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Chase Traffica 🔘
Chase Traffica 🔘
Vice President
Published Nov 20, 2023
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The commercial insurance market fluctuates between what are known as "hard markets" and "soft markets." The hard or soft designation refers to how difficult or easy it is to obtain commercial insurance coverage and at what price. Hard markets feature rising insurance rates, restricted underwriting, and less availability of coverage. Soft markets have stable or falling rates, relaxed underwriting standards, and readily available coverage.
A hard insurance market occurs when insurers aim to recoup losses from claims paid out during previous soft markets. Insurers raise rates, scrutinize risks more carefully, and limit the amount of exposure they will insure. This results in businesses facing higher premiums, more coverage restrictions, and even nonrenewal of policies. 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. However, soft markets eventually lead to insurer losses, prompting a turn back towards a hard market. This cycle usually occurs every 5-7 years.
For businesses, shifts from soft to hard markets can be jarring. Premiums may double or triple, forcing difficult budget decisions. Businesses may need to raise deductibles, trim coverage, or take on more risk through self-insurance. Those in high-risk industries can be hit especially hard and may lose coverage altogether. Businesses must prepare for fluctuating conditions in insurance markets.
While cycles between hard and soft markets are common in commercial insurance, overall the trends point towards harder markets. Growing losses from natural catastrophes, rising liability claims costs, and lower investment income for insurers are combining to make affordable coverage scarcer. Businesses should develop risk management strategies and maintain productive relationships with brokers to successfully navigate harder insurance markets.
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