Understanding the cyclical nature of insurance

You may have noticed a steady rise in insurance premiums over the last few years. So, what are the reasons for these fluctuations, and can more be done to keep customers in the loop?

It is natural for industries to experience cycles of growth and contraction, and this is particularly true for the insurance industry, the cycles for which tend to typically last anywhere from two to ten years and can be described as either a ‘hard’ or a ‘soft’ market.

Hard vs soft market 

A soft market is characterised by lower insurance premiums and more relaxed underwriting criteria, whilst a hard market involves higher insurance premiums and more stringent underwriting criteria. 

You may have noticed a spike in insurance premiums in the last few years and wondered what the cause of this was? This can be attributed to a ‘hardening’ of the market and whilst many customers may not have experienced this level of rigidity before when it comes to their insurance policies, the reasons for it can be traced to a number of socio/economic factors.

Cause of fluctuations 

Whilst the hike in premiums can be unnerving, be safe in the knowledge that this has happened before and just as rates will steadily rise, they will also come down in time. Some of the causes of this can be predicted, whilst others are more difficult to determine.

For example, ‘The Beast from the East’ in winter 2017 led to a higher number of claims around escape of water, which in turn had a knock-on effect for High Net Worth insurers dealing with more complex risk, and this consequently led to more limitations on cover for the customer. 

Similarly back in the early 2000s a series of events, including 9/11, natural catastrophes and the dissolution of some key insurance carriers, caused reinsurance premiums to rise. Because premiums are made up of many different components, catastrophic events can have a large impact, ultimately resulting in an increased cost for the policyholder.  

Transparency is key 

Whilst market fluctuations are largely out of each individual insurer’s control, communication between us as your broker, the insurer, and you is paramount. It is about managing expectations and keeping you updated about what is going on within the industry as a whole. 

As your broker we keep a close eye on market fluctuations and will of course be in touch with you ahead of your renewal to discuss your individual circumstances and how any changes may affect you. The last thing that anyone wants is an unwanted surprise when it comes to renewal rates, so rest assured we will always keep you well informed throughout the process.