A guide for buying insurance in a hard market

The global insurance market has witnessed a number of claims-heavy years. From natural disasters such as hurricanes, wildfires and flooding, to a rise in ransomware and hacking, through to incidents including Grenfell Tower and COVID-19. The resulting widespread economic loss has affected millions of people and businesses around the world. The insurance industry is no exception.

Shrinking appetite

As a result of the current economic situation, combined with the increase in paid claims, underwriting appetite is shrinking. Previously desirable lines of business such as professional indemnity (PI) and directors and officers (D&O) have been particularly impacted. Despite clean claims histories and a track-record of prudent, well-managed operations, minimum pricing has increased dramatically, This is affecting both new and renewal buyers.

Across Superscript’s portfolio of D&O clients, for example, we have experienced a dramatic effect of this hardening market:

• Limits of indemnity have lowered (often dropping to 25% of previous levels)
• Minimum deductibles have increased (of up to 400%)
• Exponential increase in minimum premiums (100%+ increases)
• Terms and conditions have tightened (especially with regard to COVID-19 specific exclusions)
• A number of risks and sectors have been targeted with broad exclusions (financially distressed companies, or those operating within tight regulatory margins, are now often deemed uninsurable)
• Incredibly tough market conditions for clients operating in the pharmaceutical, life science and technology sectors

When studying the D&O and PI markets, the August Pulse Survey from Airmic highlighted some worrying feedback:

• 95% of respondents reported an increase in pricing
• 60% stated that they had witnessed D&O pricing increases of over 50%. - 20% of respondents reported increases of over 400%
• 85% reported a reduction in underwriting capacity
• 67% cited an increase in exclusions

Superscript’s advice for buying insurance in this hardening market:

1. Start early. Our advice to any business buying insurance (whether for the first time or at renewal) is to start the process early. Additional time can not only help your insurance broker to explore every coverage opportunity available to you, but starting the process early also provides you with time to digest feedback and make an appraised decision.

2. Be flexible. No one likes paying more for their insurance than they used to, however it’s important to understand and appreciate that the changes are reflective of market-wide conditions. Just as prices will likely drop in a soft market, sadly they increase in a hard market. A good broker will be able to provide you with proper insight into the pricing and underwriting changes and, ideally, provide some creative solutions to mitigate pricing increases. Be ready and flexible to discuss various options; from the viability for raising deductibles, to restructuring your insurance placement altogether.

3. Re-budget. The insurance market has been soft for a long time, so many insurance-buyers are used to moderate pricing increases (and sometimes decreases), when compared to a company’s growth in revenue and exposure. Considering the hard market, your insurance premium is likely to go up this year, regardless of whether your business has increased or decreased in size, operation or material risk. Be sure to provide this insight to key stakeholders to ensure that budgets are realigned to reduce internal friction and frustration.

If you’d like to discuss the impact of a hardening market on your business, reach out to Superscript’s Advised team: enterprise@gosuperscript.com