Going Soft

What soft and hard insurance markets mean to your company.

You may have heard the terms "soft market" and "hard market" used in discussions surrounding fluctuations in the insurance industry. Your agent may even use them in talking about your insurance renewal strategy. These terms are important, because the state of the insurance market should influence how you and your agent approach annual insurance renewals.

As in the financial markets, it is critical to know what type of marketplace you are dealing with so you are prepared for what may lie ahead and your fiscal budget planning process.

What drives changes in the market?

It is rarely one event or issue, but a combination of these elements that drives change. Influences on the insurance market include the state of financial markets and recent catastrophic events, such as natural disasters, terrorist attacks or wars. These factors aren't limited to occurrences inside the United States. Insurance companies are globally positioned businesses, and thus take into account happenings all around the world.

As you may already know, we are currently in a soft market. The term "soft" describes the pricing or terms and conditions offered by insurance companies reacting to the unfavorable financial markets. If your firm has recently gone through an insurance renewal, you may have noticed more insurance companies interested in your business. Insurance is a business, after all, and pricing is driven down when more competition arrives.

A soft market is a buyer's market, and consumers can expect more insurance companies to choose from, broader terms and conditions, and, in most cases, a lower price tag.

Conversely, in a hard market, fewer companies are willing to extend coverage. If coverage is obtained, a firm can expect to pay double what it might in a soft market. For some firms, a hard marketplace makes it virtually impossible to find coverage.

You get what you pay for

A lower price does not always translate into a better product. It is never wise to sacrifice better insurance coverage for a lower price without knowing the risks your firm may encounter. Saving a buck now could cost you thousands later once you discover that a claim is not going to be covered.

Ask to see a coverage comparison from your insurance agent if you are looking to change providers. This compares your current premium against what you can expect to pay with competing insurers. Such a comparison will show you where you may be restricting coverage and where you may be adding coverage. Before you sign an insurance contract, know what you are purchasing and, perhaps more importantly, what you are NOT purchasing.

Again, in a soft market, you should typically see more competition, allowing your firm to obtain better coverage at a better price. Use this market to your advantage, because it is only a matter of time until it starts to harden.

Nicole Croteau
Vice President
WasteHaulerGuard Insurance Program