Why Are My Insurance Premiums Rising?

Author: Kyle Muscat

What is a Hard Insurance Market?

You’ve likely heard your insurance broker refer to the term “hard market” during renewal discussions, but what does this really mean?

Similar to most other industries the insurance market is cyclical, defined by cycles of contraction and expansion. In a period of contraction, we often observe a curtailment in insurance availability; characterized by reductions in terms and capacity offered, more stringent underwriting criteria and most notably, a firming of insurance rates.

The onset of the hardening insurance marketplace in Canada began back in 2019 off the tailwinds of the prolonged soft market cycle. This preceding expansionary period was characterized by flexible underwriting, competitive terms and an abundance of capacity for most risk classes.

What factors contributed to this hard insurance market?

Canada offers a robust insurance marketplace, comprised of both licensed domestic and global industry players. And while it is difficult to pin the current market conditions on any one single factor, we can look to both the increased frequency of weather-related catastrophes and the low interest rate environment as likely contributors; accelerating this contractionary market cycle.

Canadian Catastrophes:

Over the past decade, insurers have been forced to shoulder an increasing prevalence of ever larger weather-related catastrophes. In fact, 8 of the top 10 highest insured loss years in Canadian history have occurred since 2011. While most of these events seem to fly under the radar, you may remember the 2013 Alberta and Greater Toronto floods ($3.4B), 2015 Fort McMurray forest fires ($3.8B) and most recently, the June 13th 2020 Calgary hailstorms ($1.3B). This observed increase in both the frequency and severity of weather-related catastrophes is not exclusive to Canada. Global events such as the Japanese typhoon Hagibis and the record-breaking 2020 Atlantic hurricane season have other major jurisdictions such as the U.S, U.K and mainland Europe operating under concurrent “hard market” conditions.

Reinsurance Pricing, Terms & Conditions:

Simply put, reinsurance can be defined as insurance for insurance companies. Almost all Canadian insurers rely on reinsurance in some dimension to smooth out earnings and protect their balance sheets from volatility.

During this past renewal, Canadian insurers were faced with increased costs of reinsurance and a tightening of terms and conditions offered. The hardening of the (re)insurance marketplace can be attributed to the global uptick in weather-related catastrophes, further compounded by the COVID-19 pandemic and subsequent decline of equitiy markets. Preliminary global insured loss estimates from COVID-19 range anywhere from $30B to $100B USD.

Natural Market Evolution:

As noted earlier, market expansion and contraction are natural components of the cyclical insurance marketplace. Although Canadian insurers maintain sub-100% combined ratios, the advent of this low interest rate environment has put additional pressure on insurer profitability. As a result, these highly competitive and soft market conditions have resulted in a necessary market correction. Insurers are now acting quick and diligently to achieve rate adequacy across their portfolios.

As a business owner, how will the hard market impact my insurance renewal?

Generally speaking, we would suggest clients can expect a +5% to +15% risk-adjusted rate increase across most standard lines of business this renewal. Highly specialized and troubled classes of business may be subjected to greater rating pressure, although this is highly dependent upon the unique circumstances of one’s operations. Factors such as an individual company’s loss history, overall industry segment performance and changes in market appetites are all to be considered.

How long will this “hard market” last?

Although we now find ourselves in the “hardening market” cycle, history would suggest that this corrective period will last between 2-4 years. With the onset of this market contraction back in 2019, we expect the pendulum to swing back by mid-to-late 2022.


We now find ourselves in the midst of a hardening insurance marketplace. Something that has not been seen in almost two decades. While this market cycle is sure to pass, insurers are taking this opportunity to correctively increase rates while systematically purging underperforming risks from their portfolios. Now more than ever, it is essential that companies work with a creative and experienced broker to help navigate this tumultuous marketplace.

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