Insurance Market Conditions 2021 and the Effects of COVID-19

Back in March last year, we wrote about how the insurance market was hardening. In light of the developments with COVID-19, we wanted to update you with our thoughts on the current market situation.

The insurance market cycle

Because of the cyclical nature of the insurance market, it experiences regular ‘soft’ and ‘hard’ periods. During soft periods, an inflow of capital means that a large number of providers are able to provide underwriting capacity.

This, in turn, drives down prices because there is an increase in supply and competition. During these times, the process of purchasing an insurance policy is far less challenging for businesses.  

A soft market is characterised by:

  • Low premiums
  • Lots of competition from insurers
  • A buyer’s market

Market ‘hardening’ occurs when insurers have less premium coming in but are still expected to pay claims. This is when they start to push for higher premiums and tighter terms and conditions.

In a hard market, insurers have a harder time making a profit, which forces the less profitable insurers out of the market and reduces competition. The remaining insurers are able to raise their premiums and tighten their underwriting standards (this means they can refuse to cover risks they would have previously accepted).

A hard market is characterised by:

  • Rising premiums
  • Increasing excess limits
  • Less availability of higher indemnity limits
  • More restrictions on policies
  • Fewer insurers competing for your business

Why has the market hardened in recent years?

Insurance works on the principle that the premiums of the many pay for the losses of the few. However, in recent years, there has been a particularly high number of unforeseen losses which have exceeded insurers’ estimates when they set the premiums.

Most notably, in recent months, COVID-19 has led to significant business interruption costs. Insurers have been left with a shortfall, which they’ve attempted to recoup by increasing premiums.

A lot of insurers have been working remotely throughout the pandemic, which has slowed processes and thrown up new challenges in what is already a difficult market.

What a hard market means for businesses

A hard insurance market can mean anything from increased premium rates to claims being harder to resolve favourably.

Long term, this isn’t all doom and gloom, as increased profitability for insurers will attract new entrants to the market and cause competition to increase. In time, prices will fall, and the cycle will start again.

How Lansdowne Woodward can help

As a trusted, independent insurance broker, we take the time to get to know your business. We can liaise directly with underwriters to present your case and reassure them of the risks. Navigating a hard market can be tough without someone on your side to help. That’s why a broker who truly understands the needs of your business and can communicate with insurers on your behalf is an invaluable asset.

Get in touch with us today

At Lansdowne Woodward, we’ve been helping clients negotiate the insurance market (with all its ups and downs) for over 15 years, in order to source the most comprehensive and cost-effective cover for their business. 

To discuss your insurance requirements, please don’t hesitate to get in touch with one of our experienced brokers today on 01202 874 989.