Have you been told to expect big increases in your insurance spend in the year ahead? Are you worried that the quality and extent of your cover will be reduced at renewal? Can you afford to increase your costs during a pandemic?
Insurance is a famously cyclical market, with long periods of low rates punctuated by massive cost increases. In recent years, the market has remained ‘soft’ for so long that many industry commentators were heralding ‘the end of the insurance cycle’. Well, the verdict is now in and we can confirm that the hard market is now back with a vengeance.
What are the symptoms of a hard market?
Most obviously, hard markets are defined by rising premiums. These are quite different to the sort of variation you might see in most other markets and can go through triple digit swings within a twelve-month period.
Beyond this, you should expect coverage to be reduced through (often very subtle) changes to your policy wordings. These changes aren’t always flagged by insurers or brokers, so this is something that all buyers should bear in mind when reviewing the small print.
Finally, hard markets usually create a harsher environment for claims. As insurers look to protect their reserves from years of relatively lax underwriting in soft market conditions they also minimise the impact of any claims that do arise. Mactavish’s own research shows that 45% of large and complex claims are disputed by insurers. They take an average period of three years to resolve and the typical settlement value is just 60% of the original claim. And those are the statistics for a normal claims environment!
Taken all together this means that you should expect to pay more for less reliable coverage and a less certain situation if you do have to claim.
What can business owners and managers do?
Insurance is an industry like no other. Policyholders pay a broker to get them a good deal, but at precisely the moment you need them most they are overburdened as every client on their books is suddenly facing the same problem. Worse, as we detailed in our recent Broker Conflicts Report, some brokers derive up to 80% of their revenue from insurers and only 20% from policyholders – much of that revenue is directly linked to premiums. So, in short, your broker may make more from cost increases then they would otherwise do – the potential for conflict of interest is considerable.
But all is not lost and you don’t simply have to take whatever you’re offered. Mactavish is respected and effective across the UK market because we leverage our deep technical and commercial expertise to drive brokers and insurers to offer better cover on better terms. Here are some our top tips for SME policyholders:
- Take control of the process – don’t be passive, but instead take a lead in driving your broker to work harder for you.
- Start earlier – in a hard market you really do need to start planning months ahead of renewal. What does your broker expect from the market? Who are they marketing your risk to?
- Stand out from the crowd – underwriters need to understand why your risk is attractive. To do this, they need to understand your business and approach to risk management. Go beyond the minimum pro forma responses and think about how you can make your business stand out.
- Be willing to change your insurers and broker – in a market this challenging you have to have options – and those should include a willingness to switch your insurance partners. That may increase your management burden, but equally, it could be the difference between protecting your company and not.
- Seek independent advice – insurance policies are increasingly complex and require deep technical expertise if they are to be interpreted properly. Similarly, for the non-specialist it can be impossible to know if you really are getting the best available deal. We’re here to help and would be delighted to have an informal discussion about your insurance challenges.
What we do:
Mactavish is a unique and disruptive force in the insurance industry. We’ve built a model that allows us to act as independent champions for policyholders and we maintain this integrity by strictly limiting ourselves to client fee income. We have no financial arrangements with any brokers or insurers, meaning our advice is always entirely impartial.
Today, we use our voice to draw attention to some of the industry’s failings through our research reports and media appearances and apply our leverage to drive better outcomes for individual clients.
We provide a full range of services from Health Checks that give you an overview of your programme to help ensure you’ve remained compliant with your policies and are getting a good deal, through placement advisory services all the way to fully outsourced insurance buying and resolving complex claims disputes.
We work with companies of all shapes and sizes from FTSE 100 megacaps through to SMEs, and have built long-lasting relationships built on quality, trust, transparency and value.
James O’Connor
Senior Partnership Manager
