Soft Insurance Market Definition


A soft insurance market, a term which typically means nothing to the average consumer, is used to determine the overall state of the insurance market in a given time frame. For those who work in the insurance industry, a soft insurance market determines how business is conducted. If you're interested in learning more about the insurance industry and how it operates, read on to discover how soft insurance markets effect companies and consumers alike.

Defining the "Insurance Market"

Cycles of growth and decline exist within every industry. The insurance industry, however, is often at the mercy of this cycle because of its unpredictability. A soft insurance market is only part of the equation when trying to determine the state of the insurance industry. The two status indicators (soft and hard) serve to predict what type of business practices will drive the industry, as a whole, during a given time frame. How an insurance company acts and reacts during one market can measurably impact what will happen when the insurance market turns in the opposite direction.

Measure of Stability

The insurance cycle (soft and hard markets) determine the stability of the industry, as well as the likelihood that growth or decline will be experienced. The basic definitions of the soft and hard markets can give you a better view of the industry and individual companies.
Soft market is a period marked by low premiums, dwindling profits, high capital base and fierce competition. Hard market is the period which follows the soft market, usually after a wide scale catastrophe, when underwriting standards become more rigid, premiums increase as do profits and competition loosens.

What Makes a Soft Market Soft?

After the intense focus on stricter standards, and increasing profits that take place during the hard insurance market, the soft market takes gradual hold as insurance carriers achieve profit goals and feel secure in writing more business. This can be a successful strategy for those who can control expenses and anticipate cost fluctuations due to inflation and claims. The problem starts when companies begin acting carelessly, letting expenses get out of control, and stiff competition continues to drive premiums downward. The soft market reaches it end when companies can no longer afford to lower premium to gain volume. The catastrophes that bring in a multitude of claims serve as the wake up call which begins the hard market.

Consumer Impact

The soft insurance market is a beneficial time for consumers, as this is the ideal time to find the lowest rates and best coverages available on all lines (home, auto, business), except life insurance. During the soft market, insurance carriers relax their underwriting standards to include more customers that may have less than favorable loss histories and credit scores. Reviewing financial news, online or in print, can indicate when it may be time to review policies and perhaps shop for better premiums and coverages.


Carelessness and a false sense of security can lead to big mistakes for insurance companies during soft markets. Companies who relax their standards too much are those that will be negatively impacted when the market turns. Successful insurance carriers will employ carefully constructed methods for increasing volume while still maintaining a close watch on expenditures. Success depends upon building better relationships with customers in order to keep their business, and also forming tighter bonds with the agents and brokers who sell the policies to the public. The carrier that succeeds during both markets is cognizant of all aspects of the business from underwriting to building the cash reserves that are used to pay out claims.

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