Are We In A Hard Or Soft Insurance Market?

For nearly 15 years, the business insurance market had been considered soft, but it is currently going towards a hard market as of Q3 2020. Competition is severe in a soft market, and premiums are steady or dropping.

Are we in a hard or soft insurance market 2020?

The insurance industry had a market cycle upswing in 2020, resulting in difficult market circumstances. As a result, insurance policy terms, restrictions, and conditions tightened, while rates and premiums rose. We will continue to see a general hardening of the insurance market this year.

Are we in a hard insurance market 2021?

For the first half of 2021, the hard Medical Professional Liability (MPL) market remained in effect, with hardening expanded to other Property and Casualty lines like Cyber and Directors & Officers coverage. While the long-term financial and public-health consequences of COVID-19 are unknown, healthcare institutions, physicians, and physician organizations have experienced severe financial and human resource strain. The virus’s combined impact, paired with a difficult market, put a considerable burden on healthcare systems.

The fundamental reason for continuous pricing rises is continued pressure from Property and Casualty insurers to improve their extremely weak combined ratios. AM Best published a report in May stating that the composite MPL insurers’ combined ratio had worsened dramatically over the last five years, culminating in an average of 112.5 percent. These high combined ratios, some as high as 135%, are unsustainable over long periods of time. Carriers must either sell risk, raise premiums, lower limits, and/or restrict coverage awards, or a combination of the above, given the previous decade’s difficult market conditions, loss cost inflation, dwindling reserves, and the protracted low interest rate environment.

As a result of the market’s hardening, health systems with favorable loss records have received rate hikes of 5-15 percent, while those with unfavorable claims experiences have had rate increases of up to 30 percent. Excess layers are included in these increases. Physicians and physician groups are less affected, although carriers have been requesting and gaining clearance for increases of 3-15 percent from state-based regulatory organizations. Individual physicians or organizations may not see these increases, but carriers will continue to see an overall rate increase for all specialities combined.

On a more positive note, no new carriers have left the market in the first half of 2021. Bowhead Specialty and Vantage Insurance are two new carriers that have entered the market. While these two new carriers, as well as recent market entrants CapSpecialty, Arcadian, and BDA, have brought some respite, total capacity remains low.

Insurance Cost

Due to heavy competition among insurance providers, the cost of insurance, also known as premiums, is low in a soft market. Insurers attempt to offer lower rates to potential and present clients than their competitors. A harsh market, on the other hand, is marked by higher insurance premiums. Due to losses incurred during the sluggish market cycle, competition between insurance companies has dwindled during this time. Companies are attempting to recoup their losses while avoiding more blunders that could cause market volatility. Insurance firms impose rigorous underwriting requirements, driving up the cost of insurance, making it difficult for consumers to obtain coverage.

Consumer Coverage

Insurance firms serve practically every conventional insurance demand in a sluggish market. Companies are frequently on the lookout for new customers and attempting to improve their market share over their competitors. The coverage rates are high due to the low cost of insurance and the simplicity with which consumers can obtain insurance. More people are drawn to the insurance industry as a result of increased marketing of insurance coverage. Insurers are also inspired to develop and promote new lines of coverage or insurance products that did not exist previously during this cycle. As a result, during this cycle, consumer coverage rates are typically relatively high.

A hard market, on the other hand, is marked by lower coverage rates. To minimize more losses, insurance companies have begun to take the required steps. Insurance companies are attempting to correct the situation because the market has become volatile during the depressed market. Insurance costs are rising, but the number of people asking for coverage is decreasing. Insurers are also not selling their insurance as aggressively as they were in the past. This ensures that customers aren’t continually being contacted to buy insurance. As a result of the reduced risk appetite, coverage decreases across the board.


Insurance firms have a lot of surplus money during a sluggish market cycle, so they’re willing to broaden their coverage options. This means that for individuals who want to be covered, insurance is generally available on the market. Consumers also have a variety of options to pick from because businesses compete with one another.

A hard market, on the other hand, is marked by a lack of premium availability. Insurance companies become more cautious in how they issue insurance to consumers when they expend surplus cash. Because they will have to process and pay claims, insurers are hesitant to spend their limited funds. Some organizations avoid insuring high-risk industries or businesses by relocating or refusing to insure them. This means that unavailability issues make it difficult for businesses and individuals to receive insurance coverage. Other businesses are forced to pay more for less comprehensive coverage.

Why are we in a hard insurance market?

Commercial insurance prices have been growing since 2018 across most market sectors and geographies, including APAC, after a prolonged softening phase with inadequate pricing levels. This is mostly due to two key factors: higher-than-expected insurance losses and a low-interest environment that persists.

In Asia Pacific, insurance losses have become more severe not just as a result of huge natural disasters, but also as a result of a variety of so-called secondary hazards events such as floods, bushfires, and hailstorms. This is exacerbated by the fact that claims inflation is putting downward pressure on incomes. The continuous low interest rate environment, on the other hand, has resulted in substantial investment income loss.

The pandemic of COVID-19 has exacerbated and expedited this market trend. Aside from the uncertain economic outlook, several industries are experiencing budget constraints as a result of the COVID-19-induced slowdown. As a result, many businesses have less discretionary spending for insurance than they did previously.

This already challenging business environment is now exacerbated by a tightening insurance market. This is a factor in the pricing hikes we’ve seen, as well as capacity constraints and limitations in the scope of coverage available.

We’re also seeing a continued change in the business sector from asset-heavy to asset-light, with intangible assets accounting for more of the revenue. A shift that the insurance industry is only now beginning to address.

Several insurance markets have exited or drastically reduced their appetite for specific classes of business and exposures in the last 12-18 months. This has been particularly widespread in liability with respect to US exposures, D&O, and some property exposures, such as wildfire or flood.

Many companies were caught off guard by the severity and breadth of the Covid-19’s impact on their businesses and industries, prompting corporate risk managers to become more risk alert and risk aware – many companies are going through their risk registers to see if there are any other exposures they were not aware of.

Customers are increasingly resorting to the Alternative Risk Transfer (ART) markets in this circumstance of a tightening insurance market worsened by the impact of Covid-19, looking for alternatives to their standard insurance programs based on three key criteria:

  • Traditional insurance programs leave a protection gap, which can be filled with the following solutions: This is especially important for NatCat capacity, which is becoming increasingly rare, but it also covers pure financial losses that are often not covered by standard insurance (eg. NDBI exposures).
  • Solutions that enable for long-term budgeting and provide pricing and capacity predictability.
  • Customers may retain more risk and maximize their self-insured retentions with these solutions. Risk transfer may not always be the most efficient strategy in the current context, with less budget available and growing insurance premiums.

With the hard market, insureds can take advantage of the many tools and instruments at their disposal. While some of these tools are brand new, others are making a comeback in terms of popularity or have taken on a new form.

Parametric or index-based insurance is one type of insurance that is gaining a lot of traction and is obviously moving from exotic to mainstream. These parametric structures have shown to be quite effective in filling the gaps left by traditional programs and catering to firms’ intangible risks.

Multi-year and cross-class contracts, which provide budget certainty over the long term, could be a straightforward approach to manage price volatility and uncertainty in the current market climate. Such structured programs are a cost-effective approach to pool capacity over time, and they frequently contain profit-sharing aspects that allow the insured to share in the upside.

The harsh market, as one might assume, compels companies to reconsider their retention strategies and is frequently a driver for new captive formations or increased exploitation of dormant captives. With a rise in requests for captive solutions, we’re witnessing a clear trend in this direction. On the front end, organizations may be searching for an insurer’s experience and capacity to issue and administer local policies. Captive protection is also in high demand: as retentions rise, so does volatility, and many captives are searching for custom risk transfer solutions that cap their total exposure and protect them from an unanticipated frequency of catastrophic events that deplete their capital.

A “virtual captive” could be explored by companies that do not have a captive but believe that keeping more risk in-house is the most efficient way forward. These are simple insurance contracts that are designed to mimic the benefits and mechanics of a captive without having to go through the process of forming one. These are essentially contractual agreements that allow customers to pre- or post-fund a portion of their losses, allowing them to maximize their self-insured retentions.

With a variety of tools available to address the hardening market, corporations may better manage their risks and traverse this turbulent market environment to strengthen their business operations’ resilience.

When was the last hard market in insurance?

The property/casualty (P/C) insurance industry cycle is marked by periods of soft market conditions, in which premium rates are stable or falling and insurance is readily available, and periods of hard market conditions, in which premium rates rise, coverage may be more difficult to come by, and insurer profits rise.

Intense competition within the P/C insurance business is a major component in the cycle. As insurance companies battle fiercely for market share, premium rates are falling. The cash required to underwrite new business is drained when the market softens to the point where profits diminish or evaporate completely. In the up phase of the cycle, competition is less strong, underwriting standards are stricter, and insurance supply is constrained owing to capital depletion, resulting in higher rates. The hope of larger earnings attracts more capital to the market, resulting in increased competition and the cycle’s ultimate downturn.

Over four decades and three hard markets, the chart below shows both nominal and inflation-adjusted increase of P/C net premiums issued. Premiums can be calculated in a variety of ways. This graph uses net premiums written, which are premium amounts after reinsurance transaction deductions.

Inflation-adjusted net premiums written increased 7.7% year (1975 to 1978), 10.0 percent annually (1984 to 1987), and 6.3 percent annually throughout the last three challenging markets (2001 to 2004).

How long will hard insurance market last?

Periods of expansion are referred to as “soft markets,” whereas periods of contraction are referred to as “hard markets.” The length of each cycle might range from two to ten years.

What does P&C stand for in insurance?

Property and casualty insurance (commonly referred to as P&C insurance) is a type of coverage that helps to protect you and your belongings.

What is a hard and soft market in insurance?

Insurance market cycles are cyclical variations in the market. A soft market is one in which there is more competition or possibly lower premiums, and this market is usually followed by a hard market.

A time of increased premiums and reduced capacity is referred to as a “hard market.” It’s important to remember that market cycles in the insurance industry are frequently intertwined.

When there is greater capacity in the market, for example, there is more supply, which can surpass demand. This increased demand has a knock-on effect on premiums, and so on. It’s critical to understand the current state of the insurance industry’s market.

This year has been one for the record books, affecting almost every industry in some way. When it comes to insurance market cycles, COVID has had a significant impact.

What does a soft market mean?

A soft market is one in which there are more sellers than buyers. The term “soft market” is most commonly used in the insurance sector, where it is also used to contrast a “hard market.” The word can also be used to describe other marketplaces when there are fewer buyers than sellers, putting downward pressure on pricing. A soft market can refer to a complete industry, like the retail sector, or a specific item, like lumber. This is known as a buyer’s market because buyers wield the majority of negotiating power.

What drives a hard market?

A hard market, on the other hand, has the following characteristics: Insurance premiums will be higher. Underwriting is more complex due to stricter underwriting requirements. Reduced capacity implies insurance companies are writing fewer policies. There is less competition amongst insurance companies.