Between a Rock and a ‘Hard’ Insurance Market (2024)

FAQs

What is the difference between a hard market and a soft market insurance? ›

Hard markets can last anywhere from 2-5 years before the market shifts again. During a soft insurance market, insurers compete fiercely for business. They offer lower rates, relaxed underwriting, and excess capacity. Businesses can obtain broader coverage, lower premiums, and negotiate more favorable terms.

A hard market is the upswing in the insurance market cycle, when premiums increase, coverage terms are restricted, and capacity for most types of insurance decreases.

THE HARD MARKET CONTINUES

In fact, some high-quality risks may actually see minor rate decreases by late 2022. This year, primary and lead umbrella markets will continue to work together to cover the primary because when the same company holds both and handles incoming claims, excess often performs better.

Trends in the Hardening Commercial Lines Market:

In recent years, the commercial lines insurance market has witnessed a shift towards a harder market environment. Several factors contribute to this trend, including an increase in catastrophic events, rising claims costs, low investment returns, and regulatory changes.

A soft market, which is sometimes called a buyer's market, is characterized by stable or even lowering premiums, broader terms of coverage, increased capacity, higher available limits of liability, easier access to excess layers of liability and competition among insurance carriers for new business.

A soft market is a market that has more potential sellers than buyers. The term soft market is most frequently applied to the insurance industry, where it can also be contrasted to a hard market. The term can also be applied to other markets where a lack of buyers relative to sellers puts downward pressure on prices.

While most experts agree that the industry has been in a soft market in recent years, there is less agreement about when the last hard market was. Some experts say it was 15 years ago; others say it was more recent, only four or five years ago.

As we venture into the new year, it's evident the challenges posed by the Hard Insurance Market trend of 2023 are persisting in 2024.

Executive Life Insurance Company (1991) - One of the largest life insurance companies in the US, it went bankrupt due to investment losses in junk bonds.

What is the outlook for property insurance in 2024? ›

Rate increase, capacity improvement variations

Alera Group's recent P&C Market Outlook shows that prices will continue to go up in 2024, with most lines of business likely to experience a 1%-10% increase.

The property insurance sector is under heavy pressure from poor financial performance due to unexpectedly high inflation, a shift of exposures to higher-risk areas, and rising reinsurance costs.

They typically occur in response to major external events that increase the insurers' risk exposure and reduce their profitability. One of the earliest recorded instances of a hard insurance market occurred in the wake of the Great Fire of London in 1666.

Talent shortages and workforce challenges

The quality of an insurance company's workforce impacts its capacity to grow, adapt to changing markets, and provide exemplary customer service. Post-COVID has presented all organizations with talent shortages, and the insurance industry is no exception.

Hard markets, characterized by high premiums and deductibles as well as stricter terms, will continue to plague risk managers this year, with property presenting bigger challenges than casualty. Insurers accelerated price increases a few years ago when inflation broadly began to increase rapidly.

The insurance industry is cyclical, and each cycle can span several years. We are currently in what is known as a “Hard Market.” In a Hard Market, there is high demand for insurance coverage but a low appetite to insure. This low appetite generally comes from capacity constraints.

The first focuses on property/casualty insurance such as auto, home, and commercial insurance. The second focuses on life and annuity insurance. The third is public and/or private health insurance.