Insurance Industry is Not Immune to Hard Market Conditions

It’s a hard market out there—literally when it comes to insurance.

The insurance industry is currently in what’s called a “hard market,” which is characterized by rising premiums and stricter underwriting standards. These conditions are increasing the cost of insurance—sometimes by double-digit percentages year over year—and making it more difficult for individuals and businesses to obtain the insurance they need.

The hard truth is that we all need insurance, whether homeowners’ insurance, auto insurance, life insurance, business insurance or other insurance products to protect our assets and livelihoods.

There are several root causes of this hard market. Record-setting insured losses—likely due to increased frequency and severity of natural disasters—have put significant strain on insurance companies’ resources. Rising inflation has also played a role, increasing the cost of claims payouts. Ongoing post-pandemic supply chain challenges and higher costs for goods and services like labor, construction, auto repair have resulted in higher expenses for insurers. Other contributing factors are escalated medical expenses associated with claims and increased costs for "legal system abuse,” which involves litigation or inflated claims.

Insurance companies are faced with hard decisions about how to respond to these challenges.

The most visible response is increasing premiums to maintain profitability and compensate for losses. This can be especially frustrating for policyholders who did not submit a claim in the year. The decision to increase premiums is based on the overall insurance market, not an individual’s coverage. But keep in mind that factors like your age, risk profile, health, location, credit history, deductible can have a significant impact on the pricing of your policy.

We’ve seen insurance companies restrict their capacity by refusing to accept new risks—aka new clients—or increase coverage for existing policyholders. Some insurers have stopped offering certain types of policies or have left geographical areas prone to high losses.

Other insurers have reallocated budget dollars to invest in better data analytics in order to prevent large gaps between projected policy pricing using prior loss data and current claims payoffs. Companies are also restructuring their secondary insurance (reinsurance) arrangements when nearing capacity or are seeking better terms with reinsurers to spread their risk.

All of these approaches limit options for those seeking insurance.

It’s hard to know when the market will improve.

The duration of a hard market is difficult to predict with certainty, as it depends on the length and severity of various economic, regulatory and industry-specific factors. Historical trends show that hard markets typically last anywhere from two to five years, though some have lasted longer.

Ironically, a market will “soften” as premiums rise. The increase brings in more capital to the insurance market and heats up competition between insurers.

Need help navigating the complexities of the current insurance market? The specialists at Mountain America Insurance Services can assist you in finding suitable coverage for your insurance needs. We shop multiple insurance companies to uncover the best option for your unique circumstances, saving you time and effort.