Hard market and soft market: how should you respond to the insurance industry’s underwriting cycle.

Your insurance premium has gone up a lot because the commercial insurance market is hardening. This deceptively simple explanation reflects a peculiar phenomenon of the insurance industry. This article can briefly explain this phenomenon and how you, as an entrepreneur, should deal with it.

The underwriting cycle refers to the phenomenon that the underwriting ability and underwriting profit fluctuates periodically and regularly as time goes by. The underwriting cycle usually lasts from 2 – 10 years. In the past five years, severe natural disasters frequently occurred around the world, and they were even more acute in 2019. Plus, with the global outbreak of COVID-19, it has accelerated the hard insurance markets’ return.

Hard market vs. a Soft market

You may better understand insurance hard and soft markets by looking at their characteristics.

Soft market

  • Lower insurance premiums
  • Broader coverage
  • Relaxed underwriting criteria, which means underwriting is easier
  • Increased capacity, which means insurance carriers write more policies and higher limits
  • Increased competition among insurance carriers.

On the other hand, the characteristics of a hard market include:

  • Higher insurance premiums
  • More stringent underwriting criteria, which means underwriting is more difficult
  • Reduced capacity, which means insurance carriers write fewer insurance policies
  • Less competition among insurance carriers.

What can you do when you are in the hard market cycle?

  1. Shop around in insurance market 90 days before your renewal date;
  2. Looking for customized programs design for you and your industry,
  3. Working with an insurance specialist who knows and understands your industry.

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