The Hard Market Explained

The market for insurance is cyclical.  It fluctuates between the soft market (when premiums hold steady or decrease) and the hard market (when rates increase and coverage is harder to find.)

During the soft market, a lot of insurance companies will offer lower rates to try to expand their market share.  This is the ideal time to “shop around” or strategically negotiate with an incumbent insurer to get the best price.  As more and more companies move their business to insurance carriers with lower rates, the profits for the insurance industry as a whole goes down.  This reduces carriers’ ability to continue going after new business, and causes the market to start hardening.

During the hard market, the market is less competitive, and underwriters adhere to stricter standards.  It can be difficult to find options for insurance, and as a result, rates go up.

Our role as your broker in a hard market

The role of brokers in all of this is to help you navigate the insurance market, whether it’s hard or soft.  We help keep you informed of your rights and responsibilities as it related to your insurance policies and go over the options you have.

With access to an array of markets, and we act as your advocate to get you the best rate, whatever the market conditions are.   We work to present the best “story” of your risk to drive competition between the insurance carriers to motivate them to offer their best rate to your company.   

Our job is to represent your interests by distinguishing insurers across financial strength, coverage breadth and service quality.  Regardless of market condition, there may be insurers who "low ball" price to attract business, but whose financial condition may be relatively poor, coverage less broad, and service quality inferior.  We keep you informed so that you can make the best buying decision for your business. 

Is the hard market here?

The property casualty market has been in a soft state for about the past seven years.  For the past couple of years, people have been predicting the market will harden, but that hasn’t been the case.  Now, after much speculation, the market is starting to lean toward a hard cycle.

In addition to the typical market cycles, a number of other things play into the cost of property casualty insurance that may be affecting prices right now:

1. Weather – when there are years with multiple natural disasters, insurance companies experience higher than usual losses, which can drive cots up.  Even things like a higher frequency of thunderstorms can add up in terms of claims.
2. Interest rates - insurers often offset underwriting losses with investment income in order to generate profitable results.  When interest rates are relatively low like they have been recently, investment income declines, which in turn causes upward pressure on rates in order to make a profit. 
3. The recession – as individuals and governments cut costs, some neglect necessary maintenance on properties, roads, and vehicles.  This can result in additional damages that drive up the cost of claims.
4. Increases in hiring – as the recession begins to improve and employers add people to their payroll, this increases the risk to businesses and can impact premiums.
5. Increased health care costs – medical work comp costs have skyrocketed, bringing up the cost of claims.  

What you can do to get the best rate in a hard market

You should discuss your options with your Relationship Manager or Account Manager to determine what makes the most sense for you, but to get the best rate in a hard market (or in any market for that matter) look at doing things like:

• Increase your deductible
• Beef up your safety program
• Create an early-return-to-work program for work comp claimants
• Look for other expense areas to cut

 For more information on tactics for getting the best insurance rate, check out our whitepaper, Taking Control:  The Seven Steps to Surviving in Any Market.

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