More expensive premiums, higher excesses and narrower coverage are set to become an insurance reality for many Australian businesses. Here’s how SMB’s can prepare for a hardening market.

Australian businesses have benefited from a soft insurance market for some years now, but it’s time to prepare for a change.

We spoke with Steadfast Broker Technical Manager, Michael White about the cyclical nature of the market, the factors that drive it and how you can prepare for a harder market.

What is a hard or soft insurance market?

The nature of the market is driven by the availability of insurance , explains White.

“If there’s a lot of capital coming into the insurance market, it’s easier to get cover – so in a soft market insurers will chase business,” he says.

A soft market can therefore mean lower insurance premiums, discounts, broader coverage, smaller excesses,  narrow exclusions and insurers writing more policies with higher limits.

A hard market, on the other hand, is experienced when there is a decreased availability of insurance capital.

With decreased availability can come higher premiums, lower policy limits, bigger excesses, wider exclusions, narrower policy coverage and less competition between insurers.

Which pockets are hardening?

Certain parts of the Australian insurance market are showing signs of hardening already.

“We’re certainly seeing insurers not supporting certain kinds of risks such as for directors and officers generally, but in particular, D&O Side-C coverage for investor claims,” says White, referring to products that protect companies from claims made against it and its directors and officers.

High-risk property is also becoming harder to place.

“These are property risks where they have a lot of issues around the building – buildings that are unoccupied, poorly maintained or generally in a distressed condition,” White says.

Professions and businesses with a history of losses are also likely to find it harder to secure the kind of coverage they’re seeking, White adds.

“The two main ways you can take advantage of a soft market are through locking in savings on premiums and excesses, or by securing higher policy limits or broader cover now if you will need it later”

Taking advantage of a soft market

The two main ways you can take advantage of a soft market are through locking in savings on premiums and excesses, or by securing higher policy limits or broader cover now if you will need it later.

“For example, if you have cover for $5 million and you know you are soon going to need it expanded to $10 million, it may be easier to get now and cheaper in the long run,” White says.

Your insurance broker may also be able to lock in future renewals on a favourable basis.