Navigating the hardening insurance market.

After over a decade of soft market conditions, the insurance industry is starting to experience a hardening market – with reduced capacity, fewer providers in the market and diminishing appetite for risk.

We take a closer look at the factors behind the hardening market and what Insurance Brokers can do to ensure they are offering clients value in such conditions to retain their business and relationship.

What has caused the market to harden?

Market hardening isn’t typically caused by just one event, but rather a combination of factors that all place increased pressure on the insurance industry. There is, however, often a catalyst which speeds up the process – for example the 9/11 attacks in the early 2000s and the coronavirus pandemic today.

Factors contributing to hardening the market in 2020 include:

The Covid-19 pandemic – There’s no denying the ongoing pandemic has been one of the biggest factors. Insurers have been hit by unprecedented pay-outs, with Lloyds of London estimating the total global cost to the insurance industry will be around $203 billion – almost double that of Hurricane Katrina in 2007.

Solvency II – Legislation introduced in 2016 means that, by 2021, all insurers are required to hold certain levels of liquid capital to ensure they can meet their liabilities. This need to have a certain amount of capital at all times is reducing the cumulated exposure that insurers are willing to carry.

Low interest rates – With the Bank of England’s base interest rate at a record low of 0.1% since March 2020, many insurers have taken a loss on investment income in recent months, which, for some, has reduced their capacity to underwrite risk.

Rising motor claim costs – As cars advance technologically, they become more expensive to repair and the costs associated with motor claims go up. Insurers are currently seeing motor claim costs rise by around 4-6% each year, which in turn leads to rising insurance premiums.

Climate change – The frequency of natural disasters related to climate change is becoming more common, leading to significant pay-outs for the global insurance industry. In the first half of 2020 alone, there were more than 200 natural disasters across the world including Cyclone Amphan in India and Bangladesh, floods in Indonesia and the Australian and USA bush fires.

Restructuring within the insurance industry – In recent years we’ve seen many insurers withdraw from certain lines of business to concentrate on core markets, and withdrawing or reducing capacity for certain risks. This naturally leads to less competition.


Offering value to your clients in a hardening market

A hardening market can pose significant challenges for brokers due to higher premiums and a more limited product range. Plus, it’s difficult to predict how long the market will stay this way, with previous ‘hard’ periods lasting anywhere from a couple of years to a decade.

In these circumstances the focus needs be on providing added value for clients, who’ll be looking for insurers and products that offer something extra to support their business model.

It’s also the case that in a hard market, insurers are more likely to apply acceptance criteria, terms and premium increases more strictly. The more brokers evidence positive risk features which give underwriters an insight into how well managed, protected and generally well looked after a risk is, the more appealing it will be to underwriters and the more likely they may be to take on the risk or provide favourable terms.

Added value services and support from GJC Advisory for your Insurance Broking business.

  • A deep dive financial review to understand brokers financial position, their current margins, cost base, sense check profit and total operating income projections.
  • Help you plan for growth by giving brokers access to capital to fund acquisitions and key new people recruitment. The consolidators are knocking on doors, but we help brokers position your business and vision to acquire like-minded brokers to enhance your client offering, on board the new staff and integrate your new clients into your model.
  • Plan your exit. To achieve the best results a business needs a minimum of 6 months to position its self to achieve the optimum financial outcome in terms of value and EDITDA multiples. This then gives our clients options, as for many selling to consolidators is not the legacy they want for their business and staff.
  • People management. We help clients to implement strategies into their business to retain their best people, develop the skill base of their team(s), succession plan key roles and implement coaching and mentoring programmes, outside of the appraisal process to develop people and support their retention.

GJC Advisory offers specialist coaching, consultancy and financial direction to business owners and leadership teams across the UK.

We’re fanatical about growth and will help you do whatever it takes to fulfill your potential – from planning and strategy to cultural and organisational development through to get you investor ready for funding.

Please call Julian Hilton, Associate Financial Service on 07498 998088 for further information and comment.