If you talk to someone in the insurance industry long enough the terms ‘hard market’ and ‘soft market’ are bound to come up. Of course, they have nothing to do with places to shop – instead, they refer to the insurance market and what’s happening with pricing as it pertains to clients and the premiums they pay. Here’s a little knowledge for you for the next time you cross paths with an insurance professional:
‘Hard Market’. A hard market is characterized by two main issues: higher prices and tight underwriting guidelines. In a hard market, typically insurance companies are trying to recoup lost profits from “loosening the reins” just little too much during the soft market (read on) and now they are raising premiums, sometimes as must as 50% or more, to try and make it all back. These increases are typically taken at one lump sum to try and immediately reverse low profit or no profit quarters or years.
Also, underwriting reins have a tendency to tighten. From a personal lines perspective, maybe a company isn’t comfortable writing an older home (that they would have been willing to write during a soft market). From a commercial lines perspective, maybe a company isn’t comfortable with a certain class of business. Sorry contractors – often times you are the ones they focus on.
‘Soft Market’. Just as a hard market is characterized by high prices and tight underwriting guidelines, a soft market is distinguished by falling prices and loose underwriting guidelines. In a soft market, clients see lowering premiums every year, sometimes despite bad losses. In this market, insurance carriers are in a premium grab to bolster profitability, realizing that they perhaps tightened a little too much during the hard market.
One other thing to remember. We’ll call it the “rising tide raises all boats” rule. Maybe a carrier traveled through the soft market while still carrying nice profit margins. Like other industries, as pricing goes up, the profitable carrier would be remiss to not take the increase as well. That carrier may still be the low price, but perhaps not as low as they were in a soft market.
Where are we today? Most insurance pundits will tell you that we are emerging from a soft market and are on our way to a hardening market. We tend to agree.
Call us today if your premiums are rising more than what you think they ought to. We take pride in the carrier partnerships we have to “buck the trend” when it comes to hard and soft market forces.