THE INSURANCE PRICING CYCLE
The Insurance Pricing Cycle
BY: KNIGHT ARCHER INSURANCE BROKERS
Our risk management strategy will help you to secure the best possible price— whatever market conditions prevail.
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.
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