How to reduce the impact of a hardening insurance market for small businesses

Extreme storms and flooding … high inflation … pandemic fatigue … global political uncertainty … major property fires … supply chain problems … material costs rising … labour shortages …

It sounds like a biblical saga, but we are facing this in Aotearoa and so is the rest of the world.

Besides the more obvious effects of this litany of woes, these risks can also create what is known in the insurance industry as a hard market – which we are facing currently (see the end of the blog for a hard market definition). 

So, what does a hard market mean to small businesses? As we explain below, a lot. 

For a start, business owners can expect higher insurance premiums. Insurers will be requesting more information about a business’s risks and plans at renewal time and when a claim is made. 

Insurers may impose coverage restrictions or additional exclusions. 

Some insurers may even decline to renew the policy of a business if they feel the risks are too great. 

It’s going to make it more difficult for owners to decide what insurance they require and that they obtain adequate coverage for their business. 

Failing to adequately assess their business risks may find their businesses vastly underinsured – with devastating consequences if disaster strikes.

“Experienced brokers can help business owners rapidly obtain the information requested by the insurer”

How brokers can help

In a hard market, insurers ask more questions, require more detailed information and spend more time reviewing the cover they will offer. 

For any business owners this can be daunting to ensure they obtain the right insurance outcome. 

Experienced brokers can help business owners rapidly obtain the information requested by the insurer and, thanks to the broker’s relationships with various insurers, navigate the right path to obtain the right cover. 

Likewise, if a small business owner has to make a claim, the process can become more laborious in a hard market as insurers are more closely reviewing the claims.

When a major disaster affects insureds, insurers are inundated with claims. 

As such, the insurance industry is expecting the north island weather events to result in over $1 billion worth of claims per event, and this has a flow on effecting the speed claims are dealt with. 

A small business owner has enough stress when disaster strikes. A broker can help alleviate some of this stress and time, helping a business through the claims process and achieve a more desirable result. 

The biggest impact of a hard market is premium increases. 

Again, an experienced broker can help. Their strong relationships with insurers can assist negotiate with more favourable premiums. 

Brokers can also help review a business’s existing policies and procedures and suggest ways to reduce the premium.

This could include, for example, adjusting a business’s claims excess. Or look at ways to reduce risk, such as increasing security measures (installing an alarm, etc.), which insurers will look favourably upon.

Businesses should contact their broker early, long before renewal time (if the broker doesn’t beat them to it) to determine how the hard market will affect their business.

Starting the renewal process early gives the broker more time to secure the best cover.

The claims history of a business may impact premiums.

There’s not much a business can do to change the past, but if the business has not made any large claims before, their broker may be able to negotiate with the insurer through underwriting agencies to lower or maintain premiums.

Likewise, a broker can advise businesses how they can proactively keep the businesses’ building and contents safe and well maintained, reducing the overall exposure to claims.

This can help build up a lasting no-claims record that will reduce premiums in the future.

If a business’s existing insurer doesn’t seem competitive, brokers will help shop around and compare the cost and cover of other insurers.

Taking the cheapest option is tempting, but the broker will also look at the insurer’s level of cover and the speed at which they resolve claims.

With the hard market a business may find its existing insurer, struggling with their costs, reluctant to renew insurance the business, if they feel its risk levels are high. 

Brokers can help businesses develop a submission to insurers that meets the onerous requirements of an insurer in a hard market and stands out among other businesses seeking cover in these difficult times.

Small businesses need help in these uncertain times

A broker has the experience, knowledge, resources, and relationship with insurers to help businesses navigate the otherwise lengthy process quickly and efficiently, and ensure the business is protected with appropriate and adequate cover.

What is a hard market?

In the insurance industry a hard market is the movement in a market cycle when a number of elements, such as extensive claims following extreme weather disasters (or other events), resulting in premium increase and the capacity for most types of insurance to decrease.

In a hard market, insurers may have less desire for growth and limit their presence in the marketplace as they re-evaluate their business, customers, and their risk appetites.

They may impose stricter standards and risk evaluations than were present in a softer market.

Consequently, premiums go up, the amount of cover they previously provide may decrease, and the number of insurers in the market, especially specialist insurers, are reduced.

Important - Steadfast NZ Limited, its related companies and associates

This article provides information rather than financial advice. The content of this article, including any information contained in it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, and seek appropriate financial advice before you act on any information.