The Hard Market: How Does it Impact Me?

The question every insurance agent gets asked when a hard market hits is “Why are my rates going up?” There could be more than one reason. Car accidents, hail or wind damage, or anything that results in you filing a claim impacts the entire pool of policyholders.

Carriers are required to have money set aside in reserve accounts to cover claims. This surplus requirement is determined by the state in which the company is conducting business. It is meant to ensure that if a major event that impacted a large percentage of policyholders occurred, the carrier would have enough money to meet the claims .

When there are large losses, obviously that reserve shrinks. Most times, carriers are able to replenish their reserves by increasing the rates of the people filing claims, by investing more, or by canceling coverage for people who experience repeated claims.

However, if your carrier has experienced too many large losses, they can no longer cover adequately all the potential claims for everyone who has purchased that kind of insurance. That means that rates go up for everyone in that pool. For example, if wildfires destroy thousands of homes, those homeowners who have lost their homes will file claims.

The same goes for businesses damaged by hailstorms or hurricanes. Carriers can cover the losses, but any further losses are going to drain their reserves. So they need to build the cash up in those reserves as quickly as possible. They will also try to insulate those reserves from future claims.

That means that even policyholders who have filed no claims can see their coverage change or their rates go up – or both – thanks to the number of claims, the frequency of the losses, even the cost of those claims.

In fact, there doesn’t need to be a claim for your rates to go up. The price of replacing lost or damaged items continues to increase. Thanks to the pandemic, the price of lumber skyrocketed 232% more than it cost just prior to March 2020.

Your rates can also be impacted by changes to products, such as advancements in technology. For example, cars now come with plenty of technology and computerized systems. That technology is more expensive to fix. As car manufacturers continue to add more technology, the price of replacing that technology will only go up. For that reason, auto insurance rates will most likely continue to get more expensive, with or without claims.

Current & Recent Insurance Outlook Reports

Mid Year 2023: Deloitte Insurance Insights

Annual Report on the Insurance Industry:  September 2023

2023 Insurance Market Report – National Association of Insurance Commissioners

2023 – Insurance Information Institute: Facts & Stats


Any market swing is beyond your control; however, with the expertise and knowledge of your insurance advisor, you can manage the impact you face. Contact one of our trusted advisors today.