The Insurance Market – Current conditions and effects on policyholders

February 2021

The global insurance market has moved into what is known as a ‘hard market’ position. In a hard market, insurers (and reinsurers):

  • Increase rates
  • Impose stricter terms and conditions
  • Request increasingly detailed risk information
  • Reduce capacity or even pull out of markets entirely

Why is this happening?

Part of the reason is to compensate for mounting liability and catastrophe losses, as well as lower yields on fixed-income securities. Although the COVID-19 pandemic has not caused the hardening market, it has exacerbated the situation.

The hardening has impacted all areas of insurance. However, some areas have been more severely affected than others.

The hardening market and property insurance

Property insurance is one area where insurers are reducing capacity and increasing rates. This is more pronounced where policyholders purchase global coverage. While insurers prefer risks with disparate exposures operating in multiple jurisdictions, this does provide policyholders with other insurance issues.

Any territory which has a prevalence for catastrophe-type covers are seeing their limits reduce or become no longer viable on a cost-versus-exposure basis. In Europe, the natural catastrophe areas which are being severely affected are Netherlands Flood, German Storm Surge (Sturmflut) and Italian and Portuguese Earthquake risks.

The availability of these insurance covers is being limited by insurers’ increasing unwillingness to offer significant limits, as treaty reinsurance costs rise. This cost is passed on to policyholders. Attempts to increase the primary limits offered by insurers are faced with steep charges and policy limitations, as Facultative insurance prices spiral.

Insurers have always looked to cap their exposure (and losses) to natural catastrophe covers. However, as the market contracts, the limits offered are reducing significantly, and being written on an aggregate basis.

How long will this last?

We expect the hard market to last throughout 2021 and into 2022, with the possibility of further reductions in capacity and increases in costs. Beyond 2022, with low interest rates still forecast, there may be a ‘levelling off’ of significant changes affecting insurance policies currently, but we are unlikely to see increases in capacity or reduction in premium rates.

What can you do to maintain cover?

In hardening markets, specialist knowledge of the availability and pricing of insurance is crucial. While premiums may increase, a good insurance broker will have access to a range of insurers, to ensure continuity of cover wherever possible.

Watson Laurie will continue to monitor the situation, to deliver solutions for our clients. For more information on commercial property insurance, contact Andy Crompton on 01204 547929 or 07876 897010. Alternatively, email

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