The insurance industry is no stranger to cycles — and in recent years, the sector has entered a phase that many underwriters and brokers find particularly tricky: market softening.
A soft insurance market is characterized by increased competition, declining premiums, relaxed underwriting standards, and broader coverage terms. While this might sound like good news for clients, it brings a host of challenges for insurers and brokers alike.
Let’s explore what market softening means, why it's happening now, and what insurers must do to navigate this complex phase.
What Is Market Softening?
- Market softening typically involves:
- Decreasing premium rates
- Easier access to coverage
- Increased competition among insurers
- Reduced underwriting discipline
- More favorable terms for policyholders
This generally occurs after a prolonged hard market or when capital is abundant, and insurers are eager to grow market share — even at the cost of thinner margins.
What’s Driving Market Softening in 2024?
In 2024, several factors have converged to soften conditions in specific lines of insurance, particularly in commercial property, marine, construction, and certain casualty sectors:
1. New Capacity and Competition
Capital markets have shown renewed interest in insurance as an asset class. This has led to increased capacity, especially via reinsurance and MGAs (Managing General Agents), intensifying pricing competition.
2. Better-Than-Expected Results in Some Classes
In segments where loss ratios improved in 2023 (e.g. commercial property with fewer CAT losses), insurers have relaxed pricing to retain business.
3. Aggressive Growth Targets
Some carriers — particularly new entrants or those looking to regain lost ground — have started chasing volume, leading to downward pricing pressure and risk dilution.
4. Economic Pressure on Buyers
With inflation and interest rate volatility affecting businesses, there’s pressure on insurers to offer lower premiums or broader coverage to retain cost-sensitive clients.
Key Challenges Posed by a Soft Market
Market softening is not just a pricing issue — it brings systemic challenges for underwriting discipline, broker relations, and long-term profitability:
1. Shrinking Margins
Lower premiums directly affect underwriting profit, especially if loss costs remain high or unpredictable (e.g. due to climate events or litigation trends).
2. Deteriorating Underwriting Discipline
In pursuit of growth, underwriters may accept higher risks or offer broader coverage with insufficient pricing, leading to future losses and portfolio imbalance.
3. Broker Pressure
Brokers often push for better terms and lower rates during soft markets, challenging underwriters to balance client retention with risk-based pricing.
4. Product Devaluation
Offering broader terms at lower prices can undermine the perceived value of coverage, making it harder to harden the market later when conditions tighten.
5. Reinsurance Volatility
Even as primary markets soften, reinsurers may not follow suit — creating tension and potential gaps in risk transfer strategies.
How Insurers and Brokers Can Respond Strategically
Despite the challenges, market softening isn’t a death sentence. Forward-thinking insurers and brokers can take steps to stay resilient and competitive:
Maintain Pricing Discipline
Stay committed to actuarially sound pricing, even if it means walking away from unprofitable business. Profitability should trump volume.
Invest in Underwriting Analytics
Use data, AI, and predictive modelling to assess risk more accurately and price competitively without compromising margins.
Focus on Risk Quality
Prioritize clients who invest in risk mitigation and loss control. Partner with them through value-added services rather than just rate concessions.
Embrace Differentiation
Instead of competing solely on price, offer unique coverage features, fast claims service, or industry-specific expertise.
Revisit Distribution Strategy
Strengthen relationships with trusted brokers, educate them on your underwriting appetite, and avoid over-reliance on commoditized or aggregator channels.
Prepare for the Next Cycle
Soft markets don’t last forever. Build flexible reinsurance structures and plan capital usage with the expectation of a future hardening.
Market softening presents significant headwinds for insurers — but also an opportunity to prove their underwriting rigor and long-term strategy. In a climate where some may chase short-term wins, the real winners will be those who remain disciplined, innovate with purpose, and build sustainable value over time.
As the insurance cycle continues to turn, those who balance resilience, data-driven pricing, and customer focus will be best placed to thrive — no matter how soft the market becomes.
