Understanding Insurance Market Cycles: What Business Owners Need to Know

By: James Small, Business Insurance Adviser at Hometown Insurance Agency of Long Island

At Hometown Insurance Agency of Long Island, the retail insurance division of the Weber Group, our mission is to benchmark your success and take your business to the next level with rock-solid insurance solutions. In today’s post, I want to give you a quick but valuable overview of insurance market cycles—specifically the hard market and soft market—and the key factors that influence these cycles.

What Are Insurance Market Cycles?

Insurance market cycles refer to the fluctuations in the insurance industry that impact pricing, coverage availability, and underwriting standards. These cycles are driven by a combination of economic and industry-specific factors and can be broadly categorized into two types:

•Hard Market: Characterized by reduced capacity, tighter underwriting, higher premiums, and fewer insurance companies willing to write new policies.

•Soft Market: The opposite—a time when there’s more competition among insurers, leading to broader coverages and lower premiums.

Five Key Factors That Drive Market Cycles

1 – Topline Growth
This refers to the revenue growth of insurance companies. Strong growth can keep markets competitive and rates stable.

2 – Bottom Line Profits
Is the insurance company making money? Profitability determines how aggressive or conservative insurers are with pricing and risk selection.

3 – Catastrophic Losses
Natural disasters such as hurricanes, earthquakes, floods, and wildfires significantly impact the insurance landscape. Both the frequency and severity of these events influence how insurers manage risk and price policies.

4 – Reinsurance Availability
Insurers rely on reinsurance to spread risk. When reinsurance becomes scarce or more expensive, insurers may pull back on coverage offerings or raise rates.

5 – General Economic Conditions
Broader economic indicators, such as inflation and interest rates, also affect the insurance market. Economic downturns can tighten markets, while booms often increase competition.

Where Are We Now?

There’s no doubt—we’re currently in a hard market, especially here in New York. Insurance companies are:

• Restricting coverage

• Tightening underwriting guidelines

• Increasing premiums

• Exiting certain classes and lines of business altogether

This trend is expected to continue until profitability is restored.

How Can You Respond?

As a business owner, here are five proactive strategies you can use to manage your insurance program during a hard market:

1 – Focus on Loss Prevention
Take steps to prevent claims and lawsuits. This can improve your risk profile and make you more attractive to insurers.

2 – Unite Your Team
Get everyone in your organization on the same page. Teamwork and communication are essential in maintaining a strong risk management culture.

3 – Review Coverages with Your Broker
With carriers narrowing coverage in certain areas, it’s more important than ever to sit down with your insurance broker to review and understand your policy.

4 – Consider Deductible Options
Increasing your deductible can lower your premium. Explore what makes financial sense for your business and ask your broker for options.

5 – Budget Accordingly
Prepare for continued higher premiums. Budgeting now will help you avoid financial strain later.

Need Help Navigating the Hard Market?

I’m here to help. You can reach me directly at 631-589-0100, extension 323, or send me a text at 631-624-5173.

Let’s work together to protect your business and ensure you’re set up for success!