The insurance market is cyclical. During a “soft” market, there’s lots of competition between companies as they try to expand their market share. Premiums hold steady or decrease. It’s fairly easy to get coverage for all kinds of risks. As someone looking to buy insurance, you may have a number of options from which to choose and underwriting rules are less stringent.
A “hard” market happens as positive financial results, become more difficult for insurers. Payouts may have increased over a long period of time. Challenging regulatory changes that negatively impact results occur and profits have declined. As a result, insurance companies are less inclined to take on new business. The requirements to get insurance are stricter and premiums are more expensive. There may be attrition in the insurance market as fewer players offer coverage to consumers. Capacity becomes scarcer.
Is Ontario in a “Hard” Market?
The answer is, yes, and the origin of today’s “hard” market cycle is a natural evolution of a very long soft market cycle. It appears that the current hard market will continue for some time.
What distinguishes this hard market period from others in the past? Well, there is some debate about whether other anticipated hard markets ever fully materialized. If pervious hard markets were simply blips on the radar screen, one could make the argument that the soft market has been going on for much longer than you’d think.
After the 9/11 terrorist attacks on the World Trade Center in the United States in 2001 and the global financial crisis in 2008, it looked like the beginning of a hard market, but it didn’t happen.
For example, in 2001 there was a capacity issue, but it was very niched. There was a little change in casualty, but mostly it was property insurance affected. In 2008, rather than a real hard market, it was just some short-term firming up of prices.
Today, things have changed. For about the last 7 years the property and casualty marketplace has been in a “soft” state, but today it’s a data-driven hard market. There’s lots of data now, and access to it is easy, allowing insurers to pivot faster than ever before. In commercial lines, for example, insurers are getting out of different lines of business quicker. Once they see losses growing in one area, they are able to shift out of that line of business quicker than before.
In addition, there are other factors affecting pricing and capacity.
How a Hard Market Affects Consumers
During a hard market, consumers may notice higher premiums, and stricter underwriting rules and practices that affect their insurability. These rules are what insurance companies use to determine an applicant’s risk factor, coverage limitations and deductible levels. This may also come with changes to the terms in an existing policy and/or reduced payment options.
What Can You Do to Get the Best Value in a Hard Market?
Consider things like:
Large commercial insurance markets have exited unprofitable lines of business resulting in reduced capacity. Evens Lloyds has closed eight syndicates and made significant reductions in 70 various lines of business.
The current market condition is not going to go away quickly, so managing your risks must take on new importance in order to make your Company as attractive as possible to the insurance companies that are underwriting risks in a “hard market”.
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