Hard vs. Soft Market: What Does This Mean?

Hard vs. Soft Market: What Does This Mean?


The insurance market waxes and wanes in unpredictable cycles, vacillating between hard and soft markets. When insurance pricing is stable or falling, it is referred to as a soft market. Soft markets have generally predominated in recent decades.

Hard markets, on the other hand, are characterized by quickly rising insurance premium costs (typically by 15 per cent or more across the board) and shrinking capacity by insurers. During hard markets, insurance buyers are often forced to forgo excess coverage, sacrifice investments or revise budgets to accommodate rising insurance costs.

2013 was the costliest year in history for the Canadian insurance industry in terms of natural catastrophic losses from a large number of weather-related disasters, especially floods. Given 2013’s wild weather, many predicted the insurance market would “harden” to account for all the losses. Although rates did tick up slightly, the market has remained soft and will likely do the same for much of 2014.

So, what will the 2014 market pricing look like?

Thus far, we’ve seen that rates are remaining fairly stable, with only catastrophe-exposed property rates expected to be impacted by price increases. Catastrophe-exposed businesses will likely see tighter wording restrictions and increased deductibles in response to the Alberta and Ontario floods this past summer. Despite the uncertainty about how to move forward, there has so far been little movement overall with respect to rates or increased underwriting discipline.


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