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Soft vs Hard Insurance Market

What is a soft and hard insurance market anyways?  In the most simplest terms, a soft insurance market means that rates are steady or decreasing year over year, while a hard market means that rates are increasing.  Insurance is an interesting industry, and contrary to what people believe, it doesn’t always coincide with the stock market.  There are other factors at play.  In my 15 years in this business, I still haven’t seen a hard market, I can only convey what was retold to me by fellow underwriters back in the early 2000’s.

In the early 2000’s the economy was dealing with several significant world events.  There was the dot-com bubble that burst, 9/11 occurred, and this was followed by the way in Iraq.  Insurance industry was dealing with some aftermath from all of this, there were large legal payouts, some insurance carriers went bankrupt, and less capacity being made available.  As a result from all of this, insurance became exceptionally hard, especially, the medical malpractice arena.  Underwriting was significantly restricted.  Companies that might have been paying $50,000 per year for their insurance were now paying more than $100,000, rates effectively doubled.  Deductibles increased for all insureds.  Underwriters became more restrictive with their underwriting appetite and with offering certain coverages on their policy.  Some industries might have only had two carriers available to underwrite them.  If one market declined to quote, the policyholder was at the mercy of the only other carrier being able to consider them.  In some extreme circumstances, medical offices left some tough legal venues such as Philadelphia or Cook County, and healthcare practitioners physically relocated their medical practices.

Over the next several years, more and more capacity became apparent.  Re-investment in the insurance industry started to occur, carriers could capitalize on writing healthy premiums while also receiving a strong return on their investments each year.  As more and more carriers entered the space, rates naturally went down.  Deductibles decreased, and coverage expanded.  Some carriers began to offer coverage enhancements for various things like Cyber Liability, which effectively became throw-ins to attract more business.

Several weather events such as Sandy, Irma, Tsunamis in Japan caused tremendous pressure on the industry.  But just as there became talks of cooling the industry into a market hardening, what resulted were mere 5%-10% rate increases.  To date, there are some select industries experiencing pockets of rate hardening, those would be the Commercial Auto Insurance sector, Nursing Home sector, and a handful of others, but it appears an industry wide, systematic market hardening is not on the horizon.

Hard Market:

  • Increasing Rates
  • Higher Deductibles
  • Restrictive Coverage
  • Limited Carrier Selection

Soft Market:

  • Decreasing Rates
  • Favorable Retentions
  • Broad Coverage w/ Enhancements
  • Multiple Carrier Offerings