What does a hardening insurance market mean for you?

Since the early 2000s, businesses have benefitted from a sustained period of “soft market” conditions within the insurance industry. The market has noticeably changed in the past 12 months and will likely deteriorate further, due to what’s known as a “hardening” of the market.

Soft insurance market

A soft set of market conditions is characterised by low premium rates, a healthy number of insurers competing and a willingness to underwrite even the most challenging of business activities. This is because insurers, buoyed by a positive economy, are pro-actively trying to expand their market share and grow.

Hard insurance market

A hard insurance market is predictably the correction to this unsustainable cycle, particularly when insurer loss ratios begin to overshadow profits. The past 12 months has accelerated this change in the market, primarily due to this unsustainable pricing, significant losses and a range of economic strains that have simply been compounded by COVID-19, such as low interest rates hampering investment returns.

Another key factor includes a fundamental change in regulatory requirements in recent years. Solvency II for example has placed a far greater emphasis on the spare capital of insurers, requiring UK insurers to more than double their reserves. The consequence has been a considerable proportion of insurers reducing their underwriting capacity accordingly, even before the challenges of the past 12 months.

The impact of a hard market

The direct consequence of this hardening of the market is that we’re beginning to see premium rates increase fairly substantially. This is particularly true for Professional Indemnity and Directors & Officers Liability covers, which have been notably impacted by an increase in claims in recent times.

More generally, a number of insurers are reducing the exposure that they’re willing to insure, meaning that they’re not so readily accepting of requests such as higher limits of indemnity, diversifying activities, expanding territories and/or challenging contractual requirements.

The life sciences sector like many has been impacted by this, particularly in respect of the two covers mentioned. The key to mitigating the impact of the hardening insurance market is to understand the intention of the existing insurers early in the renewal process, and to consider alternative insurers if required. Fortunately, the life sciences sector does have a number of global insurers which can greatly assist in navigating through these challenges.

The importance of working with an insurance partner that provides pro-active and concise support is perhaps far greater than ever during these challenging times for the industry and wider economy.

Hayes Parsons Insurance Brokers is a Chartered and independent insurance broker, specialising within the sector and supporting a range of businesses from R&D through to trials, distribution and supply. Our website also contains a series of blogs and articles, considering a range of important topics for life science businesses.

About the author

Ryan Legge is a Chartered Insurance Broker and has vast experience working with all manner of life science businesses. If you would like to discuss your insurance arrangements, please get in touch with Ryan via phone or email.

Ryan Legge FCII | Chartered insurance broker

[email protected]

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