The insurance market goes through a period of soft and hard market for every aspect of the business – auto, business and home insurance. What are the differences between the hard and soft insurance markets?
A Look At The Hard Insurance Market
The industry’s hard market is when premiums increase in conjunction with strict underwriting guidelines that hinder people from getting a policy as easily. There are two critical reasons for this:
- Insurance companies have a lower investment return
- Increase in claim losses
Remember that insurance companies depend on their investment income of held premiums and reserves resulting from low market interest yields. This helps to ease the strain but can cause undue strain on some companies. When there is a high market interest yield, insurers are taking a loss, paying more in claims and operating costs than they receive from their customers. However, the investment income still gives them a profit.
Low yields, high loss ratios result in stricter underwriting terms and increased premiums.
For example, several years of multiple car accidents that have increased in frequency and severity and the rising cost to repair a new vehicle can result in insurance companies experiencing a loss ratio of more than 100%. This means their auto insurance policy business line is costing them money.
A Look At The Soft Insurance Market
During a soft market period, the insurance companies offer higher liability and property limits, provide lower rates, have more uncomplicated underwriting guidelines and increase access to reasonably priced policies. In this cycle, insurance companies attempt to grow their business, bringing in new clients with special rates and easier eligibility. They may provide policy benefits and additional discounts.
Insurance companies are in competition with each other, which leads to lower premiums and boosts capacity, whether that be for NY landlord insurance, auto, home, or business policies.
When people go to insurance companies in search of low rates, the insurance companies will find themselves in a lose/lose situation. As profits drop due to mounting losses, the market turns hard, which leads to those strict rules and increased premiums.
How Can Drivers Traverse The Hard Insurance Market
There is no doubt how difficult it can be to find suitable insurance during the hard market. You may find yourself with rising premiums for your home, auto and other insurance policies. This is where an independent insurance agency can help you find the right insurance company for all your needs. They work with an array of insurance companies and can find those companies that will follow the hard market’s rule of strict underwriting guidelines and more.
For example, one insurance company may want to increase its market share when other companies are fearful of taking the leap. They may offer more favorable loss ratios, lower premiums and discounts where the competition is not.
And, if your credit score and driving record aren’t the best, an independent agency like the NY Insurance Hub can still find a company that provides suitable options. It may not have the great premium you’d want, but it could still be much less than what most insurance companies can offer at that time.