The Business Insurance Bureau

Today's Market: A Hard Market Explained

Author: Bob Hannah 1 min read

Premium gone up? Here's why that might not be such a bad thing.

“48% of all businesses experiencing a disaster never recover, not because they’ve experienced a disaster – but because their insurance is a disaster!”

“Traditionally, the law and the courts have been a bit more on the side of insurers than their business policyholders.

That’s because, in the beginnings of the insurance industry, the insurers (around Lloyd’s of London) were very exposed to being victims of insurance fraud and anyone brave enough to accept other people’s risks were thought to need protection.

But eventually, like any privilege, it became abused...

In time, insurers would sell ‘cheap’ insurance policies with dozens of behavioural conditions and warranties that stretched over several pages and if you were in breach of any one of these, the policy was void at the time of a claim. The courts supported this stance.

Thus, ridiculously unfair outcomes were commonplace with lives and livelihoods being ruined over irrelevant breaches of policy conditions.

We once had a £4million fire claim turned down because the fire extinguishers had not been serviced albeit there was no one in the building, yet fire extinguishers only exist to assist you leaving the building.

The Insurance Act, 2015 and the later Enterprise Act, 2016, changed and rebalanced this blatant unfairness in the system.

These days, before a breached policy condition can be held against you, it must be germane to the claim. Insurers can no longer repudiate a burglary claim if the fire extinguishers haven’t been serviced. If the burglar alarm hadn’t been set, that’s another matter.

As a result of these changes many, many more claims have had to be paid and consequent upon that, capital has left the market as the losses piled in.

Some 11 Lloyd’s syndicates have closed in the last couple of years, countless underwriting and binding authorities have been withdrawn and as supply of market capacity has collapsed against elastic demand – guess what?

Premiums have gone up for everyone, everywhere and premiums won’t come back down.

This might not sound like a good news story, but it is. The long-term outcomes for business customers with claims is much improved.

‘Cheap’ insurance with hideous terms and conditions is a thing of the past. 

Insurers now have to collect enough money to, at least, pay claims.

So, your premium might have gone up, but your future is more secure. On the morning after the fire, no one asks how much you paid for your insurance, because it no longer matters.

Peace of mind isn’t expensive, it’s priceless.”

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