Underwriting discipline in soft vs hard markets
Insurance tends to move in cycles. There are periods where there is plenty of capacity in the market, pricing is competitive, and business is easier to place. Then there are periods where things tighten, premiums increase, and terms become stricter. Most people refer to these as soft and hard markets. In a soft market, competition is usually high. Insurers are trying to grow, and that can create pressure. Pricing comes down, and there is often more flexibility around terms and conditions. On the surface, it feels like a healthy market.
But this is also where underwriting discipline can quietly slip. It does not happen all at once. It is often small decisions over time. Risks that are priced a bit too low. Assumptions that are not fully tested. Business that is written because it feels necessary to stay competitive. At the time, it may seem manageable. The reality normally only shows later, when claims start coming through and the margins are thinner than expected. In a hard market, the environment changes. Pricing improves, and there is more room to be selective. Underwriters can take a step back and apply judgement more firmly. That part is needed, especially after a period of softer conditions.
But even here, there is a balance. It is easy to become too rigid or to push too hard. Relationships built over time can be strained if decisions feel inconsistent or overly aggressive. And when the cycle shifts again, those decisions tend to come back. What tends to work better is consistency. Not treating soft and hard markets as completely different environments but rather keeping the same approach to risk throughout. Understanding what you are writing, pricing it as fairly as possible, and being clear about what fits and what does not.
The cycle itself will always be there. That is part of how the industry works. The part that makes the difference over time is whether discipline holds, even when the pressure changes.
