HARD MARKET
How To Be Prepared In A Hardening
Insurance Market
BY COLLEEN HARLESS , CISR , ACSR , CIC
In the casualty and property insurance industry , price , conditions , and terms as well as the availability of coverage are all impacted by fluctuations between soft and hard markets . Until four years ago , the insurance market had been considered relatively soft , but over the last four years , we ’ re seeing a consistently hardening market .
During a soft market , competition can be intense , and premiums are either stable or declining . In a hard insurance market , which is the upswing in a cycle when insurance premium rates are escalating , insurers are not inclined to negotiate terms . Underwriting standards tend to tighten , and insurers closely monitor insurance rates and manage coverage capacity .
According to the first quarter CIAB 1 report from 2022 :
• Premiums increased for the 18th consecutive quarter , with respondents reporting an average premium increase across all account sizes of 6.6 %.
• However , the rate at which premium prices increased moderated slightly in Q1 2022 , with most lines showing lower increases than Q4 2021 by at least two percentage points or more .
• The only line aside from cyber that recorded a double-digit increase was umbrella , at 10.5 %. Other problem lines , such as D & O liability and commercial property , all had increases below 10 % this quarter , another sign of moderated price increases in Q1 2022 .
• Brokers continued to struggle with the cyber line of business . Premium prices for the line increased by an average of 27.5 % this quarter , and the theme of increased frequency and severity of cyber claims was again common in responses . Respondents also highlighted a tension between decreased capacity in the market and increased demand .
• Carriers enforced strict underwriting requirements for cyber , with many requiring at least multifactor authentication before they would even provide a quote . Insureds without loss controls , or with insufficient loss controls , would often be outright denied at renewals .
One contributing factor to the current climate is that the cost of lumber and steel have increased significantly over the past two years . The National Association of Home Builders ( NAHB ) advised surges in construction costs are linked to rising building material expenses , particularly lumber .
Other issues causing a perfect storm to drive prices higher include :
COVID-19
These increases are partially linked to the COVID-19 pandemic . Many lumber mills closed in the spring of 2020 due to stay-at-home and social distancing orders . Some mills never reopened , and many of the mills that kept operating did so at a limited capacity . Due to their complex computer operations , it can take up to two years to build a new mill and get it operational . This resulted in a decreased supply of lumber for the housing industry , and the operating capacity does not yet appear to be back up to pre-2020 levels .
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