costliest years in history’’, due to a wave of worldwide disasters, equating to higher reinsurance costs.
These disasters include, cyclones, floods, Bush fires and major storms throughout Australia and throughout the world.
In addition, economic activity has reduced significantly within Australia.
Both these factors have forced Insurers to recoup losses through increased premiums and tightening of claims, in an attempt to increase profits to build capital reserve.
Reducing exposures in a Hard Insurance Market
During a Hard Market, insurers become extremely selective in which risks they underwrite. Insurers will be less likely to provide insurance coverage for clients with high risk profiles, poor claims history or clients with little or no risk management.
Over the past decade, improved technology has assisted insurers in providing data to rate a risk more effectively. Insurers are now able to accurately map locations or regions that have high risk exposures which are prone to weather perils including, flood, bushfire, cyclone, and storms.
These advancements in technology allow insurers to reduce their exposures by offering targeted premium increases and even excluding specific suburbs/streets acceptability criteria.
Claims during a Hard Market.
A recent Gallagher report has highlighted the direct correlation between increased claims scrutiny and a hard insurance market.
In simple terms, during a hard market, insurers will often investigate claims lodgements and outcomes in more detail as they attempt to minimise costs
Insurers will also look to control or reduce their losses by either excluding cover for high risk perils or increasing premiums significantly.
An example would be the spate of recent weather events in Northern Australia, which have resulted in insurers withdrawing coverages and looking closer at areas which are prone to natural Disaster and their respective control measures.
The importance of an Insurance Broker during a Hard Market.
During a hard market, it is crucial to align yourself with an established industry specialist, who can effectively manoeuvre through the obstacles and difficulties presented by insurers.
Whether you are a business or property owner, partnering with a broker that can effectively represent your interests will often prove the difference in coverage accessibility, value and of course, claims settlements.erests will often prove the difference in coverage accessibility, value and of course, claims settlements.