Current Insurance Market Cycle

Jan 30, 2023

Understanding the dynamic of the current Insurance market is essential to achieving a good deal at renewal.

The insurance market cycle refers to the fluctuations of insurance premiums over time. These fluctuations can be driven by a variety of factors, including economic conditions, changes in regulatory environments, and shifts in the risk profiles of insured parties.

During times of economic growth and stability, demand for insurance is typically high and insurance premiums tend to be relatively low. This can lead to increased competition among insurance providers, resulting in lower profits for insurers.

Conversely, during times of economic downturn or uncertainty, demand for insurance may decrease, leading to lower premiums with less competition, providing increased profits for insurers remaining.

The insurance market cycle can also be influenced by changes in the regulatory environment, such as the introduction of new laws or regulations that affect the availability or cost of insurance.

Overall, the insurance market cycle is a complex process that is influenced by a variety of factors, and it is important for insurers to be able to adapt to changing market conditions to remain competitive and profitable. With the ever-changing world that we live in, some have suggested that the normal market cycle has ended and we are now in an indefinite ‘hard market cycle’.

Typical Insurance market cycle

Over the last few years, insurance buyers have noticed their renewal become increasingly difficult, it is therefore important to understand the dynamics at play.

The underwriting or insurance cycle typically follows a 7–10-year cycle. They describe trends in rates, terms, and conditions. A cycle can be described from the perspective of an

insurance buyer as consisting of periods of “soft market conditions” where premium rates are affordable and coverage is readily accessible. Whereas “hard market conditions” see rates rise, and coverage restrictions begin to apply.

Hard market versus soft market

A hard market refers to a period in which premiums are rising. During a hard market, it may be more difficult to obtain insurance coverage, as insurers are less willing to take on new risks. This can occur when there have been a high number of insurance claims when there is a lack of capacity in the insurance market, or when there are other factors that make it more expensive for insurers to provide coverage.

A soft market, on the other hand, refers to a period where premiums are declining. During a soft market, it may be easier to obtain insurance coverage, as insurers are more willing to take on new risks to maintain market profitability. This can occur when there have been fewer insurance claims, when there is an excess of capacity in the insurance market, or when there are other factors that make it less expensive for insurers to provide coverage.

It is important to note that insurance markets can fluctuate over time, and what is considered a hard market in one region or for one line of insurance may be considered a soft market in another.

The current insurance climate

Australia is currently in a hard market across almost all lines of insurance, which affects the majority of industries. Even for claims-free policies, rates are increasing at renewal. Additionally, terms and conditions are becoming more restrictive, and insurers are asking for more information which is slowing down renewal negotiations, therefore finding an acceptable deal for insurance becomes more difficult.

It has never been more important to have an experienced insurance advisor to help you navigate difficult markets. The right partner will help you keep up with industry changes and stay ahead of any insurance challenges.

Some factors currently impacting the market include:

· Climate volatility with a higher frequency and severity of weather-related events

· COVID-19 consequences (e.g. use of motor vehicles, foot traffic in retail)

· Inflationary pressures (e.g. cost of living, demand for building materials and labour)

· Increase in certain claims trends (e.g. class actions, abuse, employment-related, cyber)

· Changing labour market and workplace safety (e.g. rise in injury to contractor/labour hire claims)

· Shortage of skilled workers (e.g. ability to make underwriting decisions, claims to handle delays)

· Global supply chain challenges (e.g. China’s COVID-zero policy, transports/fuel costs)

· Geopolitical tensions (e.g. Russia invading Ukraine, soaring energy costs)

· Global economic uncertainty (e.g. pandemics, unprecedented levels of debt)

· Rising cost of reinsurance due to global claims experience

· Pressure on underwriting performance due to low investment returns

· Tightening of underwriting guidelines to avoid areas of risk (e.g, silicosis, injury excesses)

· Insurer shareholder expectations

What your business can do

Individual businesses do have several options in a hard market:

· Before your renewal date, start collecting data and evidence regarding your risk exposures.

· Present detailed information to the insurers well before your renewal date.

· Build rapport with your current insurers, do not jump around a year to year.

· Consider increased self-insured retentions (also known as deductibles or an excess).

· Redesign and update your integrated risk management programs and procedures.

· Partner with an experienced broker or advisor.

It’s important to use a broker or adviser in this hard market, as they understand the needs of insurers and how they approach different types and industries. Trident Insurance can assist in preparing a strategy for your next insurance renewal.. Feel free to reach out to our insurance experts today for more information.

Feel free to reach out to our insurance expert today for more information.