The insurance market is hardening but what does that mean to you?
The insurance market is similar to almost every other market in the world where changes to supply and demand mean cause it to run in cycles. During some periods, supply will outweigh demand which creates a “soft” environment in which insurers compete to win business by cutting premiums, relaxing their underwriting criteria and offering wider cover.
Insurance consumers have benefited from “soft” market conditions for several years now and this has led to the gap between the cost of claims and the premiums collected to reduce massively which is unsustainable for insurers. This trend has been exacerbated in recent years by claims inflation, putting even more pressure on insurers.
Insurers are now responding to this reducing profitability by tightening underwriting criteria, reducing cover and increasing premium rates – in some cases, insurers and Lloyd’s syndicates have exited unprofitable insurance classes or sectors altogether. We are now seeing the insurance market “harden” across most classes of business.
Examples of factors driving claims inflation and fuelling the current hard market include:
- The weak pound has resulted in cost inflation for building materials.
- With the cost of living increasing, the cost of labour has also increased in most industries.
- Hot, dry summers are becoming more common and this is increasing the number of building suffering subsidence.
- Increases in extreme storms in the UK has led to more frequent and severe flooding events.
- Frequent use of plastic pipes and fittings in properties which are susceptible to splitting has led to more escape of water claims which costs UK insurers about £930 million each year, a figure that is steadily increasing.
- New and expensive types of liability claim have emerged, for example, abuse and bullying, mental anguish and shock, and various forms of discrimination.
- There are escalating costs of damages awards (as with other liability insurances)
- Repair costs are increasing due to new technology in vehicles. Even small incidents can cause costly claims if for example bumper sensors are damaged.
How best to manage hard market conditions:
As part of GRP, one of the largest independent insurance broking Groups in the UK, we are well placed to fight your corner.
A core element of our strategy has always been to maintain strong mutually supportive partnerships with some of the UK’s leading insurers, and this strategy is now paying dividends for our clients, as our local negotiations with insurers are backed by GRP’s national strength and insurer relationships.
Your approach to your insurance renewal can also make a difference: Here are some tips which will enable you to help us secure a fair deal on your behalf:
1. Start your renewal process early
Insurers are becoming more selective about the risks they choose to write, and in some cases, an insurer may want to completely re-underwrite a renewal, ignoring previous years’, to take a fresh look at a business. This is not necessarily a bad thing but a more cautious approach from an insurer may mean that a case needs to be referred upwards to more senior underwriters.
Involving senior underwriters will mean that the renewal process might take longer than previous years. It’ll be important for us to work together to agree your renewal strategy early and prepare the information needed for your renewal well in advance to help us get on the front foot in negotiations.
2. Be prepared to provide additional information
With insurers taking a fresh approach at the underwriting of risks, more information which demonstrates that your business is a well-run and attractive risk may be required. If we can provide this additional information, it will help in negotiating more competitive terms. We want to help secure the best possible deal for you and if you have any questions as to why information is needed or if you think there is something that could help but hasn’t been asked for, we actively encourage you to engage in conversation with your usual A&T contact.
3. Be able to demonstrate that your sums insured are correct
Under-insurance is a massive problem for the insurance industry. Property reinstatement values are particularly commonplace to find underinsurance as they are often being significantly understated (our research shows that this is the case for up to 75% of businesses). Insurers are increasingly imposing terms such as co-insurance (requiring the insured to pay a % of any claim) to combat this issue.
To avoid the imposition of restrictive terms or the reduction of payouts in the event of a claim, it's essential to demonstrate recent and accurate valuations. We now offer professional desktop rebuild valuations from our partner Rebuild Cost Assessment Ltd to help our clients with this issue – please speak us if you would like to arrange one for your property.
Please get in touch
If you would like to find out more about the market outlook for your trade or industry sector please speak to your usual A&T contact or call: 01202 754900