Expectations of Hard and Soft Markets

​In "Introduction to Hard and Soft Markets," we discussed the two insurance market conditions. Now, let's discuss how they affect your business.
 
During a soft market, Insurers focus on remaining viable and competitive. Because equity is high, they can write policies for a variety of businesses at lower premiums and offer higher coverage limits. A soft market means supply is higher than demand, and the insurer is more than likely exceeding their return on equity goal. While underwriters still look for outstanding accounts, they are more willing to bend "rules" to accept accounts with attributes that they would not normally consider during a hard market. Further, they are more likely to offer higher coverage limits for less than stellar accounts.
 
However, before COVID, the insurance industry was already in the beginning stages of a hard market. Several factors started this swing, such as a rise in cybercrime, nuclear verdicts, and constant catastrophic weather. At the same time, insurers had been writing risks they would not customarily entertain and issuing policies at low premiums. This situation will likely result in undesirable underwriting outcomes. Now, with COVID, insurers should expect decreased earned premiums from business closures, lost income and increased claims. As well, the financial market has become uncertain.
 
In a hard market, the demand for insurance is higher than the supply. During this time, it may not be easy finding the right coverage at the right price. If you need higher limits, you may need to look to several different insurers to obtain the coverage, which could result in higher premiums. Underwriters look to write the best of the best accounts, meaning no losses, excellent credit rating, business in operation for many years, excellent property conditions and exposures, etc. Suppose your business does not meet these criteria. In that case, your agent must rely on his or her relationship with a company and its underwriter. Further, you'll need to be open to making changes in your business to become more desirable.
 
Market Characteristics:

Soft market:

• Insurance coverage is readily available
• Underwriting is more relaxed and willing to negotiate
• Higher Coverage limits offered
• Premiums are lower
• Competition can be fierce

 
Hard market:

• Insurance coverage may be harder to obtain
• Underwriting is stricter, and negotiations are nearly nonexistent
• Coverage limits offered may be lower or not offered at all
• Premiums are higher
• Less competition

 
Maintaining insurance coverage during any market is possible. It's essential to establish a good working relationship with your agency and your insurance company. If you and your management team are open to company requests, your business will be seen in a more favorable light. The most significant attribute sought by underwriters is the management attitude. The more you are willing to control risk, the better. Accidents happen, but the more eager you are to take precautions to prevent them, the more desirable your business is to an underwriter during any market cycle.
 
All market conditions are challenging for any business to navigate. Searching for the best coverage at the best price can be tricky, so it's important to contact an insurance professional to discuss your business's insurance needs.
 


COPYRIGHT: Insurance Publishing Plus, Inc., 2021