What’s driving these increases?
companies have been losing money
For more than a decade there have been rate reductions but with increased cover and limits. This has been driven by the excess capacity in the insurance market and has meant that insurers have been unable to make the return on capital that they require as the industry is paying out more in losses and expenses than it is collecting in premium.
increased cost of doing business
companies face the same variations in their running costs as any other
business, including their customers. For example, exchange rate fluctuations,
salary inflation and energy cost rises.
interest from investors
insurance market seems a less attractive proposition for investors, they
withdraw. This means there are fewer insurance companies in business, leaving
customers with less choice and allowing the insurers that are left to be
selective about who they insure and how much they charge.
companies rely both on the premiums they charge and on income from their
investments to stay in business. When premiums are low, insurers supplement any
shortfall in income using their investments. The current economic climate has
resulted in poor investment returns and insurers have been unable to rely on
them to offset the low premiums: prices are therefore driven up.
reinsurance market is another factor that drives insurance pricing strategy and
consequently as reinsurers significantly increase their costs then insurers react
by increasing the primary premium.
Many insurers are currently operating at a loss due
to higher than expected claims costs which are driving insurance prices higher
and have these losses have been caused by: –
disasters such as the recent flooding and severe weather events
technologies, such as modern methods of construction, smart features,
artificial intelligence and robotics which have created new insurance risks
whilst also increasing repair or rebuild costs following a claim
- Higher legal costs for
general liability, errors and omissions, directors and officers and
employment practices liability insurance
When some of or all these factors are present then the
insurance industry enters into what is commonly referred to as a “hard market”
and you can then expect to see
There will be premium increases on all types of insurance irrespective of whether there have been claims or not; but as you might expect the level of increase will be higher where the loss ratio is poor or where there are adverse risk features.
reduction in capacity
hard market, insurers often start restricting the amount of capacity they’re
willing provide and will look to remove non-core or poorly performing risks.
Cover and limits may be reduced or even withdrawn completely.
focus on risk selection and management
are asking for more information on the risk detail and loss prevention
measures. They are being far more particular in their risk selection process
and some risks will now only be deemed acceptable with improvements to the risk
take longer to transact business
slower response times from insurers as they have an increased workload because
they are re-underwriting their business and also because more insureds are
looking for alternative quotes in the hope they can find better alternative
If we can
help you regarding any of the issues mentioned, or if you need any further
information or advice on this subject please don’t hesitate to contact us.