Why are my insurance costs going up? Explaining the insurance hard market and when it will end

​Understanding the Insurance Hard Market: What It Means and How It Affects Consumers

The insurance industry operates in cycles, alternating between what is known as a "soft market" and a "hard market." For consumers and businesses alike, understanding these cycles can help in making informed decisions about coverage, budgeting, and risk management. Currently, the insurance industry is in the midst of a hard market, which presents challenges for policyholders across all lines of coverage. In this blog, we will explore what a hard market is, how it impacts consumers, and when we can expect conditions to change.

​What Is an Insurance Hard Market?
​A hard market in insurance refers to a period when premiums rise, underwriting becomes more stringent, and insurers limit their capacity to take on risk. This occurs due to various economic, environmental, and industry-specific factors that drive up claims costs and reduce insurers' profitability. As a result, insurance carriers respond by tightening underwriting standards, raising rates, and sometimes pulling out of high-risk markets altogether.
Hard markets are characterized by:

• Increased premiums across most insurance lines
• Stricter underwriting criteria, making it harder to qualify for coverage
• Reduced coverage limits and more exclusions
• Fewer options for consumers as some insurers withdraw from certain markets
• Higher deductibles and out-of-pocket costs

Conversely, a soft market is when competition among insurers is high, leading to lower premiums, broader coverage options, and more lenient underwriting standards. However, the current market conditions have shifted in favor of insurers, creating a challenging environment for policyholders.

​What Causes a Hard Market?
​Several factors contribute to the onset of a hard market, including:
Increased Claims and Catastrophic Losses, Natural disasters such as hurricanes, wildfires, floods, and winter storms have led to unprecedented levels of insured losses in recent years. Climate change has intensified the frequency and severity of these events, causing insurers to pay out billions in claims. This increase in payouts forces insurers to raise premiums to maintain profitability and solvency.
Rising Reinsurance Costs
Reinsurance is the insurance that insurance companies purchase to protect themselves from major losses. When reinsurance costs increase due to global claims trends and financial market conditions, primary insurers pass these costs on to consumers through higher premiums.
Economic and Inflationary Pressures
Inflation affects the insurance industry in multiple ways. Higher costs for materials, labor, and medical expenses drive up claims payouts. Supply chain disruptions have also increased the cost of auto repairs and home construction, which insurers must account for in their pricing models. Additionally, litigation trends and higher settlement amounts have contributed to rising liability insurance costs.
Reduced Investment Returns
Insurers rely on investment income to offset underwriting losses and keep premiums stable. However, economic downturns, fluctuating interest rates, and stock market volatility can reduce investment returns, leading insurers to increase premiums to compensate for lower investment income.
Underwriting Losses and Market Corrections
​Over time, insurers may underprice policies to gain market share, leading to underwriting losses. When these losses become unsustainable, the industry corrects itself by tightening underwriting standards and raising rates, which contributes to a hard market.

​How Does a Hard Market Affect Consumers?
​A hard market presents several challenges for consumers, making it more difficult and expensive to obtain adequate coverage.
Here’s how it impacts policyholders:

Higher Insurance Premiums
One of the most noticeable effects of a hard market is rising insurance premiums. Homeowners, auto, business, and commercial policyholders are all facing significant rate increases. Even policyholders with no claims history may see premium hikes due to broader industry trends.
Stricter Underwriting and Reduced AvailabilityInsurers are being more selective about whom they insure, which means that high-risk individuals or businesses may struggle to find coverage. In some cases, insurers are withdrawing from certain markets altogether, leaving fewer options for consumers.

Increased Deductibles and Coverage Restrictions
To offset risk, insurers are increasing deductibles and imposing more restrictive policy terms. This means consumers may have to pay more out-of-pocket before their coverage kicks in and may find certain risks excluded from their policies.

Greater Difficulty in Renewing Policies
Policyholders who have had claims in the past or are located in high-risk areas may face non-renewals or be forced to find new insurers, often at a significantly higher cost.

Challenges for Businesses
Businesses, particularly those in high-liability industries, face rising costs for general liability, professional liability, and property insurance. This can lead to higher operating costs, which may be passed on to consumers through price increases.

​When Will the Hard Market End?
​The insurance market operates in cycles, and while hard markets don’t last forever, predicting their end is challenging.
Several factors could influence when conditions begin to ease:
Stabilization of Claims and Losses
If the frequency and severity of catastrophic losses decrease, insurers may regain stability and become more willing to offer competitive rates and broader coverage options.
Improvements in Economic ConditionsA decrease in inflation, stabilization of interest rates, and improved investment returns could lead insurers to ease premium increases.
Regulatory Changes and Industry Adjustments
Government interventions, new risk management technologies, and industry innovations may help insurers better assess and price risk, leading to more competitive pricing.
Reinsurance Market Softening
If reinsurance costs decline, primary insurers may have more flexibility in their pricing strategies, allowing for a gradual softening of the market.
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While it’s difficult to pinpoint an exact timeline, most hard markets typically last anywhere from two to five years. The current hard market, which began in earnest around 2020-2021, may persist for another year or two before we see significant relief.

​What Can Consumers Do?
​Although consumers cannot control the insurance market, there are steps they can take to mitigate the impact of a hard market:

• Shop Around: Compare quotes from multiple insurers to find the best coverage and pricing available.
• Work with an Independent Agent: Independent insurance agents have access to multiple carriers and can help find coverage options that suit your needs.
• Improve Risk Management: Homeowners can fortify their properties against natural disasters, businesses can implement stronger safety protocols, and drivers can maintain clean records to qualify for discounts.
• Increase Deductibles: Choosing a higher deductible can lower premiums, though it’s important to ensure the deductible is affordable if a claim occurs.
• Bundle Policies: Many insurers offer discounts for bundling home and auto insurance or other policies.
• Maintain a Good Credit Score: In many states, insurers use credit-based insurance scores to determine rates, so maintaining good credit can help reduce costs.

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​Conclusion
​The insurance hard market has created challenges for consumers, businesses, and insurers alike. Rising premiums, stricter underwriting, and reduced availability of coverage have made it more difficult for policyholders to secure affordable insurance. While market conditions will eventually shift, it is crucial for consumers to stay informed, work with knowledgeable agents, and take proactive steps to manage their risk. By understanding the factors driving the hard market and adjusting accordingly, individuals and businesses can better navigate this challenging period until the market eventually stabilizes.