Hard Market: Increasing Insurance Costs

Your insurance renewal offer arrives, and it’s increased this year. How frequently does this happen? Has it remained more steady or even lowered in previous years? Why would it suddenly seem to rise? This increase can be attributed to a hard market.

Characteristics of Hard and Soft Markets

The insurance environment flows between two stages, which we call “hard and soft markets.” A hard market is defined by its higher premiums, stricter underwriting criteria, less competition among insurers and so fewer policies are written. Due to a number of reasons, insurance carriers decide that they want to make it harder for you to find affordable coverage. Otherwise in a soft market, you’ll find that your premium is generally lower and it’s easier to shop around. Insurers will evaluate these same metrics and when they determine the risk isn’t so daunting, the market will soften and become easier to obtain that price you’re looking for.

What causes the market to harden?

The primary factors that lead to a hardening market are weather and social inflation. This year in particular has added a new one to the mix: Covid-19. Let’s look at a few of these more closely as to why they may be adding to your premium increase. These are all factors that an insurer considers when offering a policy premium.

• Weather: Catastrophic weather events lead to more frequent losses. You probably already guessed this one. As we see a rise in hurricanes, hailstorms, and tornadoes, we’re going to also see more claims filed for the damage that follows. Insurance companies pay close attention to the weather patterns, and predict how this will affect the amount of money they will pay out in any given policy period.
• Social Inflation: You may be wondering what this means exactly. Simply put, social inflation is the term given to rising insurance costs, based on how much companies pay out in lawsuits. The general attitude towards large companies has become more hostile in recent years. This is more a sense of trying to topple down “the man.” Unfortunately this attitude also extends to small businesses. In general, if a lawsuit is brought against a company, juries have been handing out higher and higher awards. This is a risk that insurers look at when they’re offering policies to businesses, even small ones.
• Covid-19: The year 2020 notably brought to you the leading factor in this year’s hard market. Covid-19 and its related lockdown caused many businesses to close, sometimes for good. If your business was affected by this, then you are already aware of its impact. Insurers were suddenly hit with claims for business income (closure) losses.

Why does it seem so sudden?

This is largely due to you, the insured, becoming comfortable in a soft market phase. If you’re used to your insurance policy remaining the same, or even going down, over a few years you don’t worry too much about it increasing. Unfortunately, this also makes things like risk management a bit more complacent as well. Don’t worry, this kind of thinking happens to everyone.

Another thing to consider is that all policies are vastly different. What covers everything for a donut shop will not have the same protection for a landscaping company. In a soft market, you’re able to find a policy that is tailored to your business’ exact needs and within your price budget very easily. Because of this complacency that it’s so easy, once a market hardens and your specific policy increases in price, it’s suddenly harder for you to find that same coverage within the same price range.

Unfortunately the fact of the matter is that we are currently experiencing a hard market phase. If you’re seeing your insurance premiums increase this year, it’s currently not so easy to find what you need within budget. Let us help! Reach out to one of our knowledgeable insurance specialists, and we’ll help you find that perfect policy.