OKLAHOMA CITY – Early American poet Anne Bradstreet once wrote, “If we had no winter, the spring would not be so pleasant: if we did not sometimes taste of adversity, prosperity would not be so welcome.” This quote applies to almost every aspect of life, including insurance markets.
Unfortunately, we’re experiencing a winter, or the effects of a hard insurance market. However, just like with winter, fairer weather will eventually return.
Let’s look at what a hard market means, what’s happened historically, and what the next few years will look like.
Hard market defined A hard insurance market is a period marked by rising rates and coverage becoming more difficult to obtain, in contrast to a soft market, where conditions are favorable to stable or falling prices and plenty of coverage options. Multiple factors influence market conditions, including the economy, the number of natural disasters across the country, and regulatory pressures, to name a few.
Often it takes years before we see the effects of these types of events, which is what is happening right now. The economic impacts of the COVID-19 pandemic are still being felt, including inflation and high interest rates, and we’ve seen an increasing number of natural disasters over the past few years, all culminating in the current market conditions.
This is not first time Hard markets are a part of the property and casualty insurance cycle – meaning this is not the first time we’ve been here.
According to the Insurance Information Institute, during the last three hard markets, inflation-adjusted net premiums written grew 7.7% annually (1975-78), 10.0% (1984-87), and 6.3% (2001-04).
When markets toughen, insurance companies raise rates to remain financially solvent, or able to pay claims. However, competition creates pressure for insurers to offer lower rates. This, along with reduced economic challenges and periods of fewer claims, helps to bring those rates down and soften the market.
Looking forward Hard markets do stabilize, and prices remain flat or come down. Because of severe weather events and other impacts on the insurance industry, the road to a softer market won’t be an easy one traveled overnight. We may see the current market for the next few years, at least. It will take time for the insurance industry to react to any positive changes occurring right now.
What’s important is that consumers have plenty of options when it comes to insurance and that the market remains robust.
The insurance industry is marked by periods of hard and soft markets.
Consumers can find helpful resources about insurance and what they can do to weather the hard market on the Insurance Department’s website at oid. ok.gov. If you have questions about your insurance coverage or need to file a complaint, contact us at (800) 522-0071.