Casualty Actuarial Society (CAS) Practice Exam

During a hard market, how does insurer competition generally shift?

1. Competition becomes more intense

2. Premiums decrease significantly

3. Buyers struggle to find coverage

4. Operating profit for insurers usually declines

The correct answer is: Buyers struggle to find coverage

During a hard market, competition among insurers typically decreases, leading to challenges for buyers when seeking coverage. In a hard market environment, insurers become more cautious and selective about the risks they are willing to underwrite. This selective approach often results in higher premiums and more restrictive coverage terms, making it more difficult for buyers to find suitable insurance options. When competition wanes, insurers are not as aggressive in pursuing new business, leading to limited choices for consumers. This contrast to a soft market, where competition is fierce, and insurers aggressively cut premiums to attract customers. Therefore, during a hard market, buyers face increased difficulty in securing the coverage they need, highlighting the reality of the insurance marketplace's dynamics during these periods.