Are you currently rate shopping for car or home insurance? Chances are you may be quoted rates higher than you expected since Ontario is entering a hard market. This cyclical change between hard and soft markets fluctuates every six to eight years and leads to higher insurance premiums and more stringent underwriting practices.
WHAT IS A HARD MARKET?
A hard market refers to a time in the insurance industry where rates are higher and underwriting criteria are stricter. This stems from the fact that the insurance industry is currently paying out more in claims than they collect in premium…resulting in many insurers losing money.
Photo courtesy of LTCA
WHAT ARE THE CAUSES OF THE CURRENT HARD MARKET?
A hard market refers to a time in the insurance industry where rates are higher and underwriting criteria are stricter. This stems from the fact that the insurance industry is currently paying out more in claims than they collect in premium…resulting in many insurers losing money.
- Lack of capital in insurance companies. When lines of business (personal, commercial) aren’t performing very well, this results in a loss of capital. And if these lines of business under perform for some time, there isn’t enough capital to offset financial loses so companies can’t recuperate capital.
- Insurance payouts for claims made.
- Weather related insurance claims have increased dramatically.
- New technology in cars – it makes them much more expensive and complex to repair. According to Aviva, the average length of vehicle rentals during repairs has increased from 11.6 to 13.6 days from 2017 to 2018.
- Fraud due to a small minority of people who try to game the system with false underwriting information (i.e. address fraud), false and/or staged claims and inflated payouts. Unfortunately, we all pay for fraud.
WHY DOES A HARD MARKET MATTER TO YOU?
- Higher insurance rates across the board (auto, home, commercial insurance).
- Stricter underwriting practices which in turn will affect how flexible insurers may have been in the past.
- Direct insurers will start to re-underwrite their book, resulting in substantial increases in your premiums, coverage reduction, or in extreme cases…non-renewal.
- Many brokers will lose contracts with insurers or be required to re-underwrite part of their business, which results in less choice to customers of some brokerages.
- Some insurers will close their doors to some new business and reduce the size of their books.
- If your broker or insurer can’t help, you will need to shop the market. It’s really important to find a broker who has insurers and access to the market to place your policy. Now more than ever, having a good insurance broker on your side really helps.
HOW LONG WILL THE HARD MARKET LAST?
Experts predict that the hard market will last for the rest of 2019 (but it may take up to three years to see changes in your rates).
WHAT SHOULD YOU EXPECT FROM YOUR BROKER/INSURANCE AGENCY DURING THIS TIME?
Transparency: it’s important that your broker keeps you abreast of any developments (e.g. the fact that you will most likely see a rate increase, if your policy will be renewed, etc.), help you navigate the market and keep you informed of any pertinent policy changes.
Advocacy: it’s a rough time in the market, but your broker will work with insurance companies to ensure you’re getting adequate coverage and the best rate.
Honesty: discuss your options with your broker to determine what options make the most sense for you.
At isure, we’re all about working with you and being forthcoming with changes in the industry. If you have any questions, call or email us. Let’s shop around together to ensure you have the most appropriate and affordable coverage during this time.
