How to Make Profits in a Hard Insurance Market

The Insurance Market in 2022

Like any industry, the insurance market has cycles of growth and recession. Typically, insurance market cycles are market-wide fluctuations that vary. In insurance, the two distinct phases of this cycle are called “hard” and “soft” markets.

A soft market refers to a situation where increased competition or depressed premiums are anticipated, while a hard market refers to a position where premiums rise while capacity decreases. These market phases are interconnected, with hard markets typically following soft market cycles.

The onset of the COVID pandemic created disruption across the board, and insurance was no exception. While the fallout of this upheaval may seem daunting, understanding how these stages work is essential to maintaining flow and profitability through these situations. As it stands, the hard market conditions we have been experiencing have not only been a significant factor in how the current insurance market stands. Still, many experts predict that these conditions will continue for the foreseeable future. These conditions mean that making the most of a hard market is paramount to providers in all areas of insurance. 

Hard Market vs. Soft Market

Before we discuss turning different market types to your advantage, let’s take a deeper look at what happens in hard and soft markets. 

Soft insurance markets generally display a number of characteristics: :

  • Lower insurance premiums
  • Broader coverage
  • Relaxed underwriting criteria 
  • Increased capacity (more policies and higher limits)
  • Increased competition among carriers.

Because companies generally rely on a combination of premiums and investments to generate revenue, the rate reductions associated with a soft market tend to negatively affect the insurance companies’ bottom lines. 

On the flip side, many characteristics of a hard insurance market are precisely the opposite:

  • Higher premiums
  • More stringent underwriting criteria
  • Reduced capacity (fewer policies and lower limits)
  • Less competition among carriers

While these factors may sound challenging, the profitability of either hard or soft markets depends on other circumstances surrounding them, as well as how effectively these factors can be managed. 

What Makes an Insurance Market Hard?

While many factors play into how insurance markets develop, COVID has certainly been the greatest single factor driving the current market conditions. Claims have risen across the board, from impacts on people’s health and families to businesses struggling to stay afloat or collapsing. In addition to the increased volume of claims, investment losses due to the general economic downturn have further driven down capacity and driven up costs.

Outside of the pandemic, other drivers of the current hard market come from nature and society alike. Natural disasters, such as floods, fires, or storms can all increase the number and severity of claims. Likewise, a general economic downturn diminishes the value of investments as well as causes strain on workers and businesses alike, again increasing costs and claims. Even the number of lawsuits being brought and settled at a given time affects the insurance markets, as providers are often the ones footing the bill in the wake of lawsuits.

Making a Profit in an Insurance Hard Market

In spite of the fact that premiums are on the rise and coverage tends to shrink, insurance carriers do not automatically profit when the market turns hard. Often, the same factors that, superficially, seem to draw in more money (and cost less to maintain) have the opposite effect, dragging down efficiency and making it more difficult to generate streams of revenue.

The key to successfully leveraging a hard market, as with all businesses, is to have efficient, streamlined processes. One of the characteristics of hard markets is more stringent underwriting criteria. While this may seem beneficial on the surface, making it less likely that a provider will pay out from claims, the increased time and work required to underwrite those claims is not to be disregarded. Money saved by paying out less can quickly be lost by the same process, as more billed hours and administrative fees stack up. 

Likewise, the outside conditions associated with the hard market can lead to increased scrutiny and oversight, making the process of settling claims and ensuring compliance more difficult and time-consuming than it would be in a softer insurance market. 

BPM Automation with Populus

When it comes to optimizing processes, ensuring success often comes down to having the right partners. Keeping all work and systems internal may seem cost-effective at first, but the reliance on outdated legacy systems and inefficient processes can slowly but surely drain a company, mitigating profits and keeping companies behind the competition. When managed correctly, however, hard markets can be a huge source of revenue, bringing in more money to companies and decreasing competition. 

Populus offers a range of technology-based solutions that can dramatically improve your day-to-day operations. We can help insurance providers optimize their processes and help automate their financial and operational business processes, helping organizations realize consistent, repeatable successes. Leaders in the industry are turning to technology more and more, with recent reports estimating that automation efforts could save the insurance industry over $390 billion by 2030. 

If you’re interested in implementing automation for your business, we can help.

Populus Technology has over 25 years of experience providing technology solutions to our partners. We help support their growth by managing partnerships and directing our clients to the best third-party vendors in the industry. We also assist organizations in updating and automating their business processes, even creating custom software solutions for unique workflows.

So if you need help transforming your own internal processes, Populus has the solutions you need. To learn more and find out how Populus can help your company, contact our team today to learn more!

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