Understanding Today’s Hardening Insurance Market
What is a Hard Market?
There has been a lot of talk in the insurance industry about “hardening markets.” But what does it mean, why has it happened, and what impact does it have on insurance policyholders? Who is most affected, and what action can you take to manage the changes?
Over the last 10 years, the insurance industry has been a soft market, characterised by:
Low premiums
Lots of competition from insurers for your business
A buyers’ market, with lots of options due to insurer saturation
A combination of factors has led to a hardening market for some lines of business, characterised by:
Rising premium costs
Increasing excess limits
Less availability of higher indemnity limits
More restrictions on policies
Less competition due to fewer insurers
Why Has the Market Hardened?
Rising Premium Costs
Insurance works on the principle that “the losses of the few are paid for by the premiums of the many.”
However, recent years have seen a high number of unexpected losses exceeding insurers’ estimates when setting premiums, including:
Business Interruption costs due to Covid-19
Significant storm and flood damage in 2020
Legislation changes (the Ogden Rate) in 2017 increasing personal injury payouts
Impact of the Grenfell Tower Disaster on engineering and construction
Solvency II requirements introduced in 2016, obliging insurers to build larger financial reserves
Stock market depreciation, historically used to subsidise premiums
These factors have left insurers with a shortfall, recouped through higher premiums.
Increasing Excess Limits
Higher excesses reflect insurers’ desire to take on less risk. For example, instead of covering losses from £500 and above, insurers may cover only losses from £750 and above. This encourages policyholders to manage risk and reduces the number of smaller claims insurers handle.
Less Competition Due to Fewer Insurers
Factors reducing insurer numbers in the UK include:
Some insurers relocating outside the UK due to Brexit
Withdrawals from certain markets following high losses (e.g., Grenfell Tower, Covid-19)
Underwriting agencies losing capacity as insurers exited post-Brexit
Less Availability of Higher Indemnity Limits
Higher limits of indemnity on some liability policies are harder to get due to limited capacity and changing risk appetite. High-profile events such as Grenfell and Covid-19 claims make underwriters cautious. Many policies are switching from “any one claim” limits to aggregate limits, restricting total cover over a policy period.
Impact of COVID-19 on the Hardening Market
With underwriters working from home and juggling additional responsibilities, decisions are taking longer. Some underwriters have also been drafted into claims handling teams, reducing capacity for managing quotes and policies. This can lead to higher premiums and frustration for policyholders.
Who is Most Affected?
The greatest impact is on liability premiums, particularly professional indemnity. Professions seeing marked increases in premiums and excess include:
Engineers (structural and fire engineers)
Architects
Surveyors
Design & Construct
Project Managers
Insurance Brokers
Other affected insurance lines include:
Haulage Fleets
Motor Trade
Employers Liability
Public Liability
Even if you’ve never had a claim, premiums may rise due to broader marketplace changes and sector-specific risks.
How to Reduce the Impact on Your Organisation
What can you do?
Underwriters are now looking for favourable factors in assessing terms. Strategies to show your organisation is a lower risk include:
Risk management tools and strategies
External accreditations
Investment in staff training
Review the profitability of high-risk activities that attract higher premiums and excesses. Competitive quotes are still available, but more effort is required to secure them.
For guidance, give us a ring on 0191 917 0330 or drop an email to info@talbotjones.co.uk.
