In this hub I will discuss, from a property and casualty insurance stand point, issues we face as a result of the current country wide financial crisis and how this crisis will effect your business and personal insurance.

The pricing of business and personal insurance products issued by standard market insurance carriers is historically influenced by the "Insurance Cycle." The insurance cycle is basically made up of hard and soft market swings.

Hard Market Pricing Indicators:

• Insurance premiums are higher
• Insurance company profits are up
• Competition for insurance accounts increases
• Insurance company underwriting standards are more stringent

Soft Market Pricing Indicators:

• Insurance premiums are lower for consumers
• Insurance company profits are down
• Competition for insurance accounts decreases
• Insurance company underwriting standards are loosened

In the insurance industry you will find these market cycles fluctuate slowly over a period of years. While there are many theories and just as many opinions as to what causes a market swing I'm going to talk about two.

Insurance market swings are usually caused by some type of event. I'm going to briefly discuss two of these swing triggers here.

A market swing trigger event may be a single large loss catastrophe or a series of large national or international events such as those related to severe storm activity, hurricanes, wildfires, earthquakes and flooding. These claim type events put pressure on an insurance carrier's ability to maintain adequate policyholder reserves thus pushing a carrier to reassess their pricing structure. In simple terms, they may have to raise their product price to maintain their ability to pay claims.

A second trigger event is one of finance. It's a simple fact. When an insurance carrier is making a good return on their investments they can price their product at an underwriting loss and still make money hands over fist.

For an insurance company the last few years have been a virtual money feast. Overall, capacity for insurance companies has increased multiple times. The increase in policyholder reserves has been unprecedented. Insurance carriers have in recent history been enjoying the most success in gains in history. Policyholder surplus has exceeded all projections.

What's all this mean? It means insurance companies have over the past several years become almost immune to the effects of catastrophe loss exposures. It's now almost certain that single claim loss events have virtually no effect. Carriers have successfully built up reserves in capacity to withstand almost any claim catastrophe situation.

Because of this, insurance carriers have become very aggressive in the pricing of their products, called a "soft market." Carriers have become very thirsty for the premium that new insurance clients provide. Many to the point they no longer maintain underwriting integrity. Pricing their products so low with the sole purpose of attracting new premium in which they could invest ultimately providing an underwriting loss but in turn generating an investment profit.

For the consumer this "soft market" period has been a good thing. With insurance premiums at an all time low, being artificially depressed in order to generate the capital for investment, it's been a period that more consumers have been able to enjoy adequate insurance coverage and keep premium dollars in their pockets.

Due to the financial / credit crisis and its effect on the insurance industry as a consumer you now have to be prepared for the second shoe to drop. It's only reasonable to expect insurance carriers to begin reviewing their current market positions with a keen eye placed on lost investment revenue. That lost revenue must be replaced and it will be replaced with increased premiums.

Business owners must began preparing to pay more in premium dollars on those lines of business that insurance companies have historically lost money. Workers compensation and business auto will probably be the first coverage lines that a business owner will notice an increased cost. Soon followed by professional liability, general liability and property.

For the general consumer look for increased premiums to begin with personal auto soon followed by property.

Take this article for what it's worth, just my opinion. But for all of us who buy insurance, we should be prepared to pay more for the same coverage in the months to follow!