P&C Soft Market Begins To Harden

Technology and outsourcing vendors to the P&C industry know well its undulating cycle of soft and hard markets.  In soft markets, carriers are interested in writing more business and are willing to lower prices to get it; hard markets are the reverse.  (For a more textbook definition, see the Insurance Information Institute’s (III’s) Insurance Glossary.)  (Life insurance markets are not so cyclical, and Health – hey, don’t those prices only go up?)

Claire Wilkinson, who writes the Terms and Conditions Blog for the III, has now written Soft Market Winding Down in her Nov 7 post.  In it, she quotes Richard Kerr, founder and CEO of MarketScout, as saying that this “winding down” has occurred “as a result of several factors including the meltdown in the financial markets, slipping underwriting results, and anemic investment income.”  So, they are not quite saying the hard market has arrived.  Moreover, the turn in cycles is never unanimously agreed upon as there is always a little art in the science.  Nonetheless, it does appear that there are the beginnings of hardening as Kerr’s research shows. 

Others concur.  The National Underwriter (NU) weighed in on this same report with its own story, MarketScout: Soft Market Reaching End, published the afternoon of Nov 7.  Even a week earlier, NU had reported that Evan Greenberg, CEO of ACE, had declared based on his company’s experience (earnings for the recent quarter were down 92%), that ”The end of the soft market in insurance has arrived.”  And the day before that, AXIS CEO John Charman said during his company’s earnings call, “We believe a hard market in 2009 is a near certainty.”

Technology and outsourcing vendors who are conversant in the terms carriers and agents use and who are sensitive to the issues carriers face, are in a better position to serve those carriers and agents.  While each carrier and agency are unique, there are some common consequences for technology and outsourcing strategy when a market cycle changes.  Priorities for IT projects can shift when a market moves from soft to hard.  For example, in a soft market finding ways to get new business are paramount.  In hard markets, getting profitable business is paramount.  Of course, it’s always important to grow and it’s always important to be profitable, but the emphasis undulates along with the market cycles. 

Know your customers and know what’s important to them in this next market phase.  You may find that some of them don’t yet think the market is hardening.  Whatever they think, however, you’ll be better off for being on speaking terms with them about their issues…and how your products and services address those issues.

 

P.S. Here are a couple of other sources on the subject.  First, Lynch Ryan’s weblog Workers’ Comp Insider posting Insurance in the storm: Buyers Can Expect the Onset of a Hard Market with additional sources.  Then there’s a contrary view in the article, Broker Executives See No end In Sight To The Current Soft Market. 

Tags: Claire Wilkinson, hard market, III, Insurance Information Institute, MarketScout, Richard Kerr, soft market