Hard and Soft Market

The firming insurance market

As the insurance industry begins to show signs of entering a hard market, we talked to some experts about what the soft and hard market cycles are and how agents, mutuals, and carriers can prepare for changing conditions.


All industries go through natural cycles of supply and demand. The property and casualty insurance industry cycles between “soft markets” and “hard markets.” The state of the market affects premium prices, how risk is underwritten, and how much of it.

According to the International Risk Management Institute, Inc (IRMI), a soft market is characterized by low premiums, high limits, broader coverages, and a more competitive landscape with high availability of coverage. Insurers are more willing to negotiate and be flexible with their terms.

Hard markets are when premiums are higher, and insurers are stricter with their underwriting standards and take on a limited number of policies.

Both market conditions provide opportunities and challenges for underwriters and agents. In soft markets, premium prices tend to stay flat, and most insurance companies are happy to break even. In a hard market, pricing can rise back to a more appropriate rate and increase a company’s gross written premium.

Kurt Eaves, Grinnell Mutual’s vice president of Underwriting, Sales, and Service, said that in soft markets, companies tend to be more aggressive as they try to write more business. “Companies are eager for growth and there is not much increase to price during a soft market.”

Beth Kohlnhofer Raskovich, president of Kohlnhofer Agency (Lakeville, Minn.) characterized a soft market as a time when it appears that some “companies are just throwing darts at the wall and will write just about anything at the lowest rate. It’s a bit of a free-for-all.”

The timelines for hard and soft market fluctuations do not necessarily follow any rules. While most experts agree that the industry has been in a soft market in recent years, there is less agreement about when the last hard market was. Some experts say it was 15 years ago; others say it was more recent, only four or five years ago.

Neil Alldredge, president and CEO of National Association of Mutual Insurance Companies (NAMIC), said he expects this evolving hard market to stick around awhile. “I would anticipate this to be a longer than average cycle, because of all of the uncertainties that exist today.”


“We’re in a transitional year,” said Eaves. “There’s not really a trumpet blare that signals we’re in a hard market. It’s kind of like a recession, where it’s recognized almost after the fact.”

Eaves pointed to a multitude of reasons the markets are firming. Natural disasters, including past years’ hurricane seasons, devastating nationwide wildfires, increased cybersecurity attacks, and the record 2020 derecho comprise some of the main reasons market rates are increasing. Insurance companies are paying out enormous sums, and they need to recoup those losses.

“It’s what reinsurers would call ‘death by a thousand cuts.’ We haven’t had a Hurricane Katrina per se, but our London reinsurers have been hit with many of the world’s natural disasters,” said Eaves.

According to a report by S&P Global Market Intelligence, pandemic-related industry changes will cause decreased premium growth in 2021. “Over the longer term, potential changes to industry competitive dynamics could occur to the extent pandemic-related developments such as the expansion of working from home, decreased usage of mass transportation, less enthusiasm for the role played by ride-sharing applications, and a shift of population out of urban centers take hold.”

Alldredge agreed, and also pointed to how the pandemic impacted commercial lines such as business interruption. “The litigation environment coming out of something like the pandemic also signals to insurers that the insurance rates to cover those risks will need to be higher,” Alldredge said.

Eaves noted that when insurance companies begin to cut costs, it’s another signal of a hard market on the way. “An overwhelming percentage of companies in the industry are trying to retrench and re-underwrite their books of business right now. We've seen companies laying off employees and offering early retirement programs.”

Raskovich has seen the markets firming up in commercial auto and homeowners’ insurance. “But no one wants to lead the pack when it comes to raising prices,” she said.


Alldredge said that mutuals have a unique advantage when it comes to hard markets. “Mutual companies are able to take the long-term view of risk. When markets are hardening, mutuals do not have to price their products at the leading edge or the highest prices,” he said. “A hard market allows mutuals to recover if there have been some losses. It’s a chance to invest more in the business and educate your consumers about the nature of the product.”


An industry report by Deloitte Insights also outlines ways insurers can thrive during this time.

“As they head into 2021, insurers should consider a mix of offensive and defensive actions to accelerate longer-term recovery efforts and pivot to the thrive phase when growth is reemphasized, despite challenging economic conditions.”

Raskovich said that inexperienced agents tend to have the toughest time adjusting to a hard market. “They’re very used to it being very easy to sell policies, and suddenly, it’s not easy anymore. You have to be able to explain to customers why their insurance rates are going up even if they haven’t had any claims.”

She also noted that independent and captive agencies will face different challenges in a hardening market. “Captive agents don’t have as many choices, and they don’t have access to the surplus lines market, which tend to grow in a hard market. They can either write a policy or they can’t. Whereas independent agents have all kinds of choices if we’re willing to look for it.”

Raskovich said that while it’s harder for agents to sell, the payoff is higher. “Agencies can make more money in a hard market because the rates are going up.”

On the underwriting side, Eaves said that at many companies, underwriters begin to get very defensive of their book and are willing to write less risk with their agents. Because Grinnell Mutual assigns designated underwriters to agents, the company has a unique advantage.

“If an agent has a really solid book of business and a relationship with their underwriter, that can benefit the agent because the underwriter can be more flexible,” he said. “The relationship is a key aspect in a harder market.”

Raskovich, Alldredge, and Eaves all agree that for hardening conditions, agent and underwriter training — especially for less experienced staff — is extremely important.

“The sticker shock that agents and customers experience can add stress to the relationship,” Eaves said. “Underwriters can help coach agents about having the hard conversations during the hard market.”

Explaining rising insurance rates to your clients

When premiums go up, your policyholders may be confused — even angry — at the changes, especially if they haven’t had any claims or seen damages in the area. Here are some tips on addressing the situation.


It’s important to train less experienced staff members, and make sure they understand that selling in a hard market is more work. But hard markets can also be very good for agencies’ bottom line.

“They’re going to have to sell harder, but they’re also going to be compensated for that work, said Kurt Eaves, vice president of Underwriting, Sales, and Service.


Contact your policyholders as soon as you know what their new renewal rate will be. The sooner you can get ahead of the conversation, the more willing your clients will be to listen to you.

“Don’t blindside customers,” Beth Kohlnhofer Raskovich, president of Kohlnhofer Agency advised. “Don’t go to a client the day before their renewal and tell them, ‘Oh, by the way, your rates went up.’”


Customers who have had consistent rates throughout the years may be more shocked by the increases.

“Customers are happy if you show them a renewal that doesn't have any changes to it. But any time there’s an increase, you’re going to have to sell the policy again,” said Eaves.

Policyholders may be tempted to shop around for a better price, but it’s likely that rates will be higher everywhere. Helping clients understand that it’s about the market as a whole and not about a certain company from the get-go will help save time and energy.


Educating customers (and agents) about the cyclical nature of insurance can help. The industry has fluctuations like the stock market or gas prices, just in a much longer timeline.

“Practice being honest with your customers and explain to them that rates won’t always stay the same,” Raskovich said.

“I like to use analogies to explain insurance to people,” said Neil Alldredge, senior vice president of Corporate Affairs at NAMIC. “So many people don’t understand insurance for what it is — a risk transfer mechanism.”

He uses a hypothetical example of asking your neighbor to cover your house for a year, agreeing to reimburse you for damaging events.

“If you ask, ‘If I have a house fire or a burst pipe, how much would you charge me to cover the damage?’ I can almost guarantee that your neighbor would charge you a lot more than your current homeowner’s insurance.”

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