Like all markets, the insurance market is subject to cyclical changes. These cycles are referred to as soft markets (where prices are cheaper and cover is more readily available) and hard markets (where the opposite is the case).
At the present time, the insurance market is in a hardening phase. There are several reasons for this. One of the main ones is low interest rates, as this reduces the returns on investments and leads to insurers being less able to prop up any unprofitable results.
Other factors feeding into market hardening include higher numbers of catastrophes and losses, and increased litigation and legal decisions.
Current conditions
There are several occurrences that have led to the hardening of the insurance market in 2020:
- Very low interest rates.
- Greater number of disasters. According to APRA, disasters in Australia (e.g. bushfires) are projected to result in losses of $5 billion.
- Litigation and legal decisions – such as the Takata airbag and Commonwealth Bank securities class actions.
These factors resulted in increases of up to 25% in the reinsurance market during the second half of 2019, and in turn higher premiums for customers.
The general consensus within the industry is that these trends don’t look like softening any time soon. So we can expect to see rising insurance prices for a considerable time to come.