For several years, claim payouts have exceeded what insurers have earned. An insurance company’s earnings and investments affect its solvency and credit rating. As finances tighten, insurers are closely examining their portfolios for clients at high risk for costly claims.
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Sticker shock and revolving risk are the new normal.
Extreme weather, cyberattacks, supply chain interruptions, worker shortages, wars and inflation continue to rattle the insurance market. It’s like the classic “I Love Lucy” scene where Lucy works on an assembly line in a candy factory. As the conveyor belt speeds up, she starts cramming candies into her mouth to keep the line moving. Insurance companies are in a similar predicament, scrambling to keep pace with a growing number of catastrophic losses that total billions of dollars in damages.
The aftermath is a hard market. A hard market is when insurers tighten their underwriting standards and increase premiums due to high claim payouts and low profitability.
What does a hard market mean for your business?
Part of it depends on what your business does, how risky your operations are and how likely you are to file a claim. The other part depends on how many insurance companies are willing to take on your risk and at what cost.
Events shape the cost of insurance premiums
In response, some raise premiums to offset losses. Others exit markets altogether or decline to renew existing policies.
A hard market means competition and high prices
The insurance industry is experiencing high-value and high-volume claims, from property damage and liability lawsuits to cyberattacks. Insurers are defending clients in court while reassessing their appetite for risk.
While the courts are busy interpreting the meaning of insurance policies, the insurance companies are refining their policy language and exclusions to limit the risk they’re willing to absorb.
Insurance isn’t for financial inconvenience; it’s for financial catastrophe. A comprehensive insurance program designed by an insurance advisor can aid in mitigating potential hardships experienced by covered losses; it can be the difference between resiliency and bankruptcy.
Extreme weather impacts premiums
Hurricanes, floods and wildfires are increasing in both frequency and intensity, leaving insurers little time to recover between events.
For example, if your retail store is hit by a tornado, you’ll face competition for construction teams and inflated costs. Your property policy may cover structural damage, while business interruption insurance might begin after a 72-hour window to cover lost income, payroll and loan payments. Without insurance, these costs could force closure.
Extreme weather causes physical damage, downtime, lawsuits and lost income. All of these factors drive up the cost of insurance claims, pushing premiums higher.
Inflation plays a role
When inflation rises, so do insurance premiums. It costs more to repair, replace and respond to claims — whether physical property, medical costs or cyber liability. To stay solvent, insurers must collect more to cover these rising expenses.
Social inflation’s effect on the insurance market
Social inflation is the talk of many agents and lawyers because it’s a driving factor in increased insurance costs.
Social inflation refers to the rising cost of litigation, a widening lens on liability and jury verdicts resulting in higher awards. For instance, some lawsuits have fetched jury verdicts of over $10 million. These “nuclear verdicts” have only exacerbated the hardening market. More plaintiffs are going to trial or countering rather than accepting initial insurance settlement offers.
In the case of insurance, paying it forward means passing higher costs to the consumer.
Supply chains and risk exposure
Global supply chains are significant business detractors. Shipping container shortages, international gridlocks, accidents, wars, cyberattacks and tariffs have created ripples in the supply chain and the insurance industry. Understanding your supply chain and planning alternatives can reduce your exposure to loss and disruption and help you maintain insurability.
New technology can create both solutions and liabilities
Businesses with robust cybersecurity programs can qualify for discounts on cyber liability insurance. You might need to increase your cybersecurity to land better rates.
However, artificial intelligence (AI) could lead to another cyber liability price hike while insurance companies grapple with insured losses associated with AI tools. As AI integrates into workflows across industries, professional and cyber liability increases. AI tools can analyze vast amounts of data to predict future trends and risks. AI chatbots and 24/7 support help with the processes.
On the contrary, AI raises privacy and cybersecurity concerns. AI tools are only as good as their training data and intended use. Biased, inaccurate, or incomplete data can lead to misguided decisions. AI can strengthen cybersecurity defenses. It can also turn a lone cyberattacker into a dangerous threat.
Unchecked use of AI tools may lead to more lawsuits, regulatory penalties, injury, and property and reputational damage if incorrectly handled. Ethical training, operation, and cybersecurity are vital to AI tool integration.
What types of insurance are affected?
According to Risk & Insurance magazine, the main types of insurance that remain firmly in a hard market are:
Commercial auto covers vehicles you use for business. Inexperienced drivers and driver shortages contribute to increased accidents. Nuclear verdicts and the cost of repairing vehicles are other major issues. Security features, regular maintenance and employee safety training can help prevent accidents. Ask about discounts for telematics, safe driving, secure parking and antitheft systems. A higher deductible can also lower your overall premiums.
Commercial property protects your building and business personal property. Catastrophic weather has decimated some areas. Maintaining your property can greatly aid in mitigating losses and combating rising rates. Protections like security and fire mitigation systems may even offer discounts to your policy. Your advisor can work with you to verify your business has the proper coverage, appropriate deductibles and applicable discounts.
If you’re worried about insurance costs, your advisor can review your business risk exposure and help you with a plan to reduce your property or auto liability exposures.
Traditional market alternatives and supplements: Excess and surplus insurance
Once seen as a last resort, excess and surplus (E&S) insurance carriers are becoming mainstream as risks evolve.
Traditional “admitted” carriers are regulated by the state and backed by state guaranty funds in case of insolvency. In contrast, E&S carriers are “non-admitted” — they can set their own prices and coverage terms but are not financially backed by the state.
This flexibility makes E&S attractive for high-risk businesses or those in disaster-prone regions. It’s a growing solution for industries like construction, manufacturing and those with complex liability needs.
We’re your secret weapon in a hard market
Independent agencies, like Bravera Insurance, serve your best interests, not the insurance carrier’s. Going it alone or rolling the dice on a do-it-yourself policy won’t get you a personalized approach. The cheapest policy is tempting but can have more exclusions and limitations. What’s the point in insurance that isn’t right for your liability exposures?
Even in a hard market, we’ll search for insurance that fits your needs and budget.
We know which insurance companies are poised to take on your industry’s risk and which aren’t worth trying.
We’re not tied to one carrier, either. Most businesses have more than one insurance carrier for different risks. Some offer competitive pricing on commercial auto rates but not commercial property. We’ll build a customized and comprehensive insurance portfolio that leverages different carriers and policies to meet the unique needs of your business.
We can assist with an imperfect claims history
Even if your claims record shows a few bumps, we’ll work to find the best coverage options for you. While you might face higher premiums or consider a carrier that specializes in higher risk, we’ll still actively market your business to insurers. For example, if you’ve had high vehicle claims in the past but have implemented a successful employee drivers safety training program, we’ll highlight these improvements to underwriters. Showing that you’re taking steps to reduce risk can make your business more appealing to insurance companies.
We’ll take the time to assess your unique risks and explore multiple options to ensure you get the best coverage available.
Prior to your renewal date, we’ll take a fresh look at your current policy, considering your evolving business risks and our carrier appetite. We'll explore options and collaborate on the best solutions for you. Together, we’ll balance what you can afford to pay out-of-pocket (self-insure) against the catastrophic risks that could impact your budget. One option might be adjusting your deductible for increased coverage, but we’ll guide you through all available strategies. Beyond pricing, we’ll also highlight the added value our agency provides to ensure you're receiving comprehensive support.
Questions about insurance?
Contact one of our insurance advisors by calling 800-225-9104 or by contacting us online. You can also request a review online.
Bravera Insurance has locations throughout North Dakota and Montana. We are licensed in 38 states with multiple areas of expertise.
Bravera Insurance is an equal opportunity provider. Products and services offered through Bravera Insurance are: * Not a deposit * Not FDIC insured * Not insured by any federal government agency * Not financial institution guaranteed