We have been in a hard insurance market, with 18 consecutive quarterly rate increases, that is the result of a confluence of several distinct factors. Before diving into them, a short explanation of a hard market is needed: A hard insurance market forms when the market swings up, with increased demand for insurance and reduced supply. Hard markets are characterized by relatively high premiums, fewer options for coverage and a reduced willingness of carriers to compete with one-another for business. This also results in less appetite for negotiating terms of coverage and decreased capacity for most types of insurance. The steady and significant rate increases in premiums are a key indicator of the current hard market. While everyone has their eyes on inflation, the roughly 10% rate increase in premiums in Q4 2021 far exceeds the cost of inflation over the last 15 consecutive quarters.

Primary causes

One persistent long-term factor shaping the current hard market is the continuing COVID-19 pandemic, which extended the period of near 0% interest rates for multiple quarters, resulting in insurers relying more on underwriting profits than investment income. The pandemic has also played a role in the current protracted economic volatility, which increases insurance costs, prompting insurers to tighten their underwriting standards.