We are experiencing a time like no other. The world feels very unpredictable and everyone is on edge waiting patiently for things to get better soon. During this time of uncertainty, businesses have been forced to evolve and change, some for the better, some for the worse. Unfortunately, what this means in the world of insurance, is that we have now arrived in a “hard market.” So what does that mean?
A hard market is simply derived from supply and demand. When the cost in claims, over a period of time, continually surpass the premiums collected, insurance companies are forced to review their portfolio and change their business model. They may reduce their business appetite, make restrictions or increase their rates for example. When multiple insurance companies across the country start to make these changes, we arrive at this hard market. Higher risk business will become more difficult to write as less insurance companies are willing to insure them, and the ones that do write the business charge dearly for it. This means that the rates for even the good insurance business go up, because they need to help subsidize for the bad risks that they are continuing to insure. If your thoughts are as a consumer for them to “cancel the higher risks and that’ll solve the problem.” Well that is the tipping point of what is happening right now in the hospitality industry and condo associations.
What I mean by insurance carriers reducing business appetite, is that they can change the types of products they sell or cancel them entirely. This is what has hit the condo associations and the hospitality industry greatly this past year. Restaurants, hotels, pubs have all been hit hard. They have been forced to close, reduce capacity, create dividers, and now they are hit with higher premiums or restrictions. If they canceled their policy during the shut-down, most insurance carriers refused to re-write the business upon re-opening or they charged 500% what they were paying pre-covid.
Condo associations continue to have a high volume of claims in Ontario and BC, which then has created a change in minimum deductibles or rate hikes. Condo Unit Owners might have received a notification that they now need to carry a $50,000 or higher deductible buy-down coverage on their insurance. This is because the insurance carried on the building is being forced to carry a higher deductible based on restrictions or to reduce the premium increase.
Some insurance companies have removed product lines altogether. For example, one carrier used to write Home, Auto, Farm & Commercial business. As of 2021, they have now reduced their book to simply “Home.” That is it! As a broker, we are now required to find insurance for the Farms, Auto and Commercial businesses that were previously insured by that carrier. It puts pressure on us to find a market that wants that product and try to find a rate that is competitive to the one they previously had (which as you guessed is hard to accomplish in these conditions).
With these difficulties arising, it has become difficult to find certain insurance products for clients with no claims. Now imagine if you’ve have a claim or two on your record. This now becomes a whole lot more difficult. This is typically where changes or restrictions to your policy occur.
It is best to stick with an insurance company you have been with for a while to develop loyalty with that company. Strong relationships are key in the world of insurance. If you continuously shop around and bounce from company to company during a hard market, it can create problems for you down the road if you have a claim.
Don’t hear what I’m not saying, it is important to keep a pulse on your insurance and know what you are paying and if that is the ‘norm’ or not. You don’t need to overpay just to stay loyal, but what I am saying is if you are bouncing from company to company to save $50 or $100 per year, it might come back to haunt you if you have a $50,000 sewer backup claim and you’ve only been with the company for 6 months. They will pay for your claim, but you might not be able to renew your policy OR the rate will jump significantly OR your deductible will be bumped up to 5k OR you may not find another insurance company to move your business to!
“You’re an insurance company, why are you telling me this?”
At Mello, we believe in truth and transparency. We want our customers to feel like we have their back and that we will fight for them. That is why we wish to explain what is important even if preaching loyalty results in a loss of a sale, we want people to be educated and make the best decision for them.
Our reputation is built on the principles of honesty and integrity. We want to help our customers and support them, especially when times are tough, like they are right now.