Strategies for Navigating a Hard Market
In the insurance industry, the term “hard market” describes the market cycle, when premiums increase, coverage and capacity for many types of insurance decreases. A hard market can be caused by a number of factors, including:
- falling investment returns for insurers
- increases in frequency or severity of losses
- and regulatory intervention deemed to be against the interests of insurers
IRMI Research Analysts have been tracking the ebbs and flows of the market cycle for more than 30 years. What are the trends?
We had an extremely hard market in the mid-1980s that moderated into an extended soft market in 1987 that lasted to 2000 and then turned to a full-fledged hard market following the terrorist attack in September 2001. Improved insurance results and financial performance resulted in a return to a soft market in 2004 that bottomed out in 2013 and remained relatively stable through 2018. In 2019, we entered the current hard market, and it is the toughest market buyers have seen since the mid-1980s.
As you can see, for the past 3 decades, the industry has experienced extended soft markets lasting roughly 10 years followed by hard markets with durations of about 3 years. If this cycle holds true, the market should begin to soften sometime in 2022 or 2023. Only time will tell when it will actually occur.
In the September 2021 issue of The Risk Report, we reported that, while brokers do see signs that price increases are beginning to level off for some lines of insurance and customer segments, the global market continues to harden for most lines and regions. Our message to risk managers is that 2022 will present another challenging renewal cycle and you should be investing in your risk management programs.
IRMI has compiled a checklist of 16 proactive strategies you can put into action to help mitigate the effects of a hard market. Implement these best practices at your company—or share
them with your clients—to present your organization to insurers in the most favorable light possible, and anticipate and plan for possible setbacks in coverage terms, limits, deductibles, and pricing.
Please click here to access the checklist.