What is a hard market, and why is it costing me money?
This year, virtually every renewal we’ve seen has involved a higher than average rate increase. Premium increases have been occurring across all insurance categories and all customer types – regardless of your claims history.
Why are insurance rates going up in Ontario?
Every 6 to 8 years, the insurance industry experiences a period of time when they pay out more in claims than they receive in premiums. It occurs over several years, and this pattern creates a ‘hard market.’ A hard market essentially means insurers are adjusting to the new market factors by increasing rates and being stricter about underwriting criteria.
What factors create a ‘hard market’?
Two key factors that create a ‘hard market’ in the insurance industry are generally referred to as rating trends & market trends.
Fluctuating market trends create market instability. When insurance companies lose money due to increased payout year after year, they have a harder time attracting capital from investors or lenders.
Rating trend spikes are typically caused by consistently higher claim payouts. Typically, an industry-wide rise in insurance payouts is not immediately reflected by an increase in the premiums or rates people pay, meaning the insurer loses money.
Do insurance companies actually lose money?
Surprisingly insurance companies often operate at a loss depending on their claims for any given quarter or year. Insurance is a slow-moving and highly regulated industry, so when a pattern of loss is experienced year after year, the problem is compounded. Overall rate increases by underwriters have to be approved by a governing body. If the governing body is slow to react to rating trends, then the insurer can lose money over consecutive years.
Expensive Repairs – Many windshields now have built-in technology making replacement more complicated and requiring recalibration of the car’s systems. This tech complexity also extends all around the vehicle. Autonomous driving features, along with front and rear bumper sensors, mean that in even the smallest fender bender new tech needs to be installed to replace broken sensors. This also means that someone with a laptop needs to go through and reboot the vehicle’s entire operating system. Accidents such as these lead to more labour and longer rental times which add up fast.
Increased Claims = Increased Risk – Any time there’s an increase in collisions across the board, it becomes riskier to be on the road. This change is usually mitigated by increasing the premiums of the at-fault driver, but it also contributes to an increase in overall payouts leading to a hard market.
Fraud – Fraudsters who stage accidents to make money are affecting the entire industry. In Ontario alone, the Insurance Bureau of Canada reports that car insurance fraud costs drivers an estimated $1.6 billion each year (or about $236 per driver). Rates increase to cover these costs.
Weather-Related Claims – Whenever there’s a natural disaster or catastrophe, which often occur after storms or wildfires – insurers can end up paying out a large number of claims at the same time – which puts them behind the financial eight-ball. For example, a hail storm can create hundreds of thousands of dollars in bodywork and windshield repairs in a few short hours. While flooding can create hundreds of millions of dollars in payouts. As weather patterns have become less stable due to climate change, the industry has been forced to respond accordingly.
A ‘hard market’ rarely lasts longer than three years. However, market predictions regarding the current situation indicate that it will probably be less. While nothing is guaranteed, experts are saying that prices should even out in two years. While rates likely won’t be as low as they were previously, even after correction, the insurers will be better able to predict and account for market trends and be more responsive to claims.
Going forward, there are three things to keep in mind:
If you’re buying specialty insurance, you may have a hard time getting or keeping insurance (this includes lines like business insurance or high-risk auto).
Prices are going to increase across all lines and all insurers. However, that doesn’t mean switching isn’t a good avenue to explore. Talk to your broker about whether the company you’re with is still your best option.
Your broker is your best advocate. During a ‘hard market,’ it’s more important than ever to have a broker who’s willing to keep you up to date, have honest discussions about the nature of the market and your coverage, and most importantly go to bat for you with insurers.
Let us help.
At the end of the day, we work with one thing in mind when it comes to making sure you have the right coverage in every market. We fight like a gladiator to find you the best insurance rates, but only after we asked you the right questions and given you the advice to make smarter decisions.
Speak to one of our Excalibur Defenders today and let us help you lower your rates.