Why does the market harden?

There are a myriad of reasons the insurance industry might find itself in a hard market, the vast majority of which are entirely outside of our control. Here are just a few of them:

Climate change: Consumers are facing new risks due to the increase in catastrophic weather and natural events like hurricanes, wildfires, etc. Flooding from Hurricane Ian is perhaps the most recent devastation we can point to, as stories about folks facing astonishing amounts of loss without having purchased flood insurance abound.
Inflation: Insurance carriers, like a lot of businesses, make money from investments. When the economy takes a turn for the worse, the return on these investments slows down, and carriers must make up for the loss in revenue through other means. This leads to rate increases and fewer risks assumed, so carriers can control their finances.
Supply chain issues: Repair costs on assets like cars and homes continue to increase due to hiccups in the global supply chain. Therefore, claim amounts are higher, and insurers must pay their customers more than before to cover damages, increasing their costs.
Political uncertainty: Insurance is a highly regulated industry, and each state in the U.S. follows its own standards: insurance commissioners can be elected by the popular vote in some states, while appointed by the governor in others. The election season results in a large amount of uncertainty for carriers.
Changing trends: Macrotrends like the rise in distracted driving have a significant impact on the insurance industry. Between 2020 to 2021, there was a 10% increase in the fatal accident rate (the largest percentage increase in history), and a 25% increase in private passenger auto losses. As a result, carriers will undoubtedly show more caution when writing auto policies because there's a greater chance they'll have to pay for accidents. There will also be the pressure to raise rates in order to offset higher claims costs.

What does a hardening market mean for providers?

In a market defined by risk and uncertainty, carriers are taking a more conservative approach to coverage. Insurers want to keep their loss ratios low. As a result, many restrict the areas they write in and the risks they cover. Some may even refrain from renewing policies with current customers. This inevitably leads to larger numbers of un- or underinsured people.

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How to remain profitable in a hardening insurance market

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