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Many people will perhaps be hearing the expression the “Hard Market” for the first time but what is the hard market what are the causes and how might it affect policyholders?

What is the hard market?

In simple terms, it is how the insurance market refers to the economic principle of supply and demand where demand for a product exceeds the available supply. The effect is similar to other industries insofar as a shortness of supply leads to increased prices and reduced choice.

For some years now, the insurance market has been extremely competitive and clients have become accustomed to level or even reducing premiums and a range of options to meet their needs.

This will no longer be the case for many as insurance premiums are set to increase across a wide range of products and for some, this may even mean that the insurance that they require is not commercially available.

As insurance is an intangible product many will wonder how there can be a lack of availability in the market and we shall look at the background to this which does require a basic understanding of how the insurance industry works.

The key factors determining the hard market were already in place at the end of 2019 and the events of 2020 have simply exacerbated the issues.

Solvency II

Under European Directives insurers have been required to meet a far more robust level of financial stability. This is designed to protect policyholders and the insurance market against insurers “failing”. The liquidity required by “Solvency II” is largely dependent upon the actual premiums taken by Insurers. Insurers have needed to increase their liquid assets, cash, to meet the new requirements for some this has meant injecting additional funds into the business or rearranging their portfolio but for others this is not a practicable solution. As a result of some insurers have withdrawn from certain lines of business or at least reduced their commitment in certain areas in order to reduce the overall premiums that they collect.


The Government have announced that whilst the Ogden Discount rate is always subject to change and that there will be no routine review for 5 years. This means that the current discount rate which has had the effect of increasing many large claims estimates for personal injury claims this will continue to put upwards pressure on premiums for the foreseeable future.

Property Insurance Premiums

Insurers have been losing money on property insurance business for some years now and there is a general acceptance that rates were set too low. The lack of investment income available to insurers means that premiums cannot not be subsidised by investment income and need to reflect the true costs of claims.

Investment Income

Traditionally insurers have secured a reasonable return on onvestent on the cash eld within the business that is a key part of teheir liquidity calculations. Insurers have in fact relied on this to achieve growth whilst being able to subsidises premiums. The continued and historically low interest rates have severely impacted upon insurers ability to rely upon this as a source of income.

Reinsurance Costs

Insurers protect their own business by arranging additional “reinsurance” whereby a reinsurer will meet a certain proportion of claims in return for premiums paid by the insurers to the reinsurer. The ways in which these agreements are set up vary but the overall principal is the same, to protect the insurers against losses on a scale that is unacceptable to them. The same conditions affecting the insurers premiums also affects the premiums required by reinsurers and the increased costs must be absorbed into the premiums that the insurers charges to clients.

With these factors all in place at the end of 2019, there was a general agreement that the market would harden in 2020/2021 with premiums increases and reduced capacity.

Then along came 2020;

The floods in the UK in early 2020 had a further impact upon property insurance accounts which were already considered “too cheap”

The COVID-19 outbreak has further added to insurer woes and whilst businesses do not generally hold insurance protecting them against COVID claims there is still expected to be a significant cost insurers arising directly from the pandemic.

What are the effects of the hard market?

With less competition in the market and an upwards pressure on premiums many clients will see significant increases in their premium perhaps even combined with a reduction in the cover provided by way of increased excesses or cover extensions no longer being automatically available.  In some cases clients may not be able to secure the cover they require at an economic premium.

What steps can clients take to reduce the negative effects of the hard market?

Do not wait until the last minute to review your options, discuss your needs with your broker or speak to an alternative broker to discuss your requirements.

Risk management will be increasingly important; you need to be able to demonstrate that your business or organisation is well run and focusses on risk management in order to set you apart from others within your industry and to make your business more attractive to insurers.

If you require any further assistance or advice on the hard market and how it may impact your business or would like us to conduct a review of your existing insurance, please contact us directly on 0161 300 2930.