Cycles of Insurance: Hard vs. Soft Markets
All trends experience the ebbs and flows of going in and out of style. Trust us when we say that if it’s true for your bellbottom jeans, it’s true for the insurance industry, too! While it may seem strange to consider, just like the fashion and automotive industry, the insurance industry too changes every two-ten years.
What changes are we talking about? After bottoming out in 2021/2013, the insurance industry is now facing a hard market, after eight years of a soft market. What does this mean for you? Check out the differences between a hard and a soft market, and what these changes mean, and what we can expect moving forward.
Hard Market vs. Soft Market
When it comes to insurance, a hard market is often characterized by the following:
- Higher premiums.
- Less competition amongst carriers.
- More demanding criteria for underwriting.
This is vastly different from a soft insurance market, which is often characterized by these traits:
- Lower premiums.
- More policies with higher limits.
- Increased competition amongst carriers.
.Why are we currently looking at a harder market, and what was the shift in the tide? These changes have been caused by a multitude of changes. The two most prominent being economic downturn, and the way of mother nature herself.
During the soft market phase, insurance industries were able to offer extremely low rates, causing carriers to rely on ROI to make the money that they needed. Since carriers are no longer making the income that they once had on investments, rates have escalated, contributing to a hard market.
Similarly, natural disasters across the globe have affected the insurance industry in a large way. Many high-level tornadoes tore through the Southeast and Midwest, flooding the East Coast. Hurricane Sandy impacted 24 states, including the entire eastern seaboard. Outside of the US, Japan had a record-breaking earthquake, a drought-hit East Africa, a major typhoon that hit the Philippines, and so on.
In addition, business insurance premiums have been affected by a decrease in revenue, and the laying off of employees, because of this decrease. Reducing their premiums, causing insurances to lose money.
The Future of Hard Market Insurance
When the insurance industry is in a hard market phase, the underwriting on policies gets more demanding, and harder for insurers to write. Underwriters are looking more closely at safety records, financials, and losses. For commercial insurance, this means that insurance carriers are now looking more into companies’ financial situation than they have in years past.
In addition, many insurers are now requiring a higher rate upon policy renewal. Rates vary from carrier to carrier, depending on the inherent risks of each business, their claim history, finances, and so on.
Have questions about hard vs. soft market, and how our current hard market is affecting you? We’re here to help! Speak with the insurance experts at Staples & Associates with any questions that you may have!