The Impact of a Hard Insurance Market

  • Author | Carly Salah
  • 11/2/2023 6:00 am

In the ever-evolving landscape of insurance, there are periods when the industry undergoes significant shifts that can directly impact policyholders. One of these phases is known as a "hard insurance market." It’s crucial to understand what it means and how it can affect your insurance premiums.

The Hard Insurance Market Explained 

The hard property market is characterized by a period of increased scrutiny and stricter underwriting standards by insurers and reinsurers. During these times, obtaining insurance coverage becomes more challenging and the cost of premiums tends to rise significantly. But what exactly causes a hard insurance market to emerge?

Factors Contributing to a Hard Insurance Market

Several factors contribute to the onset of a hard insurance market, and they often combine to create a challenging environment for both insurers and policyholders. These factors include:

  1. Rising Reinsurance and Construction Costs: Insurance companies rely on reinsurance to manage their risks. When reinsurance costs increase due to factors like more significant claims or market fluctuations, insurers may pass these expenses onto policyholders. 
  1. Valuation Adjustments: Changes in the valuation of insured properties, such as an increase in property values, can impact the amount of coverage needed, leading to higher premiums. 
  1. Increased Claims Costs: A surge in insurance claims, whether due to natural disasters or other factors, can strain an insurer's resources, causing them to raise premiums to maintain profitability. 
  1. Natural Disasters and Catastrophic Events: Events like hurricanes, wildfires or earthquakes can result in substantial insurance losses, prompting insurers to reevaluate their risk exposures and adjust premiums accordingly.
  1. Inflation: The erosion of the purchasing power of money through inflation can affect the cost of materials and labor, which in turn affects the cost of rebuilding or repairing damaged properties, leading to higher premiums.

How does this affect you?

The consequences for policyholders during a hard insurance market include:

  1. Higher Premiums: One of the most noticeable effects is an increase in insurance premiums. Policyholders can expect to pay more for their coverage, which can strain personal or business budgets.
  1. Limited Coverage Options: As insurers become more cautious, they may be less willing to provide coverage for high-risk properties or businesses, leaving policyholders with fewer options. 
  1. Increased Deductibles: Insurers may also respond to market pressures by increasing deductibles, shifting more of the financial burden onto policyholders in the event of a claim.

What we’re doing to support our members

As a nonprofit organization, Public Entity Partners serves as the administrator of a voluntary, self-insured, risk-sharing partnership. In addition to providing property coverage, we assist members in their efforts to safeguard public resources through various risk management programs and services.

We accomplish this through:

  1. Appraisals: What are they and why are they important?

PEP’s Property Valuation Program provides each member with a professional valuation on locations assessed at $75,000 or more. This program helps ensure that our members’ properties are properly valued and adequately insured, and allows us to provide true replacement costs and actual cash value (ATV) coverages without a coinsurance clause or penalty.

  1. Property Conservation Loss Control Surveys: What are they and what are they designed to do?

PEP provides a loss control survey for each member with property coverage to identify possible exposures.

These surveys enable PEP to:

  • Recommend best practices to prevent loss or damage to your property;
  • Minimize the occurrence of property claims;
  • Ensure we have a complete list of every property owned by the entity.

A property loss control survey assists the member in the development or maintenance of the member’s current property risk management program. The frequency of a property loss control survey is determined by the total insured property value of the member.

  1. Property Conservation Grant: What is this and what is it designed to do?

The Property Conservation Grant was created to encourage our members to prioritize their property conservation risk management program, and help offset the cost of maintaining the facilities they own and operate by minimizing loss.

  1. Property Conservation Loss Control Training:

The Loss Control Property Consultants can provide each member with a training program designed to identify the common causes of property claims. The training includes best practices of financial controls, cyber risk, housekeeping, lightning attenuation, fire extinguishers, fire suppression and storage of chemicals. PEP is currently in the process of creating additional training programs for our members. 

  1. Assistance With Renewals:

Our member services team is available to assist with your renewal applications to review coverages, navigate deductibles, and review the differences between replacement cost and actual cash value so you can decide how to best insure your property. 

What can members do to offset costs and prevent losses?

We understand that navigating a hard insurance market can be challenging for our members. However, we want to assure you that we are your partner in risk mitigation, and we are committed to helping you manage the complexities of this challenging landscape.

There are steps members can take to help control costs and mitigate losses, such as developing a basic understanding of:

  • Your property coverage policy;
  • Available risk retention and financing alternatives;
  • Property conservation best practices;
  • The elements of a property conservation risk management program.

Over the coming months, Public Entity Partners will cover additional areas of property conservation best practices in a series of newsletter articles aimed at helping our members. Should you have any questions in the meantime, please reach out to your Member Services Representative for assistance.