From an insurance buyer’s perspective, it can sometimes feel as if premium prices change on a whim. But the truth is that the insurance market is cyclical in nature, fluctuating between soft and hard markets:
Soft markets – A soft market, which is sometimes called a buyer’s market, is characterized by stable premiums, broader terms of coverage, increased capacity, higher available limits and competition among insurance carriers for new business.
Hard markets – A hard market, which is sometimes called a seller’s market, is characterized by increased premiums, diminished underwriting appetite and capacity, restricted coverage and less competition among insurance carriers for new business.
While many insurance buyers have enjoyed a soft market for years, the market is hardening. As a result, business leaders now face tough choices regarding their insurance, making it all the more important for them to understand what to expect in a hardening market and how to respond effectively.
A number of different factors affect insurance pricing, but the following are common contributors to the hardening market:
– Catastrophic Losses
– Claims Costs
– Underwriting Standards
– Investments Returns
What to Expect in a Hard Market and How to Respond
Even the most prepared organizations will have to adapt to the hard market, and businesses can expect to face:
– Higher premiums
– Increased scrutiny when it comes to underwriting
– Coverage restrictions
– Conditional or non-renewal notices
Put simply, during a hard market, insurance buyers may face difficult decisions regarding their insurance coverage. Thankfully, however, businesses are not without recourse in the face of a hard market. The following are some strategies to consider to help navigate shifts in the market:
– Review your insurance program
– Bolster your risk management efforts where possible
– Know your loss history
– Budget wisely and plan ahead
– Work with the right insurance broker
– Communicate with your broker early and often to determine how the hard market will affect your business
Business owners who proactively address risk, control losses and manage exposures will be better prepared for a hardening market than those who do not. Work with your broker now to prepare your business for changes down the road. Contact Field-Waldo Insurance Agencies, Inc. today to get started.