What the hard market means for you…

There are many contributing factors for the insurance industry falling into a hard market, including the recent Coronavirus pandemic, Brexit negotiations, increased reinsurance costs and investment losses; factors which mean the insurance industry is heading to the hardest market in a generation.

Below we look at some of the key contributors that are causing these hard market symptoms:

Increased reinsurance costs

We know that reinsurance rates will rise considerably from 1st January 2021. This is primarily due to ongoing Covid-19 losses, low interest rates and large losses that have been recorded over the past 3 years such as Hurricane Dorian, which cost the industry $4.5bn, and Storms Ciara and Dennis here in the UK.

Reinsurance rates are due to rise by 20-30%, meaning premiums will also have to rise. Policy holders will therefore see an increase, with the additional possibility of more restrictions and exclusions within their policy wording. For example, exclusions regarding future pandemics have already been introduced into policy wordings, as we have already seen from Zurich and Allianz.

January/February floods

Storm Dennis and Ciara hit the UK in January/February 2020, leading to £425 million estimated in claims payments. With the impact of climate change, the weather is increasingly unpredictable with natural disasters occurring more frequently across the globe; this will need to settle for insurers to cope with such events. If uncertainty does continue, it is possible that in the future, insurers will not be able to provide cover at all for such events*.

Investment losses

Interest rates have seen a significant drop leading to a lower rate of investments. Investment is increasingly important to insurers due to the low returns available on assets. Insurers are therefore pushing for the UK to change aspects of the EU insurance rules once the Brexit transition period ends, in order to help them invest more heavily in the UK infrastructure. The EU’s Solvency II rules determine how insurers are funded and will still apply after Brexit, but the UK will have more flexibility to change them. **

However, it’s not necessarily all bad news; some argue that market dynamics are such that new capital is more easily and speedily attracted to the market when rates rise. Our Head of Commercial, Nick Pay, suggests that “due to this, the hard market may be more short-term with supply increased.”


With the transition period ending in December 2020, it is uncertain that the deal will benefit insurance brokers and their clients due to the free-trade agreement not providing access to the single market and intermediaries. However, brokers need to be clear with insurers to understand the options and Brexit implications for their clients.

If Britain leaves the EU without a deal, the EHIC health card will not be valid. This may not directly affect customers but will affect insurers due to the increase of medical claims costs, a cost that may later be passed on to policyholders.


According to John Neal, CEO Lloyds of London, “Coronavirus will be the largest loss on record for insurers”***.

On 15th September 2020, the High Court handed down its judgement in the Financial Conduct Authority’s (FCA) business interruption insurance case. This will be appealed and eventually heard by The Supreme Court. There are different views on the final outcome, but insurers are expected to pay out over £900 million in claims to support businesses affected by Covid-19. Naturally, this puts a great deal of pressure on insurers and their profits and they will therefore likely be adjusting wordings to help reduce their exposure and be increasing premiums for those riskier customers.

Below, our Head Of sectors give their opinions on what they are seeing and expect to see in their individual sectors through the hardening market.

Jonathan Copley, Head of Care & Social Welfare, comments: “High liability risk segments of the marketplace, such as care and hospitality businesses, are the reason why some insurers are exiting certain markets. It will become more difficult to purchase products such as Professional Indemnity and Management Liability for certain trade types who are deemed high risk. We are currently seeing premiums increase greatly and seeing a reduction in insurers willing to take on such risks.”

Jonathan also offered his thoughts to Care Talk magazine, looking in more depth at the impact of Covid-19 on the care insurance industry – read more here.

Nick Pay, our Head Of Commercial notes that: “We have been seeing significant hardening in Financial Lines markets for the whole of 2020, especially Professional Indemnity and Directors’ and Officers’ Liability. This is translating into premiums sometimes as much as double the previous year and a restriction in terms. Property is least affected currently but even this class is seeing a modest increase in cost. As ever, those risks which are well managed, and which have a better claims record will fare the best through these market conditions.”

McClarrons’ Head of Farm, Grant Hartley, adds, “whether it’s a global pandemic, government policy or financially volatile markets, British agriculture can face challenges as often as the seasons change. Having access to the right advice and support is therefore fundamental. Make sure you are speaking to a specialist and more importantly, independent, broker like McClarrons; they will be able to bring a wealth of experience in working with rural businesses, along with the ability to access a wide range of insurance markets to ensure you receive the right advice to protect you and your business through these unsettled times.”

Finally, our Head of Art & Private Clients, Ben Pickles, comments on how the hard market may impact High Net Worth individuals: “Consumers have generally benefited from a soft market in High Net Worth insurance sector for over 10 years now. Perpetuated by new entries into the marketplace driving prices down, insurers have struggled to maintain premium to cover rising claims costs. Although consumers have benefitted from lower premiums, many were placing their trust with insurers in year 1, only to see large increases at the first or second renewal. Prior to Covid-19, there were signs of the market hardening with established insurers in this sector aiming to grow their premiums by around 5% on top of index linking.

It is anticipated that private client premiums will continue to rise. There will certainly be an impact on travel cover – typically an add on to High Net Worth policies, this cover will be directly impacted by Covid-19 and so it is important you take the opportunity to discuss this at length at renewal.”

What can you do to reduce the impact of this hardening insurance market?

Below, we list some factors which you should keep in mind to help reduce impact on your insurance premiums and cover.

  • Are you what insurers consider a ‘good’ risk? Have you made claims in the past? How long have you been with your current provider? If you are seen as a safer risk, for example, you haven’t made many claims, your broker has a lot of leverage to negotiate with your insurer.
  • When was the last time you reviewed your cover? Your broker should be able to help you to do this to make sure you are getting value for your premium.
  • Do not fall into the trap of asking your broker to go to the market every year. Insurers get tired of seeing the same cases every year without success. We recommend that you do this on a 3-year cycle, or every 2 years if your current insurer isn’t offering you what you need.
  • Removing necessary cover or reducing sums insured without justification is never the right solution; remember what you are paying for – peace of mind – and consider how this would be affected in the event of a claim if you are inadequately insured.

To find out more about how we can help protect your assets or business during these changing times, contact our teams on 01653 697055 or by emailing enquiries@mcclarroninsurance.com, we will be very happy to help in any way we can.



https://www.fca.org.uk/news/press-releases/result-fca-business-interruption-test-case *

https://www.ft.com/content/b802b78d-4858-46a8-b77c-13befe234912 **

https://www.abi.org.uk/news/news-articles/2020/04/covid-19–payouts-of-over-1.2-billion-likely-to-be-made-to-customers-according-to-latest-estimate-from-the-abi/ ***

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