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The quick guide to a hardening insurance market

7 October 2020
When speaking to insurance professionals, whether to purchase your insurance, discuss your insurance renewal or seeking insurance guidance, you may hear reference to the fact that the insurance market has hardened. But what does a hardening market mean for you as a business owner?

Similar to other financial markets, the insurance market can also change depending on supply and demand.  The insurance market usually follows a cycle which fluctuates between a hard market and a soft market. There are many internal and external factors that can lead to changes in the insurance market.

In this article, we will explain what it means when you hear that the insurance market has hardened, and what it may mean for you and your business.

Even before the COVID-19 worldwide pandemic, there were many factors already contributing to the hardening of insurance markets. Some of these factors include:

Ogden rate

The Ogden rate is used to calculate the value of compensation paid to a claimant who has suffered significant personal injuries. The Ogden rate is not relevant for minor injuries, such as whiplash, that don't have a major impact on someone's ability to earn an income.

It takes into account the net rate of return (discount) that the claimant might expect to received from a reasonably prudent investment of a lump-sum compensation. This ensures that the claimant is fairly compensated against future financial losses as a result of the life-changing event and covers costs such as loss of earnings or long-term medical care costs.

In recent years, there has been a number of changes to the Ogden rate which has made it difficult for insurers to balance their personal injury claims against their claims reserves. As a result, some insurers are reviewing the insurance premiums they charge to cover the increase in claims.

For more information on this, take a look at one of our previous articles on the Ogden Rate increase.

General rise in insurance claims

Figures reported in the Financial Times show that the insurance industry has experienced a rise in both the cost of claims, which has risen along with the cost of living and inflation, and the number of claims being made.

UK General Insurance Leader at the global professional services company EY, Tony Sault, also commented on how the number of claims against home insurance policies has risen due to colder winters, poor quality construction, fewer occupied homes and more plumbed-in applicances in properties.

The motor insurance sector is also experiencing higher cost for claims than expected as a result of the Ogden rate, and cars becoming more expensive to repair.

Extreme weather events

The property insurance market in the UK was already a hard market for insurers, but when Storm Dennis and Ciara hit the UK early in 2020, the cost to insurers was estimated to be well over £400m.

Every year, we are hit by more severe storms, causing flooding and leading to property damage that creates a cost to insurers. Extreme weather events such as floods or fires are becoming more frequent as a result of climate change, and insurers are having to build pots of money to be able to pay out for claims that are inevitably on their way.

Interest rates

When interest rates are high, insurers can write off a certain amount of losses, as the investment income from premiums can make the policy profitable. However, when rates are low, policies have to be underwritten with profit in mind, thereby increasing the premium.


The Covid-19 pandemic has caused the largest economic downturn in living memory with Lloyd's of London CEO, John Neal, claiming that the pandemic will be the most expensive event to ever hit the insurance world.

Aviva reported that the virus is likely to cost the worldwide industry over $200m, which will be reflected by a hardened market.

A recent FCA ruling has also meant that insurers may now, in some cases, be required to pay out on business interruptions claims caused by Covid-19.

The hardened market will usually mean the following for customers:

  • Higher insurance premiums
  • Stricter underwriting criteria on your policy
  • Insurers willing to take on less risk
  • Premium rates will be less competitive among insurers

This is not an exhaustive list of what a hardened market means for customers so if you have concerns about your insurance cover, speak to one of the trained insurance advisors at Premierline to discuss your insurance needs.

To make sure that your business is still protected whilst managing the effects of a hardened market, make sure that you do the following.

Start your renewal process early

If insurers are applying stricter underwriting criteria, you should start your renewal process early to increase the chances of an insurer writing your policy.

An insurer may want to amend your policy cover, so starting the process early will ensure there is enough time for your policy to be reviewed, especially if an underwriter is required to get involved.

Speak to a professional insurance broker

If you get in touch with an insurance specialist, you can have a thorough conversation about the kind of cover you need that will give you the most comprehensive cover.

The insurance advisors at Premierline will talk to you about your insurance needs to make sure you are getting the correct insurance cover at the most competitive price.

Be prepared to provide information about your business

You are always required to make a fair representation of your risks and declare material facts. Providing accurate, up to date information, such as business mileage, revised wage roll and turnover figures or how much cash you keep on-site, may help to keep your premium low if they are favourable figures.

At Premierline, we are passionate about helping you protect the business you have built. This is why we offer a bespoke service to assess your business needs and make sure you are covered should the worst happen.

Our business advisors will work with some of the UK's most well known insurance providers to find a quote that provides the cover your business needs. Get in touch and speak with one of our trained insurance experts to discuss your insurance requirements.

It is important to make sure that you have the right insurance in place to protect the business that you have built. Every business is different and has its own business insurance needs, which is why we work with some of the UK’s most well-known insurers to ensure that you are getting the right insurance cover for your business.
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