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Why is this the hardest market for 20 years?

A hard insurance market will traditionally only soften when new capital is injected into the market ‒ this is usually done by new market entrants. However, these days it’s rare for new insurance companies to start up and get past all the regulation and security ratings, therefore don’t expect to see new capital entering for a long period of time.

Demand for insurance is exceeding supply for the first time in 20 years. Capacity is tougher to come by, competition is limited, premium rates are increasing, coverage is contracting, and insurers are being more selective with risks (especially property, financial lines and professional risk exposures) and disinclined to negotiate terms. Similarly, underwriting standards have tightened significantly.

There were signs of market hardening pre-covid – big claims coming out of the US, increasing claims costs generally and a spate of flooding all contributing. But without stating the obvious, what makes this hard market strikingly different from those of previous decades is the impact of Covid-19.

Covid-19 acted as the catalyst to a perfect storm for commercial insurance brokers. Most significantly, lack of accessibility to insurers and underwriters, and reduced capacity on the market.

As reinsurers began imposing terms on insurers, many drew back or exited completely from some lines of business. In financial lines and professional risks such as D&O, ML and PI insurers began picking up risks they didn’t even realise they were exposed to when the policies were first written, reducing their appetite even further.

Industry panellists and respondents unanimously agreed it would take between 1-3 years to recover. As rates go up there will ultimately come a point when capacity providers see an opportunity to write profitable business. 

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