Hard vs. Soft Insurance Markets: How Insurance Cycles Affect Your Rates
If you have noticed your insurance premiums increasing even though you have not had a claim, the reason may have less to do with you and more to do with the insurance market as a whole.
Insurance operates in cycles. At different points in that cycle, insurance companies may become more aggressive about competing for business or more selective about the risks they are willing to insure. These periods are commonly referred to as a soft insurance market and a hard insurance market.
Understanding the difference can help explain why your insurance rates, coverage options, deductibles, and even the number of insurance companies willing to quote your account can change from one year to the next.
What Is a Soft Insurance Market?
A soft insurance market generally occurs when insurance companies have plenty of capacity and are competing aggressively for new customers.
During a soft market, consumers and businesses may see:
More insurance companies competing for their business
Lower or more competitive insurance premiums
Broader coverage options
Lower deductibles
Greater flexibility in underwriting
More favorable policy terms
Increased competition at renewal
For consumers, a soft market can create more opportunities to shop for better pricing or improved coverage.
For businesses, particularly larger commercial accounts, insurers may also be more willing to provide coverage for industries or exposures they would otherwise approach cautiously.
What Is a Hard Insurance Market?
A hard insurance market is essentially the opposite.
During a hard market, insurance companies become more selective about the risks they insure and may increase rates in an effort to improve underwriting profitability.
Consumers may experience:
Higher insurance premiums
Fewer companies willing to provide quotes
Stricter underwriting requirements
Higher deductibles
Reduced coverage options
New exclusions or coverage restrictions
Lower limits offered by some carriers
Increased scrutiny of prior claims
A business that previously received quotes from several insurance companies, for example, may find that only a few carriers are interested in providing coverage during a hard market.
Homeowners can experience the same thing. Insurance companies may tighten their requirements regarding roof age, property condition, location, prior claims, or other characteristics.
Why Does the Insurance Market Change?
Insurance companies collect premiums from many policyholders and use those funds to pay claims. When claim costs increase significantly, insurers eventually have to adjust their pricing and underwriting.
Several factors can contribute to a harder insurance market, including:
Increased Claim Costs
The cost of repairing homes, vehicles, and commercial property can increase because of higher material and labor costs.
Medical expenses and litigation costs can also affect liability and auto insurance claims.
Severe Weather and Catastrophes
Hurricanes, tornadoes, hailstorms, wildfires, floods, and other catastrophic events can generate billions of dollars in insured losses.
Even if your individual property has never experienced a major loss, widespread claims can affect insurance pricing across an entire state or region.
Reinsurance Costs
Insurance companies purchase their own insurance, known as reinsurance, to help protect themselves against large losses.
When reinsurance becomes more expensive or difficult to obtain, those increased costs can eventually affect the premiums consumers pay.
Insurance Company Profitability
Insurance carriers regularly evaluate the profitability of different states, industries, types of coverage, and classes of business.
If an insurance company experiences poor results in a particular segment, it may increase rates, reduce coverage, tighten underwriting guidelines, or stop writing certain types of business altogether.
How a Hard Insurance Market Affects Consumers
One of the most frustrating parts of a hard market is that premiums can increase even when you have done everything right.
You may have:
No claims
No tickets or accidents
No major changes to your property
No significant change in your business operations
...and still receive a higher renewal premium.
Insurance pricing is based on both your individual risk and the overall performance of the insurance company's book of business.
That is why a good loss history is important, but it does not completely insulate a policyholder from broader insurance market conditions.
How Insurance Market Cycles Affect Businesses
Commercial insurance can be particularly sensitive to changes in the insurance cycle.
Contractors, manufacturers, property owners, transportation companies, and other businesses may experience significant changes in:
General liability rates
Commercial auto premiums
Workers compensation premiums
Property insurance rates
Umbrella and excess liability pricing
Available insurance limits
Carrier appetite
For some businesses, the bigger issue may not even be price. It may be availability.
Certain insurance companies may temporarily stop writing a particular class of business, geographic area, or type of property. That can reduce competition and make it more difficult to find comparable coverage.
This is one reason businesses should look beyond premium alone when evaluating an insurance program.
What Can You Do During a Hard Insurance Market?
Review Your Coverage
A renewal is a good opportunity to review your current limits, deductibles, property values, vehicles, payroll, sales, and other insurance exposures.
You do not want to pay for coverage you no longer need, but you also do not want to reduce important protection simply to lower the premium.
Maintain a Strong Loss History
Claims are sometimes unavoidable, but strong risk management can make your account more attractive to insurance companies.
For businesses, this can include employee safety programs, driver screening, contractual risk transfer, property maintenance, and documented loss-control procedures.
Start the Renewal Process Early
Complicated commercial insurance accounts should not wait until the last minute.
Starting early gives your insurance agent more time to review the account, gather accurate information, approach appropriate insurance companies, and negotiate coverage and pricing.
Consider Different Deductibles
Increasing a deductible can sometimes reduce your premium, although the savings should always be weighed against the additional amount you would be responsible for after a claim.
Work With an Independent Insurance Agent
An independent insurance agency can work with multiple insurance companies rather than representing only one carrier.
This becomes particularly valuable when insurance company appetites are changing.
The lowest-priced insurer one year may not remain the best option the following year. Sometimes the right decision is to move the policy. Other times, keeping coverage with the existing carrier is the better option after considering pricing, coverage, claims history, and long-term stability.
Why Shopping Insurance Does Not Always Mean Changing Companies
It is easy to assume that an insurance agent should simply move your policy whenever the premium increases.
In practice, insurance should be evaluated more carefully.
A competing policy may look cheaper but include:
Higher deductibles
Lower limits
Different exclusions
Reduced endorsements
Less favorable coverage terms
Different valuation provisions
A meaningful insurance comparison should look at both price and coverage.
Sometimes remarketing confirms that your existing insurance company is still offering a competitive program. In other situations, another carrier may provide a meaningful improvement.
The important part is knowing the difference.
Insurance Markets Will Continue to Change
Hard and soft insurance markets are a normal part of the insurance industry.
Eventually, improving underwriting results and increased competition can cause insurance markets to soften again. Likewise, periods of aggressive pricing can eventually be followed by tighter underwriting and higher rates.
For consumers and business owners, the goal should not be trying to predict exactly when the market will change.
The goal is to maintain a well-structured insurance program and work with an agency that can evaluate your options as conditions change.
Let Us Review Your Insurance
At Filkins Colbert & Associates, we are an independent insurance agency serving individuals and businesses in Marietta, Georgia and beyond.
Since 1973, our agency has helped clients navigate changing insurance markets by evaluating coverage, comparing options from multiple insurance companies, and helping clients understand what they are actually purchasing.
Whether you need business insurance, contractors insurance, commercial auto insurance, general liability insurance, homeowners insurance, or auto insurance, our team can review your current program and help determine what options are available.
Contact Filkins Colbert & Associates to request an insurance review or quote.
