What typically occurs during a hard market?

During a hard market, insurers generally experience low profit margins, which can lead to financial strain. When profitability decreases significantly due to factors such as higher claims, increasing loss ratios, or unfavorable economic conditions, it may force some insurers to exit the market altogether. This is because maintaining a sustainable business is challenging when underwriting losses surpass income from premiums. As a result, a hard market often sees a reduction in the number of active insurers, which can subsequently contribute to higher rates and more restrictive underwriting practices, creating a cycle that can further tighten market conditions. This internal pressure within the insurance industry is a defining characteristic of a hard market.