How a Hard Market Affects Your Insurance Premiums

What is a hard market for Property & Casualty insurance and are we entering one?

Let’s start with the definition of hard insurance market. According to IRMI, a resource for Insurance Professionals, a hard market is defined as:

The upswing in a market cycle, when premiums increase and capacity for most types of insurance decreases. Can be caused by a number of factors, including falling investment returns for insurers, increases in frequency or severity of losses, and regulatory intervention deemed to be against the interest of insurers.

From talking to insureds and insurance companies there is no doubt that the market is beginning to firm or harden in certain areas. Insurers are typically requesting rate increases for automobile and umbrella lines of coverage. When pressed, carriers are sharing that they are seeing more automobile liability claims pierce the umbrella layer of insurance. If you guessed distracted driving as one of the leading causes, you are correct. Another major contributing factor is our litigious environment and insurance companies’ fear of having a claim go to a jury trial. There have been many articles published indicating that carriers are seeking rate increases of 10% or more for both automobile and umbrella insurance coverage.

Some property insurers are in the process of re-underwriting their portfolio of business to improve profitability. As a result, certain types of property risks like habitational (commercial residential properties such as apartment buildings, homeowners associations, condominiums, and rented houses) and high value buildings/contents that are located close to each other are seeing substantial rate increases.

Overall capacity in the reinsurance market (insurance companies buying insurance to transfer a portion of large losses to another insurer) has also decreased. Due to decreased reinsurance capacity, those rates have increased, which is another contributing factor to the trend towards higher premiums.

Another side effect of the change in the reinsurance market is that carriers are not offering renewal terms and conditions that are as favorable to insureds, forcing many to retain more risk than they would like or pay substantially more in premium. In the worst cases, insurers are delivering a double whammy of less favorable terms and large increases in premiums.

There is some good news for insurance buyers, though. Rates for general liability and certain types of property remain relatively flat. The better news for buyers is that typically a hard insurance market does not last long as insurers get more competitive as they see their market share erode.

As market conditions become more difficult for insurance buyers, we would recommend getting early indications from your current insurers as part of a strategy to avoid last minute surprises when it comes time to renew your policies.

If you'd like to learn more about how the market affects the costs of your insurance, register for our webinar: Uncovering the Mysteries of Your Business Insurance Premium: