3rd July 2020

Ebb and flow: understanding hard and soft insurance markets

By Suzi Rackley, Dip CII
Client Director
Ebb and flow

Applying the right insurance premium to a risk used to be a dark art, but these days insurers are armed with so much data it’s turned into an exact science. The biggest influences on how insurers calculate their rates are the world economy and the weather. Both of which we know are volatile and cyclical.

In insurance, these cycles are known as “hard markets” and “soft markets”. A soft market usually happens when the economy is doing well; there are jobs, new start-up businesses, stronger investment returns and insurers competing for new customers.  With supply outstripping demand, premiums naturally reduce as insurers look to increase their share of the market.

These periods are not easily sustainable and when claims costs increase, due to a downturn in the economy or after a season of bad weather and catastrophes, insurers start to pay out more in claims than they can afford, their capacity decreases and they must start to increase rates.

Even before COVID-19 (which is estimated to cost UK insurers c.£1.2b in claims*) we were starting to see this change happening. It is usually a gentle curve and the ebb and flow between a soft and hard market can span over years, but with the effects of COVID-19 and storms Ciara and Dennis (which have been estimated to cost the insurance sector £425m**) we now expect to see a steep increase in insurance premiums across all sectors.

What does this mean for you?

Your insurance premium is going to start to increase and if you have not made any recent claims you can expect anything between a 5 and 15% increase at renewal. BUT, if you have a really good insurance broker like Aston Lark we can help you find ways to keep increases as low as possible.

How can we help you?

It is our job to make sure you are properly protected, with a reputable insurer, and paying a premium that is fair and sustainable. Here are some of the ways that we will help you:

  • Speaking to your insurer about discounts for higher voluntary excesses and helping you to work out what excess is best for your circumstances
  • Advising you on different ways you can insure, like putting jewellery in a safe, moving paintings and antiques out of the Contents section of your policy, and reviewing your annual mileage
  • Talking about security, fire and escape of water protections and how these can have a positive effect on your premium
  • Reviewing other insurers and finding you the best blend of cover and price
  • Looking at different ways you can pay your premium to help spread the cost
  • Helping you get the best from your policy and understanding what cover you do have. It’s not just fire, theft and flood - insurance policies offer so much more value

If you have any questions about your insurance, please talk to us.




*Source: https://www.abi.org.uk/news/news-articles/2020/04/covid-19--payouts-of-over-1.2-billion-likely-to-be-made-to-customers-according-to-latest-estimate-from-the-abi/

**Source: https://www.bbc.co.uk/news/business-51584246