Are we past the hard market peak?

Insurance brokers want the hard market to end, and brokerage executives say we might be edging closer to the peak of it.  

Doug Morrow, CEO and managing partner at Excel Insurance Group, says we are “near” or “slightly past” the top of the hard market, in a Canadian Underwriter webinar on Feb. 8. 

The first phase of the hard market, which some brokers place around 2018, was a correction from low interest rates and underpriced classes, Morrow says.  

“The origins of the hard market have to do with low interest rates — which really hurt the insurance companies’ opportunity to earn investment income — and an increase in the severity and frequency of loss events,” Morrow explains. “And then some particular industry classes that were hugely underpriced.

“Insurance rates haven’t gone up for over 10 years. So having that correction happen all at once is pretty hard on the marketplace, hard on brokers, underwriters and clients.” 

The second phase of the hard market, according to Morrow, was “a determined approach by the carriers to spread risk, to not have all their eggs in one basket.” 

Morrow says this has been a source of stress for brokers, who are being “tasked with taking capacity that’s being ceded back into the marketplace and then placing it with other carriers. And so, it’s been really important that carriers understand that as they cede risk, they have to accept risk back.  

“At this stage in the market — which I would say would be near the top or slightly past the top — there are still industry verticals that are underpriced, and cyber is one of those. There are also industry verticals where we don’t know where the top is.”   

Erin Magilton, risk and broking leader for Canada at WTW, agrees the market cycle could see shifts in some lines, but not all.  

“In some areas, some lines of cover and some industry verticals, there’s a gradual shift to a more measured approach,” she says. “And then other lines of cover, like cyber, it’s still a really challenging and hard market…with no real short-term move from that position.”  

In Canada, cyber is still unprofitable, and although figures vary, some of the latest figures are seeing cyber at a loss ratios higher than the break-even point of 100%. 

Magilton says some insurers have done a better job with risk aggregation and pricing, “and so, for their insureds, there is some lessening of those pushes for more rate.” However, she says some insurers are still catching up.  

“There are other clients, other insureds, that still need to put some rate back into the market by virtue of their individual risk profile, their loss history, et cetera. So, it’s kind of all over the place,” she says.  

Another broker executive questions whether this hard market cycle could become “new normal” for the industry.  

“Is this the new normal?” Adam Mitchell, CEO at Mitchell & Whale Insurance Brokers poses. “Were we suppressed before, and this is the correction back to the level?”  

Regardless of where we’re at in the market cycle, Morrow recommends that brokers and underwriters should focus their efforts towards strengthening client relations, particularly with those who may not understand how policy premiums are calculated. 

“Clients will never understand these things as well as we do,” Morrow says.  

“What we should be doing as brokers and underwriters in particular is turning our focus towards the client’s interests. It’s really important that we focus on the quality of our service, the speed of our response, the accuracy of our interpretation of what the changes are.”  

Feature image by iStock.com/DNY59