The Insurance Pricing Cycle? 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.
This Risk Insights is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.
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Property and 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.
A variety of factors influence the price of insurance, 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
Buyers can take steps to ensure they are always getting the best price. Although premiums vary due to market pressure, your true cost of price 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.
TPG Insurance Services has 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 consultative approach includes the following steps:
In addition to understanding the insurance pricing cycle, our risk management strategy will help you to secure the best possible price—whatever market conditions prevail.
- 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.