Hard Times in a Hard Market

Matt considers the challenges of communicating a hardening market to customers.

If you’re anything like me, you probably think twice when talking about insurance away from the safe environs of EC3. Especially when glazed eyes again look back at you, in any vaguely social setting.

Last Saturday morning I stood on a touchline in pleasant autumn sunshine as my 8-year-old wannabe Lionel Messi did his best to enliven what turned out to be a feisty nil-nil draw. Half-time idle chat somehow turned to a fellow parent’s business insurance renewal costs. They go up every year he tells me. As I thought about how long the soft cycle had lasted, and how his premiums were probably less than they were ten years ago, and how needed the current hardening market conditions are, my defence of our industry amounted to ‘yeah, typical eh?’

But as premiums rise, clearly better defences and explanations are needed. After all, selling a product that, if you are lucky, you may never see the value of, is always a bit of a challenge. Especially given the current pandemic and economic instability and uncertainty it brings.

Whilst the coronavirus has and will continue to impact the market adding upward pressure on rates, the reality is prices were increasing long before any of us had heard of COVID-19. According to Marsh’s quarterly Global Insurance Market Index, the first quarter of 2020 was the tenth consecutive quarter of average price rises. The UK, US and Pacific regions all experienced double-digit pricing increases between January and March.

As an industry, we need to explain the rise by breaking down the culminating factors for the increase in premiums. Depending on which product or market you are placing/underwriting, there’s unlikely to be a single reason for the rate rise.

The impact of financial markets: economic downturn and reducing investment yields leading to increasing cost of capital.

Recessionary pressures: increases in fraud occur in economic downturns as night follows day, crime and civil unrest, spending cuts on training, health and safety.

Claims trends: claims inflation, increasing life expectancy leading to greater care and medical costs, claims farming, global warming and rising sea surface temperatures leading to active storm seasons and greater natural catastrophe claims.

Regulation: the ever-evolving regulatory landscape (pre- & post-Brexit)

Telling clients that prices need to rise is never an easy conversation, especially when many businesses are currently under particular pressure to cut costs. But insurers and brokers have the challenge of explaining why a rebalancing of premiums is so needed, to maintain the viability and resilience of the insurance market.

Get in touch to find out how we can support your communications strategy through the hardening market.