Whether it be business insurance, your home and contents or farm insurance, there is currently significant upward pressure on insurance premiums. In some cases, premium hikes are also accompanied by restrictions on coverage features. In the insurance industry, this is known as a ‘hardening insurance market’.
What is a hard insurance market?
Insurance markets are cyclical based on a number of factors that either push insurance premiums upwards, or downwards. The terms used to define these two different market conditions are a ‘hard insurance market’ or a ‘soft insurance market’.
Soft insurance market – A soft insurance market cycle has lower insurance premiums, higher coverage limits available, more flexible policy conditions, and greater availability of coverage.
Hard insurance market – In the insurance industry, a hard market is the upswing in a market cycle, where premiums increase and capacity for most types of insurance decreases. A hard market can be caused by several factors, including falling investment returns for insurers, increases in frequency or severity of claims, and regulatory intervention against the interests of insurers.
At present, it is evident that most lines of insurance in Australia are experiencing a hard insurance market.
Why are insurance premiums increasing?
The primary driver behind current hard market conditions is to do with insurance claims. The cost of insurance claims are increasing because of social inflation. This is the societal trend towards increased litigation, broader contract terms, plaintiff-friendly legal decisions, and larger jury awards.
Additional to the rising cost of insurance claims, the frequency of insurance claims is on the rise, most notably due to an increase in the number of natural catastrophes. In 2020 an unprecedented number of catastrophes were declared by the Insurance Council of Australia. From the horrific bushfires of 2019/20, severe hailstorms to flooding, the number of insurance claims lodged has continued its upward spiral. Sadly, serious NSW floods in March 2021 have seen this trend continue, putting further pressure on insurer profitability and the need to increase premiums due to the number of claims payouts.
Insurers must take action to survive
In hard market conditions, the only way insurance companies can remain profitable, financially viable and continue to provide insurance cover and claims payments to the market is by:
• increasing premiums and excesses
• restricting coverage availability
• reducing level of insurance policy limits available e.g. sum insured
• tightening policy conditions
Other reasons insurance premiums may increase
• Claims history
• Increase in sum insured e.g. purchase of new assets
• Change in address
• Change in business activity e.g. higher risk
• Change in tenants’ business activities
How can an insurance broker help combat these premium increases?
Professional advice and specialist knowledge - An insurance broker provides professional advice on the most suitable, and best available cover to protect your business and / or assets. They assess your risks, advise you on essential covers, and also how you can structure coverage in the most cost effective way.
Exclusive insurance markets and products - CBN Authorised Brokers have access to broker-only insurance markets with exclusive insurance policy wordings and premium rates. For you, this can mean more cost-effective premiums and policy coverage inclusions than is available to the general public, delivering better value when it comes to your insurance coverage.
Claims - In an insurance claim CBN Authorised Brokers advocate for you. Brokers work hard to resolve your claim efficiently, communicating with you at each key stage. The technical knowledge of an insurance broker and strong insurer relationships can make all the difference when negotiating to achieve the best possible claim outcome.
Payment options - CBN Brokers can offer clients premium funding facilities. Premium funding can be utilised to pay your insurance premiums monthly, spreading the cost over 10 monthly payments. This can ease the financial strain of a lump sum payment, freeing up cashflow in your business for more immediate needs.