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All industries experience cycles responsible for developing and reducing economic patterns, ultimately causing ripples throughout systems of production.  This is especially true within the insurance industry. Cycles differ among each other meaning no two cycles are identically the same. Additionally, cycles themselves can last any duration causing integrated segments which have been noted to increase and decrease insurers, premiums, coverages and affect the overall marketplace in general.  

Industry cycles covered in this article include:

  •  Soft Markets vs Hard Markets
  • Claims/Losses
  •  Natural Disasters

Soft Markets vs Hard Markets

Within the insurance industry, soft markets are characterized as:

  • Decreased insurance premiums
  • Availability of broader coverage
  • Less stringent underwriting criteria 
  • Increased capacity, meaning higher limits are available 
  • Heightened competition, meaning more insurers will consider underwriting various risks

Consequently, the soft market, can cause a balance sheet issue for the insurers as insurer’s count on the general conjunction of coverage premiums and investment returns for revenue income as a corporation. 

Similar to soft markets, hard markets have certain characteristics as well:

  • Increased insurance premiums
  • More rigorous underwriting requirements
  • Lowered capacity, meaning fewer insurers are willing to provide high limits 
  • Less competition, meaning less insurers will consider underwriting various risks (in some cases an insurer may leave a segment altogether leaving the insured with a need to replace the insurer)

Hard markets transform underwriters’ strategies to stay profitable by increasing rates in order to payout future claims. As the industry progresses, underwriters are developing more refined approaches to closely observe losses related to safety and financial means. More than ever, data has implied that insurance carriers are pushing farther into company financials. That said, what does this mean for the future of the hard market? It means that a second set of eyes by using a 3rd party consultant such as CPG, will provide the best available pricing along with best-in-class policy terms and conditions available in the marketplace. 


Incurred losses (total amount paid and loss reserves assessed by the insurer) can lead to significant premium increases.  Insurers review loss runs and loss ratios at every renewal and during a marketing process if other insurers are going to review the account.  Please note the following:

  • Loss runs are known as periodic reports that provide claims/loss information such as incurred losses
  • Loss Ratio is the ratio of incurred claims/losses divided by the earned/paid premiums

A third-party consultant can assist by tracking and streamlining the claim process in order to close out a claims or loss with the best possible outcome for the insured (e.g. reducing the total amount paid, closing out the claim etc.).  

Additionally, a risk management program should be designed to review risks in order to reduce and mitigate future losses.  This includes review of company strategies, closing any exposure gaps based on the strategies, design an insurance program that matches the strategies, monitoring the insurance program after placement, and instilling a culture of safety within the organization.  

Climate Change and Natural Disasters

High-level tornados, blizzards and hailstorm, significant flooding, droughts affecting high hazard fire areas, typhoons, and earthquakes, all play a pivotal role in redirecting how the insurance markets assess their exposure and liabilities. These environmental factors lead to significant increases in frequency and severity within claims for insurances carriers. As losses rise due to natural disasters, carriers’ assets are lowered.  Carriers will then utilize actuarial strategies to replace financial resources by doubling or even tripling rates. Frequency and cost of claims drive rates around the world. Reinsurers work on global basis. A major fire in the United States, hailstorm in China or flood in Brazil impacts insurance rates in all of the insurance markets around the world.

Soft and hard markets and natural disasters are out of your control. But your claims and climate change are things you can influence. If you choose to make risk management a priority and work with an experienced advisor, it will have a positive effect on any claims. As for climate change, it’s prudent to shrink your global footprint in every way possible. If not for your bottom line, then for future generations.