The insurance market doesn’t stand still. It shifts in response to economic pressures, global events, and evolving risk landscapes, impacting what you pay and what kind of coverage you can get.
Like many industries, the insurance market undergoes cycles. The cycle operates through what is known as a “soft market” and a “hard market”. To briefly explain these:
Understanding where we are in the cycle and what is coming next can help you make informed decisions, avoid coverage gaps, and keep your business protected in any climate.
In this article, we’ll explore the signs, expectations, and strategies for both soft and hard markets, so you are ready for what comes next.
A soft market, also known as a buyer’s market, is characterized by lower and more stable premiums, broader coverage terms, higher available limits, and easier access to excess coverage options. During this time, there is increased competition among insurance companies for new business. This competition leads to higher capacity in the market, meaning more insurers are willing to underwrite policies, even for higher-risk clients.
In a soft market, new carriers will emerge from the woodwork, but history shows that many of these options are short-lived. It is the carriers who survive difficult market conditions that are the ones best positioned to offer long-term, reliable protection for your law firm or business.
As you navigate insurance renewals in a soft market, it’s important to carefully consider whom you choose to insure with. This is especially vital if you’re working toward a Non-Practicing Extended Reporting Period (also known as a Retirement Tail), because unstable carriers may not be able to provide coverage when it matters most.
Another trend among insureds during soft markets is switching carriers annually to secure the lowest rate. However, this practice can backfire. Frequent switching may harm your insurability with reputable, stable carriers, especially when the market hardens.
Download our Professional Liability Insurance Scoring Checklist to help you qualify insurance carriers and policies.
In a hard market, two key shifts occur: premiums rise, and underwriting becomes more stringent.
Risks that were acceptable in a soft market may now only be approved under revised terms and conditions or may be declined altogether.
Insureds should expect reduced coverage availability, higher premiums, and less competition as insurers scale back or exit the market entirely. Underwriters will also scrutinize your practice and claims history more closely.
A hard market often follows a period of economic stress or sustained losses. As a business owner and policyholder, recognizing the signs of a hardening market can help you prepare for increased premiums and tougher underwriting standards.
One early indicator is that insurers will begin to raise rates to offset losses. However, it’s important to understand that not all rate increases mean a hardening market. Rate hikes are a common practice for carriers to ensure they can pay claims and sustain their programs.
Another sign of a hardening market is when fewer insurers are willing to write certain types of policies, and those that do have stricter underwriting standards. You may encounter more documentation requirements, tighter terms, and more exclusions. These are all strategies insurers use to manage risk in a hardening market. If carriers take on too much risk without caution, they risk losing their programs or exiting specific markets altogether.
As an insured, it’s important to monitor carrier behavior during a hard market. You should work with a knowledgeable agent who can provide insight into which carriers have a proven track record of stability and longevity.
Read this article to discover Practical Steps to Potentially Reduce Professional Liability Insurance Premiums.
The first step in preparing for a hardening market is to review your current risk management program with your insurance agent and risk management professional. Determine which components are essential, which can be eliminated, and which risks you’re willing to retain. Additionally, asses the proactive measures you’re taking to reduce or eliminate losses.
Don’t wait until the last minute to work on your renewal, especially if you have a history of claims. Completing and submitting your renewal application in a timely manner gives you the opportunity to explore options and, if needed, adjust your risk management strategy to align with current insurance conditions.
Having a knowledgeable agent well-versed in lawyers’ professional liability policies, along with an experienced risk management professional, is invaluable during periods of market hardening. Building those relationships before the hard market tightens allows your insurance team to develop a deeper understanding of your firm or business, leading to more informed decisions.
If you’re considering going uninsured as a cost-saving measure in a tough market, think again. There are countless reasons attorneys get sued, many of which can be filed and still lack merit. It is also a common misconception that professional liability insurance works like auto insurance. These are claims-made and reporting policies, and it’s crucial to understand how they work before choosing not to renew your coverage.
Download these Key Questions to Ask When Shopping for Professional Liability Insurance to help you evaluate agents and the insurance products you’re being offered so you can make informed, confident decisions.
To recap, the insurance market cycles between “soft” and “hard” phases. In a soft market, policyholders benefit from lower premiums, broader coverage, and more insurer options due to relaxed underwriting standards. As competition increases and losses mount, underwriting tightens, and insurers become more cautious, ushering in a hard market. While a hard market can be more restrictive, it also brings advantages such as stronger insurer financial stability, increased focus on risk management, and opportunities for tailored coverage that reward firms with solid risk profiles.
Understanding these market shifts helps law firms and professionals stay ahead by avoiding coverage gaps, frustration, and business disruption. Although insurance renewals occur annually, your career and business are long-term commitments. Navigating market shifts with a long-term perspective ensures that your premium is more than a yearly expense; it’s an investment in safeguarding the future of your practice.
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