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The insurance market has always been subject to a ‘cycle’ with rates going down in competitive times and then up again when premiums become too low for Insurers to write profitable business. The cycle used to run every three years or so but, since around 2003, rates have generally been on a downward trend as insurers compete for business. Now, after a prolonged period of decreasing premiums, rates are increasing.

What’s caused the insurance market to harden?

Well, it’s not exclusively down to coronavirus, this has been coming for a while.

After 15 years of insurance rates getting cheaper and cheaper, Lloyd’s of London (a significant insurance and reinsurance market in the UK) suffered estimated losses of around £2billion in 2017 and a rating downgrade to AA- Negative Outlook with Fitch. This led them to undertake a review, including the objective to exit the worst 10% of performing lines.

Where Lloyd’s lead, the rest of the market follows. As a result, the Professional Indemnity (PI) market in particular (a good deal of which is written in Lloyd’s) has been facing capacity problems since the end of 2018.

What else has contributed to the hardening market?

The market for lawyers and accountants has always been fairly limited. But other events have also had an impact – for example, Design and Construction business was impacted seriously by the tragic Grenfell Tower fire, financial services (including insurance broking) and the care sector have been hit hard by coronavirus COVID-19 and the possibility of resulting negligence claims.

Whilst many insurers and specialist underwriters started to limit their exposure and increase rates, many more have just exited the PI market altogether. This has resulted in less cover being available, from a more limited market, at higher cost.

We are now seeing this situation migrate across to other classes of insurance so, preparing early for your commercial insurance renewal is now more important than ever.

BIBA have released a guide to the hardening insurance market which you can read here.

How to get ahead of the hardening market

There are a few ways you can make sure you get the best possible rates for your business insurance.

We recommend, above all, preparation.

– Start the process early. Last minute requests won’t have the time necessary for your broker to do the best possible job for you

– Provide as much information as you can to your broker. For example:

– Make sure you fully explain what your business does so that they fully understand it

– Demonstrate the things which make you a well-run business – training, protection, procedural guides, risk assessments etc.

– Have a Business Continuity Plan in place

– Detailed construction information, when insuring property

  • Consider taking a higher excess to reduce premiums
  • Call FSB Insurance Service for advice on your business’ insurance

As the market hardens, premiums go up so, preparing early for your commercial insurance renewal is now more important than ever.