The hardening insurance market: what does it mean for your business?

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The cost of insurance is always changing, much to the frustration of customers (both businesses and individuals). This is because insurance moves in cycles, fluctuating between a 'soft market' and a 'hard market.' Over the last few years, we’ve entered a hard insurance market, meaning that insurers are paying out a large number of claims with less money coming in.

Alicia Goosen, Chief Broking Officer at Aon South Africa, recently summed up the effect of this hardening insurance market on insurers, in a recent interview with FAnews magazine: “A combination of reducing premiums over a prolonged period, together with increasing losses, both man-made and natural, have led to insurer’s revenues and margins reducing to unacceptable levels for shareholders and the investment community. The global pandemic and the resulting historic low interest rates and stock market fluctuation has only served to further exacerbate the situation.”

Goosen also describes the knock-on effect that this hardening market has on customers: “Many insurers are taking measures to improve their financial results which will include increasing premiums and deductibles, exiting certain lines of business or portfolios, reducing cover and limits they provide, and above all, asking for more risk information than required in recent times.”

As Goosen explains, because of the challenging, volatile market we’ve entered, premium rates have been increasing for the past three years, and are expected to continue increasing in 2021. Considering this has come after 20 years of a soft, customer-friendly cycle, it’s understandable that customers have become disillusioned with the new market and how to handle it. Therefore, it’s more important than ever that customers have a strong insurance broker on their side

A trusted insurance broker with a proper understanding of their client’s business can shift the conversation from transactional insurance to overall risk discussion, and help their client understand current market requirements and how to meet these. This includes guidance on how their client’s business can be impacted by catastrophic losses, how wordings have evolved following a hardened market, or pandemic exclusions and issues like silent cyber. 

At Fulcrum Premium Finance, the indispensable relationships we have established with our brokers are crucial to our ability to provide South Africa’s leading commercial premium finance solution. Our brokers offer a reliable source of informed advice backed by years of experience, which allows them to better cater to the specific needs and risks faced by our clients.

As the saying goes – what goes up, must come down. We’ve gone through a hard (literally and figuratively) upswing in the market cycle, but it won’t remain static. We look forward to the next customer-friendly soft cycle, characterised by lower premiums and deductibles, and increased cover and limits. Luckily, there’s one thing that does remain constant – the importance of having a strong insurance broker on your side.

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