Lloyds of London

What is a hard insurance market?

The effect Brexit has had on the whole of the insurance industry in the UK is that without a European presence, companies are effectively unable to give insurance advice to European businesses, creating a major challenge for many traditional UK insurance providers. Combining this with, amongst other factors a reduced capacity within the insurance market, the insurance industry has found itself in what’s known as a ‘hard insurance market’. European Account Manager Georgie Baker explains what we mean by a ‘hard market’ and what it means for insurers.

Like many industries the insurance market runs in cycles. So after a period of several years, during which time insurers have not made profits, capital will slowly withdraw from the market (where investors move their money to a different market outside of insurance). With this reduction in capacity (fewer insurers operating within tighter limits) premiums will become more fixed and regular. With the resultant drop in competition the difference between competing premiums with a higher or lower offer will naturally be reduced, and the overall price of premiums in the market will increase.

At this point the market would be described as a hard market. Brokers find it much harder to negotiate the price of premiums for their clients, and it will be essential for them to have longstanding relationships with the markets. Delivering good value for their clients is only likely to be possible to brokers who can negotiate through well established relationships with insurers.

When a client receives renewal terms, they may not be completely aware of all the work and time that goes into getting the premiums for their terms. Brokers spend a long time defining the correct cover for their clients, and then negotiating with insurers to get the premiums at a price that works for both parties. Too expensive and it’s not practical for the client to take out the cover with that insurer, too cheap and it’s not possible for the insurer to offer the cover. 

“The market we’re in, that has really changed, is very hard at the moment. Because we’re in a hard market. Which means that insurers are very, very restrictive on what they’re willing to write, how much of that business they’re willing to write, and what premiums they will write it for.”

Georgie Baker – European Account Broker

The negotiation of the premiums, the balance between the capacity within which insurers are able or willing to write cover and the value of premiums clients can afford, is a good indicator of the kind of market we are in.

“Once people start writing more business, new capital enters and new insurers come who want to write the new business. Then it becomes a softer market, because insurance brokers have more opportunity to go to different insurers for the premium their client needs.”

Georgie Baker – European Account Broker

However, as the price of premiums increase and the market becomes more profitable for insurers again, more capital will be drawn to the market. New insurers entering the market will increase the capacity once again, creating more opportunities for brokers to place their clients business. This in turn starts to bring the price of premiums down once again, and the cycle moves on to become a soft market.