When the going gets tough!

All sectors go through periods of growth and contraction, and the insurance industry is no exception. Currently, the insurance market is going through a phase of tightening, commonly known as a hard market. These cycles typically last from two to ten years and involve periods of both expansion and contraction in insurance accessibility.

The hard market gained momentum in late 2020, following a sustained period of softer market conditions. The hardening of the short-term insurance market is a global phenomenon impacting insurers and policyholders worldwide. Essentially, a hard market occurs when there is high demand for insurance but limited coverage available and pricing comes under severe pressure. During this time, underwriting becomes more stringent and challenging.

Navigating the hard insurance market

Several factors have shaped the current state of the global insurance market, including the COVID-19 pandemic, unpredictable and severe weather events, fraud, and increased volumes of claims. The overall state of the economy, geopolitical concerns, rising reinsurance rates, and reduced coverage availability also contribute significantly to the market’s hardening.

This hardening has led insurers and reinsurers worldwide to adopt a more risk-averse approach and implement stricter underwriting guidelines. Consequently, individuals and businesses are finding it increasingly difficult to secure suitable insurance coverage at reasonable prices.

The frequency and severity of catastrophic events have caused substantial rate increases in the global reinsurance market. In South Africa, the most developed insurance market on the continent, reinsurance rates are surpassing the global trend and, in some cases, tripling, as reinsurers and insurers grapple with an unprecedented number of claims.

Over the past few years, South Africa has experienced numerous high-risk events, including the pandemic, riots, and the looming threat of a power grid failure. Additionally, the country has faced several catastrophic events such as droughts, wildfires, and floods. The April 2022 KwaZulu-Natal floods have been identified as the largest natural catastrophe loss event in the country.

According to the Swiss Re Institute, South Africa’s total economic losses from natural catastrophes reached $3.5 billion in 2022.

These events have resulted in significant claim payouts for insurers, prompting them to reassess their risk exposure and pricing models to ensure adequate coverage. As the world continues to confront new and unpredictable challenges, insurers must adapt and evolve to meet the changing needs of their customers.

Despite the challenging circumstances, Econorisk believes now is an opportune time to focus on value rather than solely on pricing. Matthew van den Heuvel, joint CEO at Econorisk, states, “To successfully navigate the hard market, we prioritize providing our clients with rigorous risk advice, appropriate coverage, and efficient service. Our goal is to offer greater stability to our clients despite rising premiums and stricter underwriting parameters.”

At Econorisk, we strive to fully comprehend our client’s personal and business needs and their overall risk exposure. Additionally, we assist our clients in understanding market requirements and how insurance policy terms have evolved in response to hard market conditions.

To assess your risks and explore coverage options, we encourage you to consult your private broker.