Ever wondered why insurance premiums seem to be constantly rising as of late? Insurance is an essential aspect of managing risk in both personal and commercial sectors. However, insurance prices can fluctuate due to various factors that affect the insurance market, and the insurance pricing cycle can move from a “soft market” to a “hard market”. In this blog, we’ll explain what a hard market is, its causes, and its impact on insurance premiums in Quebec and globally.

What is a Hard Market in Insurance?

A hard market refers to a cycle in the insurance industry characterized by an increase in insurance premiums and a tightening of underwriting guidelines. This cycle usually follows a soft market period, where insurance premiums are low, and insurance companies are eager to write new policies. In a hard market, the opposite is true, and insurance companies become more selective about the policies they write, leading to higher premiums for customers.

Causes of a Hard Market

The insurance market cycle is influenced by several factors, including natural disasters, economic trends, and regulatory changes. Some of the major causes of a hard market are:

Natural Disasters: Natural disasters, such as hurricanes, earthquakes, and wildfires, can cause significant damage to property and disrupt business operations. Insurance companies must pay claims to cover the losses, which can strain their financial resources. As a result, insurance companies may increase premiums to compensate for the increased risk.

Economic Factors: Economic trends, such as inflation, supply chain issues and interest rates, can also impact the insurance market. When the economy is growing, insurance premiums may increase as insurance companies seek to keep up with rising costs. On the other hand, a slow-growing economy may lead to lower insurance premiums as insurance companies try to attract new customers.

Regulatory Changes: Changes in insurance regulations can also impact the insurance market. For example, if the government introduces new regulations that increase the cost of insurance, insurance companies may raise premiums to cover the added expense.

Political Instability: War in a region, such as the ongoing conflict in Ukraine, can result in increased insurance premiums due to the higher risk of losses. The uncertainty and unpredictability of political events can also lead insurance companies to be more cautious in writing new policies, which can lead to higher premiums and tighter underwriting guidelines.

Impact of a Hard Market on Insurance Premiums

A hard market can have a significant impact on insurance premiums, both for personal and commercial insurance policies. During a hard market, insurance companies become more selective about the policies they write, leading to higher premiums for customers. In some cases, insurance companies may also reduce the coverage available to customers, further increasing the cost of insurance.

Tips to Lower Insurance Premiums

Although a hard market can lead to higher insurance premiums, there are steps that customers can take to lower their insurance costs. Some of these include:

Shop around: Your broker can provide you with access to multiple insurance companies, allowing you to quickly compare different insurance quotes to find the best deal.

Bundle Policies: Bundling personal and commercial insurance policies with the same insurance company can often result in a discount. This is because insurance companies are more likely to offer a discount for customers who purchase multiple policies from them.

Improve Risk Management: Insurance companies often offer discounts to customers who have taken steps to improve their risk management. This includes taking measures to secure their property, such as installing security systems, and implementing safety measures in the workplace. By reducing the risk of a loss, customers can often lower their insurance premiums.

Increase Deductibles: Increasing the deductible on a policy can also lower insurance premiums. A higher deductible means that the customer is taking on more of the risk, and the insurance company is taking on less. As a result, insurance companies are often willing to offer a lower premium for policies with higher deductibles.

Review Coverage: Reviewing the coverage on a policy can also help customers lower their insurance premiums. For example, if a customer has a policy that includes coverage they no longer need, they can remove that coverage to lower their premium.

Benefit from Expertise

Working with a broker can help customers benefit from their expertise in finding the right coverage that meets their unique needs and budget. Brokers have in-depth knowledge of the insurance market and can shop around on behalf of their clients, helping them save time and money while ensuring they have the right coverage.

Most importantly, brokers can provide advice on risk management, claims, and other insurance-related matters, which can help customers avoid costly mistakes and make informed decisions.

At LMBF, we understand that insurance premiums can be a concern, and we are here to help our customers find the coverage they need at a price they can afford. Contact us today to learn more about how we can help you manage your insurance needs.