Insurance pricing goes through cycles driven by the supply and demand for insurance cover on a global scale. It alternates between periods of ‘soft’ and ‘hard’ market conditions.
In a ‘hard’ market – insurance is harder to place, and premiums increase. We have experienced hard market conditions over the past four years. All insurers have been addressing profitability issues across entire portfolios generally and individual lines of business specifically. We have seen extreme rate increases, cover refusals and cover restrictions against a backdrop of wider business inflationary cost pressures such as labour supply, wages, raw materials, and energy/fuel costs.
In a ‘soft’ market, premiums are stable or falling, and insurance is more readily available. Usual rules of supply and demand apply – new capital enters the market, causing it to soften. In 2019, after two poor years of results and falling returns, insurers started to increase prices. Some of this was voluntary but some was imposed by regulators concerned that the solvency of the industry was being impaired by consistent rate inadequacy. The pace increased sharply through 2020 explained in part by the Covid-19 pandemic and insurers’ reactions to it.
Read our leaflet on The Insurance Pricing Cycle to find out more.
