It’s a time of unprecedented economic difficulty, you’ve had no claims, and you’re looking after your building. So why has your insurance premium gone up?
There are many different factors that are at play in the current insurance market, and one of them, increases in reinstatement costs, we will cover in another article.
But essentially, for possibly the first time in many brokers’ careers, we are in a ‘Hard Market’ for insurance, where insurers are increasing their rates to ensure that they make a profit overall on their underwriting.
Insurers make money in two ways. Firstly, they try to make sure that they collect more in premiums than they pay out in claims and business expenses. To be competitive, they might then reduce the rates, and try and make up the shortfall by investing the premiums and hopefully making a profit. However, with the FTSE 100 index down 21.4% on the year, and interest rates at their lowest in the near 300 year history of the Bank of England, the investment income is down massively, and so there is more focus on getting the right premium to cover their risk, and make a profit on top. It is, after all, what they are in business for.
However, the general economic climate has also meant the amount of capital which was available to support the reinsurance market has slowed up. This is where insurers themselves go to insure the properties that they take on, if they are perhaps less attractive to them because of claims history, type of construction etc, and they want to pass of some of the risk to someone else. The smaller the amount of capital in the reinsurance market, the greater the price they will charge to use it, which translates into higher premiums ultimately paid by the insured party.
Then you have Covid 19. Lloyds of London estimate that the combination of insurance claims across all types of insurance resulting from Covid, plus the loss of investment income due to the pandemic’s effect on business, will mean a cost to the insurance industry worldwide in excess of £200 billion. This makes it the single most expensive event to ever hit the insurance market.
But even before then, the property insurance market was recovering from high profile losses such as the one at Grenfell Tower, and 2020 started badly for UK insurers with over £400 million in claims resulting from Storms Ciara and Dennis (remember them?!)
With personal injury claim settlements going up as a result of changes to the method of calculating claims, and accounting changes forcing insurers to hold more money in reserve to ensure they can meet their commitments, insurance companies are looking carefully at the rates they charge on all types of business. Property insurance is no different, and having probably been under-rated since the last hard market of 2002, we are seeing all insurers now pushing for increased premiums.
However, it’s not all doom and gloom. Property insurance is generally one of the first sectors to see competition returning in the market, as any losses are generally more predictable and quickly dealt with compared to, say, liability claims, which can take years to resolve. And there are still insurers out there who ae looking for good quality property insurance business, whether it’s commercial property or blocks of flats, and who can be competitive for the right risks. A good broker with plenty of trading experience, and a wide insurer panel to choose from, will be able to guide you through the current market, but don’t expect any cut price deals on property insurance any time soon.