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The Insurance Pricing Cycle

October 31, 2019

Most industries are cyclical to some extent, and insurance is no exception. As an insurance buyer, it’s important to know what factors determine the cost of coverage. But understanding the market cycle is only half of the pricing equation: since you can’t control the market, it’s equally important to know what you can do to ensure you are always securing the best price—whatever market conditions prevail.

Property-casualty Insurance Cycle

The insurance industry pricing cycle alternates between periods of soft and hard market conditions. In a hard market, coverage is harder to place and premiums grow. A soft market indicates premiums are stable or falling, and insurance may be more readily available.

What affects the insurance market cycle? A variety of factors influence price, including economic downturns, catastrophic events, insurers’ claim reserve dollars, and supply and demand. Supply is tied to the amount of policyholder surplus in the industry, and demand is the appetite of the insurance-buying community to transfer risk.

Pricing cycles can also vary between lines of coverage and geographic location, creating both hard and soft market conditions depending on what type of commercial insurance is involved and how exposures to loss have changed. For example, the pricing and underwriting approach for property coverage for businesses based in hurricane-prone areas is much different than for businesses located elsewhere.

Risk Management Considerations

Industry experts have seen signs of hardening within the insurance market over the last year. Commercial insurance buyers should prepare for rising premiums and decreasing capacity from carriers in the coming year.

So, what should buyers do to ensure they are always getting the best price? Although premiums vary due to market pressure, the true cost is determined by your claims history. The key to controlling price is to control losses through instituting safety prevention programs, managing claims efficiently when you have a loss, and employing cost containment strategies.

In the 2011 P&C Insurance Coverages Survey, 56 per cent of respondents indicated that they considered themselves concerned or highly concerned about cost containment. If that describes you, we have the resources to help you employ cost reduction strategies to limit exposures and reduce premiums through both risk transfer and non-risk transfer solutions.

Our risk management strategy will help you to secure the best possible price — whatever market conditions prevail.

Our consultative approach includes:

  • Identifying your exposures to loss
  • Recommending loss control solutions
  • Improving your disaster response potential by helping you to create or update a business contingency program
  • Assisting in building a culture of safety
  • Providing claims management to keep costs down
  • Seeking continuous improvement
  • Reviewing and recommending coverages to ensure your protection

Those who approach risk financing through sustained long-term cost control and claims management measures, instead of just riding the insurance pricing cycle’s wave, are always in a better position to secure coverage at the best price.

The market may fluctuate, but our goal—to be your broker of choice—never wavers. To review your risk management strategies, contact Scrivens today.