Workers Comp Soft Market – Why Now?
Many presentations and articles have cropped up over the last year on the continuation of the Workers Comp soft market. What does it mean for insurers, employers, and agencies? Let us first look at the definition of a hard or soft market.
Soft Market Dynamics
Looking at the hard/soft market, one can start with the supply and demand model. A hard market exists when the demand for insurance coverage outpaces the supply. The unexpected post-pandemic soft market results from the capacity to write and renew policies outpaced the demand for those policies.
From Investopedia – A General Definition – The soft market will persist until supply and demand are brought into a new balance, or equilibrium, once prices fall sufficiently. A soft market involves a temporary market surplus until prices adjust.
Once buyers and sellers adjust their price offers and expectations lower, some suppliers may leave the market, and more buyers will be willing to buy, thus eliminating the surplus and ending the soft market.
According to Business Insurance on January 1, 2024, renewals – The line remains profitable for insurers, and employers have enjoyed reduced rates or flat renewals for the past several years, according to numerous market surveys. Why are January 1, renewals so important? The largest number of workers comp renewals occur on January 1st.
I included the below chart in an article from two weeks ago. The differentiation between the workers comp soft market pricing and the other lines of insurance showed the pricing over the last six years. Workers Comp remains a profitable line for carriers.
How long will the workers comp soft market continue? As long as the line remains profitable for carriers, the soft market will continue for the near future, if not longer. Individual states can cause a change in their market due to law changes and court cases.
