Blog: Coping with a hard market

Although the commercial market is hardening, it’s not straightforward as pricing varies across the lines. In construction and professional indemnity, premiums have been rising for over two years and have seen significant increases of 50% plus. Commercial fleet, by contrast, has seen only moderate price inflation.

In personal lines, motor and home premiums are static or falling; this disparity can cause confusion because business owners, getting reductions for their car insurance, will question why premiums for their businesses are up by 10-30%, and this may persuade clients to look elsewhere for cover.

The Covid pandemic has accelerated a hardening trend (which was already evident last year). An increase in commercial claims and the likelihood of pay-outs on business interruption policies, following the recent FCA court case, will continue to exert upward pressure on rates.

Struggle
In the wider economy, business is struggling, facing challenges from both a trading and from an economic point of view. Even businesses doing well will be cautious, as the economy holds its breath before Brexit and the risk of further Covid-related restrictions.

It is difficult for brokers to operate in a hard market, especially when many haven’t had experience of one before. The last true hard market came after the 9/11 disaster in 2001.

Many brokers will be reluctant to take on risks in those lines perceived to be facing further trading headwinds, like retail, travel and aviation, especially if the broker has to bear the debt if their client defaults on premium payments. 

It is important that brokers communicate these hardening market issues early and openly to their clients; making it clear what it means for their business and to balance the price and level of cover. If brokers have been reading the runes they should have been preparing their clients for some time prior to renewal, and managing expectations with honest conversations. A trusted relationship will ensure the client knows they’re getting the best deal.

Negotiation
For the nationals, dealing with senior people in big organisations may be easier because they have a better understanding of the market. Negotiating with the owner of a scaffolding company, for example, who doesn’t really understand that the PI market has been putting through rate increases for some months, is more of a challenge.

Broker options to manage their clients through the harder market also include risk management to make the risk more presentable, but while larger nationals usually have this capability available, a risk management expert may not be part of a regional broker’s standard toolkit.

Another essential part of a broker’s armoury to keep their clients onside and ride out the hard market is premium finance .

Most, if not all businesses, are more prudent at the moment and even those doing well will want to preserve cash against uncertainty. At Close Brothers Premium Finance, we have seen growing demand for finance from broking clients during the past few months, and we are predicting this demand to continue to rise into next year.  

We believe it is good practice for brokers to proactively offer premium finance to their clients, rather than wait to be asked, not least because clients may be eager to hedge against uncertainty and spread the cost of their insurance.

With this in mind, it is a good idea to hold the finance conversation as soon as possible with clients, in fact at the same time as they’re talking to insurers, rather than after the sale process, when clients may feel the deal has been finalised.

Affordability
Broking clients who choose premium finance will see improvements in their cash flow and spreading the cost of insurance helps those clients afford the right level of cover; the alternative, which is to reduce the level of cover to bring the price down, could leave them unprotected.

Premium finance is therefore a really valuable tool to help clients keep the level of cover they need to be properly protected in these challenging economic times.

Paul Trail is MD of Close Brothers Premium Finance.

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