Why the Insurance Market Changes and How to Adapt

One year, insurance companies are competing to offer you the best rates and coverage. The next, they’re pulling out of the market and you’re struggling to find coverage. The insurance market naturally goes through ups and downs. Although it can be frustrating for both personal and commercial policyholders, by adapting, you can secure the coverage you need.

Hard and Soft Insurance Cycles

The ups and downs of the property and casualty insurance market are called hard and soft cycles. According to the Insurance Information Institute, soft markets are characterized by stable or falling premium rates and readily-available coverage, whereas hard markets are characterized by rising rates and more difficulty finding coverage.

For policyholders, the difference is noticeable. During a soft market, your rates probably won’t increase unless your personal loss history triggers a hike. Plus, it’s easy to shop around for the best rates because insurance carriers are eager for your business. During a hard market, your rates may increase sharply even if you don’t file a claim, but shopping around for better coverage is difficult because insurers are enforcing strict underwriting requirements. You may find out that your insurer is not renewing your current policy and may have a hard time finding the coverage limits and terms you need.

The Current Insurance Market

The current insurance market exhibits many characteristics of a hard market, including rising rates. MarketScout says commercial rates were up 5% in the second quarter of 2023, although commercial property rates were up 10.7% and cyber rates were up 13.3%. Personal insurance rates were up 4.4% in the second quarter.

These recent rate hikes come after a long string of hikes. The Council of Insurance Agents & Brokers says the second quarter of 2023 was the 23rd consecutive quarter of commercial premium increases – that’s nearly six years of rising rates. The cumulative effect of rising rates has also had a noticeable impact on personal lines. ValuePenguin says the average cost of homeowners insurance in the U.S. increased by 19.1% between 2018 and 2023.

Regional Variation in Insurance Rates and Availability

The current insurance market is not the same everywhere. Although insurance rates have been rising across the U.S., some areas have seen steeper increases and reduced coverage availability. According to CNN, the insurance market is especially strained in California, Florida, and Louisiana. For example, 17% of homeowners in Louisiana had their policies canceled in 2022.

Some carriers are refusing to offer coverage in certain areas. Notably, several carriers have pulled out of the California property market recently. According to Insurance Business, State Farm, Allstate, Farmers, and AIG have all announced that they are not selling new policies in the state.

Why Is the Current Market So Hard?

Although hard and soft insurance markets are the norm, the factors that bring them about change. In this particular cycle, high inflation rates and natural catastrophe losses are commonly cited as the primary causes.

Swiss Re says homeowners claims costs increased by 36% year over year in the first half of 2023, whereas commercial property claims costs increased by 30%. Inflation and natural catastrophe losses are the reasons for the increase. Meanwhile, the Insurance Information Institute says the property and casualty sector is expected to report a net combined ration of 102.2 for 2023, indicating an underwriting loss. Catastrophe losses in the first half of 2023 were the highest seen in more than two decades.

Securing Coverage in a Hard Market

When the insurance market is hard, securing coverage is more challenging but still doable.

• Understand that rates are increasing. Insurers are raising rates because their losses are increasing. You will likely need to pay more for coverage – budget for this.
• Allow time for your agent to explore other options. Your insurer may limit your coverage, raise your rates, or even decide not to renew your policy, meaning your agent may need to shop around for coverage. Start the renewal process early.
• Put your best foot forward. Before your renewal, be sure you’ve completed all risk management recommendations and documented the steps taken – particularly for property insurance. In some cases, insurers may offer conditional coverage – for example, they may offer coverage if you get a new roof or install updated sprinklers first. Look at your property through an underwriter’s eyes and take care of maintenance ahead of your renewal if possible.
• Consider all your options. If you are having trouble securing the coverage you need, you may need to consider other options. For example, you may be able to secure more affordable coverage if you raise your deductible. Layering parametric insurance with a conventional policy is another option. Finally, the excess and surplus market can be a good option for people who are unable to find what they need in the traditional market.
• Work with a broker. When navigating a hard market, it helps to have an experienced broker with access to many markets and solutions in your corner.

Heffernan Insurance Brokers can help you find the coverage you need in today’s insurance market. Contact us.