Understanding the Property Casualty (P/C) Insurance Cycle

One of our partners, The Hartford, has developed a very good explanation of the cycles the insurance industry experiences. We think it’s information that all of our insureds should have. If you have any questions, please feel free to give us a call.

You may wonder why insurance rates are going up. In part, the answer lies in the cyclical nature of the P/C insurance industry. During some periods, the market is “soft”, meaning premiums are stable or decreasing. When the cycle moves to a “hard” market, the rates increase and coverage may be more difficult to find.

In a soft market, insurance carriers may reduce rates and consequently their profits are reduced. This erodes the capital which insurance companies use to write new business. As the market hardens, underwriting requirements may become tighter, insurance availability may be limited and insurance companies may not have the capital to take onmore business. This causes an upswing in insurance premiums.

What’s Happening in the Current Market?

The soft market of recent years is hardening. Why?

The Economy

-The P/C Insurance Cycle is directly related to the rise and fall of interest rates. As interest rates rise, companies lower premiums, as they fall, companies must raise premiums.

-Inflation – when the cost of settling claims rises, so do the premium rates needed to cover future costs.

-Rising Healthcare Costs – affects the cost of settling claims, specifically workers’ compensation claims.° Economic Recovery – increased hiring means increased coverage rates for insurance that is based on payroll, i.e., workers’ compensation.

• Unusually Volatile Weather

-2011 included a remarkable number of weather-related catastrophes. Insured catastrophe losses totaled an astounding $35.9 billion.*

-2012 weather is predicted to be equally volatile.

Please know that in these uncertain economic times, there is one thing you can be sure of. We here at M&M are hard at work (pun intended) to make sure you continue to receive quality coverage at an affordable cost. Please don’t hesitate to call us with any questions. We’ll be happy to go into more detail about this issue with you.