Understanding Hard vs. Soft Insurance Market Phases

The last 5 years (2019-2024) have been largely discussed as a Hard Market in the insurance industry. During this time, MGAs haven’t just weathered the challenges, they’ve grown through them. In 2024 alone, U.S. MGAs wrote $114.1 billion in direct premiums, a 16% jump from the prior year, significantly outpacing growth in the broader property-casualty sector (Conning Report). 

Yet, despite the impressive expansion, MGAs are facing a capacity crunch, with negotiations becoming more demanding and assessments more rigorous. And this has everything to do with the ongoing Hard market phase. 

So, what exactly is a Hard market, and how can MGAs better navigate one?  

Insurance veterans Chris Lowell (Managing Director, InnSure) and Somil Jain (Principal & Senior Consulting Actuary, Lewis & Ellis) answer these questions and more in MGA101: our video series unpacking all things risk capacity — in particular, the how and what of having challenging capacity conversations. 

To really grasp what a hard market is, let’s first understand the bigger picture: Insurance is cyclical. 

Insurance is Cyclical

Aspiring MGAs should note that the insurance industry moves in cycles, shifting between Soft Markets and Hard Markets that can last for years. While these cycles share some drivers with the broader economy, they tend to follow their own trajectory and don’t necessarily align with general economic trends.

What Is the Difference between Hard and Soft Markets? 

Hard Markets are marked by: 

• Tighter underwriting standards,  
• Increased premium rates, and 
• Stricter, more cautious allocation of risk capital. 

i.e, Demand is higher than supply, with buyers being less likely to find personalized policies that meet their terms. 

Soft Markets are characterized by: 

• Looser underwriting standards, 
• Lower or stable premiums, and  
• Larger availability and allocation of risk capital. 

i.e, Carriers cover broader risks at more competitive prices, which can result in slimmer profit margins, or even losses. 

What Causes Hard and Soft Markets in Insurance? 

Somil believes that hard markets often emerge after major losses or NATCAT events, which alter how the broader insurance community perceives risk and prices policies. These events can cause insurers and reinsurers to redirect their capital to lines or industries with lower loss exposure. Other contributing factors include falling or negative investment returns, regulatory factors, etc. (NCCI Research Brief) 

This hardening phase eventually results in stronger, consistent underwriting profits. As premium-to-surplus ratios improve, insurers begin competing by offering broader coverage and expanding into new lines and markets, which leads to a soft market phase over time.

Finding Risk Capacity in a Hard Market 

Chris clarifies that while “hard” and “soft” describe the overall insurance market, conditions often differ across lines of business and geography. This means that in a hard market, overall capacity shrinks—but the impact is often harder on certain lines or regions, making the search for risk capital in those specific areas even more challenging. 

Although capital investment into MGAs has remained steady, long-term capacity is now being allocated with greater scrutiny. Insurers are increasingly favoring MGAs who can evidence: 

• Disciplined underwriting, 
• Effective claims management, 
• Low loss ratios, 
• A clear articulation of their product and its market potential 
• Proven data capabilities, API-enabled tech stacks, and the expertise to leverage them. 

Alternative Capital Sources for MGAs

Alternative capital sources, such as insurance-linked securities (ILS) and private equity (PE), are increasingly backing MGAs. Conning reports that 51% of U.S. MGAs now use ILS funds for capacity: evidence of both the model’s resilience and growth potential. In hard markets where insurers may hesitate to expand beyond established markets, MGAs can step in to serve niche lines by looking beyond conventional reinsurance for capacity.

On Navigating Hard vs. Soft Market Cycles

Hard and soft markets each have distinct traits, shaping how capacity is allocated and how carriers approach underwriting. By staying aware of which phase the insurance industry is in, new and growing MGAs can develop a more nuanced perspective of the market and can position or pitch themselves with greater precision to risk capacity providers. 

Entering the industry during a hard market raises the barriers to entry are, meaning MGAs that demonstrate credibility and secure capacity under these conditions position themselves up for greater success when market conditions eventually ease.