How a Hard Market affects your Insurance Premiums
Insurance Industries experience expansion and contraction cycles, just like all other industries. Global economic recessions and natural disasters have a direct impact on market fluctuations.
The number of insurance claims paid out each year is dramatically increased by Global pandemic, floods, wildfires, and other extreme weather events. Some of the most expensive insurance losses in history have occurred within the last few years.
Insured damages from extreme weather in Canada in 2018 were $1.9 billion due to ice storms, floods, windstorms, and tornadoes. We are approaching an industrial era of contraction, also described as a “hard market,” mostly because of the rising frequency, severity, and financial effect of these environmental disasters.
Hard Market • Higher insurance premiums • More stringent underwriting • Less competition • Reduced capacity Soft Market • Lower insurance premiums • Relaxed stringent underwriting • Increased competition • Increased capacity Combined Ratio What is referred to as the Combined Ratio is a crucial indicator of profitability for insurers. The percentage of annual premiums that are spent on claims and expenses is known as the Combined Ratio.
A ratio of 90 is often comfortable for insurers. The current Combined Ratios for many of the 35 major Canadian insurers examined in our most recent Market Security Report range from 100 to 120.
These insurance companies are losing money. To satisfy the demands created by the rising number of claims filed, they are becoming more picky about what they are prepared to insure and raising prices.
Deductibles With over 50% of all house insurance claims in Canada now including water, fire is no longer the leading cause. Ageing apartment complexes and condominiums have seen a sharp rise in water damage claims in recent years, which has impacted insurers hard. Water damage from one unit can readily spread across floors to numerous units, as is the case with multi-story structures, leading to a substantial insurance claim for the property. In addition to being more picky about what they would insure and raising rates, insurers are also raising deductibles in reaction to the continued financial losses brought on by paying out these types of claims. In the past, deductibles around $10,000 were typical. Buildings situated in locations vulnerable to flooding and water damage may now face deductibles of $100,000 or more.
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