The insurance market is cyclical and fluctuates over time between a soft and hard market for all lines of business such as auto, home and business insurance.
Hard Insurance Market
A hard market in the industry is experienced when premiums rise along with a tightening of underwriting guidelines making it more difficult to get a policy. The two major culprits for this are lower investment returns for the insurance companies and a rise in claims losses.
Insurance companies depend heavily on investment income on reserves and premium held and coming out of several years of extremely low market interest yields of 2 percent and even lower, it has put a strain on some insurance companies. During periods of high market interest yields, insurers can operate a loss, paying out more in claims and operating costs than they take in from customers and still make an overall profit from their investment income. When yields are low and loss ratios high, that is when underwriting gets more stringent and premiums tend to rise.
Rise in claim losses coupled with the increased cost to cure plays a huge part in causing a hard market for any particular line of business. For instance, over the past few years, the rate and severity of car accidents has risen steadily and newer cars have become much more costly to repair causing many insurance companies to have loss ratios over 100 percent, meaning that they are losing money on their auto insurance policy line of business.
Soft Insurance Market
In a soft market cycle we experience lower rates, higher property and liability limits offered, easier underwriting guidelines and more access to obtaining more affordable policies.
During this cycle, insurance companies look to grow their business and target prospects with great rates and easy eligibility along with extra discounts and policy benefits. There is an increased competition among insurers which increases capacity and decreases premiums.
As more people flock to these insurers for the lower rates with looser underwriting guidelines, loss ratios typically begin to rise, often to a point that is not sustainable for the insurance company. When profits begin to dip as losses continue to mount, the market begins to harden once again with rising rates and more stringent guidelines.
How To Navigate A Hard Insurance Market
Weaving your way through a hard market can be a frustrating experience for people who have experienced significant increases in their auto, home and business insurance.
It is best to work with an independent insurance agency that has access to wide range of insurers to do the shopping for you. Even though, say your NY car insurance is in a hard market, that does not mean that every insurer pricing or underwriting under hard market criteria.
It could be that there is a company that is looking to make up market share as others are reducing or that a certain company has maintained a favorable loss ratio and offering lower premiums than most competitors.
In the worst case, where a person has an unfavorable driving record along with less than perfect credit, the independent agency can place that driver with the best option available. The premium may not be great, but could be significantly less than a majority of the non-standard insurer offerings.
If you have any questions regarding auto, home and business insurance options, please contact us, we’re always glad to help. The NY Insurance Hub serves Albany, Schenectady, Troy, Latham, Cohoes, Watervliet, Clifton Park, Saratoga Springs, surrounding Capital Region areas and all of New York State from NYC to Buffalo.