After decades of low premiums and abundant capacity – their willingness to accept new or increased risk – the insurance market is experiencing a hard market. This is when premiums increase, coverage terms are restricted, and competition for most types of insurance decreases; in other words, insurance is getting more expensive and harder to find.
A hard market can lead to a ton of questions. Let’s look at a few and go over the answers.
What is a “hard market” in insurance? A hard market means insurance companies are raising rates and restricting their capacity – their willingness to accept new or increased risk – to insure families and businesses, making it more expensive and difficult to get the coverage you need. Remember that in a hard insurance market, your rates typically aren’t just affected by the insurer’s practices, but also by other factors such as overall market conditions and your specific risks. For example, if you’re a contractor, such as a roofer, you may see higher premium increases than those in other trades, such as landscapers, because your operations create a higher risk exposure.
What causes a hard market? Economic conditions and claims frequency, over time, hurt the insurance industry’s finances and create a hard market. When more frequent claims and higher claims payouts occur consistently over a period of time, insurers begin to pull back from markets and increase premiums. Record-setting insured losses from catastrophes, rising inflation, increased labor costs, and supply chain challenges all contributed to this current hard market.
How long will this hard market last? Like the economy, hard insurance markets are cyclical or occur in cycles. A hard market will vary in length and severity, depending on prevailing economic challenges, inflation rates, and the type of insurance affected. A hard market will begin to “soften” as premiums rise, bringing back more capital to the insurance market. During a soft market, the competition heats up and premiums will moderate or even decrease.
I’ve had no claims. Why are my premiums increasing so much? Premium increases are not just tied to a specific customer’s coverage but to the overall insurance market. Inflation has significantly increased the prices of goods, especially for labor, construction, and auto repair materials. Insurers have experienced a significant gap between the policy pricing they projected using prior loss data and their current claims payouts. This gap contributes to the current hard market.
How can I get a better rate on my policy? It depends on your policy and if insurance carriers are looking to offer that type of coverage. Sometimes, another insurance carrier may offer the same or better coverage for a more affordable rate. Changing insurance companies, however, can have unexpected results. For example, switching companies too often will affect your rates and may cause you to lose loyalty discounts. Your agent understands the current environment and the factors that affect your risk picture and can discuss your options with you. It is always a good idea to review your policy with your agent, so you understand what coverage you have. If you want to change insurers, be sure to ask your agent how the switch could affect your coverage and your risk profile. Investing in risk management strategies can reduce your exposure and make you a more attractive account, both to your current insurer and a prospective one. You also can reduce premium costs by taking on more risk through a higher deductible or self-insurance. To help mitigate claim exposures you could put in place any/all of the following protection devices such as a central station fire and burglary alarm system, a backup generator (permanently installed), a temperature monitoring system, a water leak detection system, residential sprinkler system, or a lightning protection system. Installing these recommended systems could provide additional discounts to your policy.
How can an insurance agent help me in a hard market? Independent insurance agents are a knowledgeable and trusted resource. We can help you navigate the current market conditions. We have long-standing relationships with insurers and are well-positioned to find the proper coverage for your risks and to advocate on your behalf. We also can provide information on available coverage options for your risks and recommend risk management resources to limit your exposure. We can help you improve your insurability – how attractive you are to an insurance carrier -, so you have more choices.
Gannon Associates Insurance is here to help. We understand that this can be a difficult time. Through consistent and thorough client communication, our agents are here to help guide you through it. Our agents will use our broad market access to find the options that best fit your unique needs and budget. They will guide you through your choices, helping you to make a sound decision in your insurance coverage. Like any adverse market cycle, we are stronger together. Together we will weather this market, which is impacting us all.