Understanding a Hard Market in the Insurance Industry
What is a Hard Market in the Insurance Industry?
When you hear about a “hard market” in the insurance industry, think of it as a tough time for both buying and selling insurance. This period comes with some challenges that make it harder for people to get insurance and for companies to offer it.
What Happens in a Hard Market?
- Higher Premiums: Insurance companies start charging more money for their policies. This increase in pricing makes insurance more expensive for everyone.
- Stricter Underwriting: Insurers become pickier about who they give policies to. They look more closely at applications and might reject more people or businesses than usual. We are seeing this a lot in home insurance policies. Companes are getting strick with the age and conditions of roofs.
- Reduced Coverage: The insurance policies that are available might offer less protection. This means they might not cover as many types of risks as they used to. Again, with the roofs, companies are changing from a replacement cost coverage to an actual cash value coverage if your roof is over a certain age.
- Fewer Policies: Some insurance companies might stop offering certain types of insurance altogether. This reduction in availability can make it harder to find the coverage you need. We have seen this a lot in the Florida and California insurance markets.
Why Does a Hard Market Happen?
Several factors can lead to a hard market:
- High Claim Costs: If insurance companies have to pay out a lot of money in claims, they might raise premiums to cover these costs. Several factors play into higher claims costs, including:
- Higher costs due to inflation
- Higher wages
- Supply chain interruptions
- Etc.
- Natural Disasters: Events like hurricanes, floods, tornadoes and wildfires can cause massive losses for insurers, triggering a hard market. There have been an increasing number of natural disasters over the years, causing the insurance companies to pay for more catastrophic losses.
- Economic Factors: Economic downturns can also contribute to a hard market. When the economy is bad, investments might not perform well, and insurers have less money to work with.
- Regulatory Changes: New laws or regulations can make it more expensive for insurance companies to operate, which can lead to higher premiums and stricter underwriting.
How Long Does a Hard Market Last?
A hard market doesn’t last forever. It’s part of a cycle. Eventually, the market will ease up, leading to a “soft market.” In a soft market, premiums are lower, underwriting is more relaxed, and more coverage options are available.
We are starting to see the industry turn the corner, meaning the market is starting to soften a little. We have had a major carrier announce a rate decrease in the coming months. This is something we have not seen is several years.
Understanding hard markets can help you plan better and stay informed about why your insurance costs might be changing. Always remember, if you’re having trouble finding affordable coverage during a hard market, talking to a knowledgeable insurance agent at Huff Insurance can make a big difference.
Huff Insurance has been around for over 64 years, so we have seen all of the ups and downs the insurance market has to offer. Our experienced team can make sure you are getting the best value from your insurance dollars. Call 410-647-1111 today.
