We’ve received several requests to explain today’s hard market. We distributed a two-page document to Principal Brokers last week – here’s a brief summary.

What’s a hard market?

An insurance market hardens when the capital used to fund insurance transactions becomes less readily available. Many things can reduce this availability at different levels of the insurance supply chain.

What’s causing our current hard market?

Profits ensure that retail insurers’ product availability, supply and price can be held stable and currently, they’re experiencing reduced profits due to two main factors.

First, auto insurance. There are many elements driving down profitability of the auto product, including the increasing cost of repairing modern vehicles.

Second, severe weather events. Once weather events rise to a certain level, insurance companies will be covered by reinsurance. Lately there’s been an increase in the number of events that fall just under the level required to qualify for reinsurance.

Do we just have to wait this out?

Yes, but certain factors — especially the regulator’s influence on the rate setting process — can speed or hinder change. Eventually, trends become predictable enough for product pricing to get ahead of the cost of claims. One large insurance company has indicated that they’re expecting it to take three years to get on top of physical damage inflation/pricing issues. At the IBAO we’re keeping a close eye on market activity and keeping in touch with our insurance company partners, regulators and the Ontario Government. 

To learn more about how this market might affect you and your brokerage, read the full document.