Understanding the insurance market cycle 

​​​Policy restrictions present themselves to consumers in a variety of ways, and when your current home and auto policies renew, you’re likely to see an increase in premiums. In the past you may have been able to shop around and find lower premiums, but there are fewer options available today than there were a couple month ago.

This is called a hard market, and we’ve seen it before.

The insurance industry is cyclical and goes through periods of expansion (“soft market’) and contraction (“hard market”). However, what makes the current hard market unique is that we’re coming off a pandemic when insurance premiums and loss costs, or the amount that an insurer must pay to cover claims, were at historic lows. Now we’re seeing ​​inflation and supply chain issues that have led to higher loss costs and longer repair times.

In other words, the cost of materials and labor when your house or car needs a repair is higher than it used to be, directly impacting insurance companies’ bottom line. Carriers have also reported a higher rate of catastrophic losses in 2023 than they’ve seen in decades. And the cherry on top is that reinsurance companies (i.e., insurance for insurance carriers) have raised rates and reduced coverage for their customers, which means your insurance carrier takes on more of the risk. They’re paying more, for less coverage.

In addition to these challenging economic conditions, some carriers are leaving certain states and regions altogether. It all comes back to profitability. When a carrier cannot see a clear path to profitability in a catastrophe-prone area, they have no choice but to exit that market.

Sometimes, the carrier is not able to align pricing and underwriting strategies in a way that would allow them to remain stable. Other times, carriers are restricted by state departments of insurance. For example, in California, insurance companies are not allowed to simply raise rates to keep up with their loss costs. They are also not allowed to factor in the cost of reinsurance (which 49 states allow) or use predictive catastrophe modeling. In response, what we’re seeing is that carriers are leaving the market instead.

Historically, these cycles have lasted anywhere from 2-8 years, but this is not your typical hard market. Some carriers have already started to ease underwriting restrictions, but rates continue to climb. Others are still tightening underwriting restrictions and are saying it will be that way until early 2025. ​​Hurricanes, wildfires, and severe thunderstorms will also cause carriers to react accordingly and could impact how long this hard market will last.

Consumers nationwide are feeling the impact. Even if you've never filed a claim, you are likely to see these industry challenges reflected in your policy. When your policies are up for renewal, don’t panic and follow these steps instead.

  1. Consider whether shopping for new insurance is the right choice.
    • The industry is seeing a higher volume of people switching carriers for personal lines policies, but that may not always be your best option. It may be the case that you are already with the best carrier. Consider that you may have earned loyalty discounts, accident forgiveness or other benefits by being a customer with your current insurance company. Tenure matters to carriers, and jumping companies too often may hurt you in the long run. Some carriers may decide not to take you as a new client if you have less than two years with a company. It's important to consider more than just price if you decide to make a change.
  2. Balance the right coverage with the best price.
    • If you discover that changing carriers is the right choice, you should consider your unique needs and be prepared for all of life’s uncertainties. The best insurance policy is one that is tailored to you, and that may mean it’s not the lowest price available. Finding the right policy could save you from shelling out money later to cover damages should you need to file a claim.
  3. Seek out every discount, program and hack available to you.
    • Carriers have different discount opportunities, so make sure you’re reviewing those with your agent. Does your carrier have a safe driving telematics program? Did you install a monitored security or fire alarm? Do you have water leak sensors? Did you get a new roof? All of these can help lower your premium.
    • Bundling can also help keep costs down and is something people overlook to get the lowest price. Explore how bundling together your auto, home and/or umbrella policy could allow you to keep the premium coverage you need at an affordable price.
  4. Work with an independent agent.
    • Insurance is not one-size-fits-all. One carrier may offer guaranteed replacement cost on your home in the event of a total loss, while another may only offer actual cash value, leaving you responsible for more of the cost. Insurance is complicated, which is why having an expert agent to guide you through the process, understand your needs, explain your options, and offer you the best solution is so important. An independent agent has access to numerous carriers and can shop on your behalf to unlock the best options.  

Final Thoughts 

Agents are in these tough times just as much as the consumer. They want to win and keep your business, even if you decide to shop for a new policy. In the end, having an independent agent and following their advice may be the best way to beat this hard market.

Reach out to your agent to learn more about preparing your insurance portfolio for market fluctuations, or visit our Digital Agent to get a quote.