What is the hard market and how to navigate it successfully?

A constant prediction for 2021 in insurance is market tightening, but what does this mean? In the insurance industry, we know as market hardening, or hard market, the process in which conditions become stricter for policyholders, there is less risk tolerance, more expensive premiums and more rigid acceptance criteria. At first glance, this does not sound very pleasant, but let's see why it happens.

Typically, an insurer operates with funds that come from premium payments and interest earned on various investments. When the economy is strong, the market is "soft", there is more interest in attracting clients and the selection criteria tend to be more lax, as expansion is sought. Faced with a crisis like the one we have been going through since 2020, it would seem opportunistic for insurers to take a tough stance, but in reality it is a response to maintain the capacity to support those who are already insured, instead of trying to expand the client portfolio. It is a cycle, in the end there is a balance generated between the selectivity of criteria and the price paid for the insurance.

What should be done in this scenario?

The best idea is to approach your insurance advisor and together come up with a viable scheme in this new context. It is advisable to evaluate which risks are a priority, since many conditions have changed from one year to the present and it is possible that some have lost importance or new ones have emerged. For example, the main threats that the Mexican Association of Insurance Institutions detects for this year are: cyber attacks, natural disasters, vandalism and pandemic-related damages.

In scenarios of this type, a tailor-made plan is preferable, designed with specialists who know your industry and can offer something realistic. It is essential to communicate openly, rely on objective data and foresee the renovation with enough time to cover every detail according to the new conditions.

At Fidex we provide asset protection solutions for companies looking for a flexible and customized service. Contact us to learn about the options that best suit your business.