IJ Asks: How Long Will the Hard Market Last’

When the market is soft, the insurance industry speculates how long it will be until it turns hard … similarly, when it is hard, everyone speculates how long it will be until it turns soft. Insurance Journal pulled out the crystal ball and passed it around to several wholesalers for their predictions on how long the current hard market will last.

Professionals from such states as California, Texas and Washington came up with estimations that ranged between eight months to two years.

In the eyes of a group of Texas wholesalers—Bart Koch, Marshall Leicht, J.J. Horan and Ken Horn—it’s going to be about another year and a half before the market softens. “I think it’s going to be a function of the financial market,” said Koch, owner of Tejas American General Agency. Horn, president of Austin Surplus Lines Agency, said, “It’s really hard to tell, but I will be real surprised if it lasts much longer than 18 months,” attributing his prediction to the reinsurance capital capacity.

“I would say that certainly it depends on the line of business,” said J.J. Horan, president, South & Western General Agency . My guess would be somewhere between the next year and year and a half. And I would expect that other parts of the country would start to soften prior to Texas, because Texas was one of the last areas to go into the hard market, so I feel that they’ll be one of the last areas to leave the hard market.”

Leicht, president of Leicht General Agency, based his speculation on “the fact that we still don’t have a rate adequacy. The reinsurance agreements that will come into place in the middle of 2003 will turn the market around.”

Those who saw an earlier end to the hard market included California’s Bill Newton, president of Lemac & Associates Derek Borisoff, chairman of the board of Monarch E&S, and Harold Anderson, president of Washington-based Kenneth I. Tobey Inc. They predicted, with some exceptions for particular lines of business, the hard market would fizzle around the end of the year.

“By the end of 2002, I think … competition will return, and the carriers will be hard pressed to continue increasing rates … One exception … will be residential construction,” Newton said.

“I feel that certain parts of the market will last longer than others,” Anderson said. “My best guess, I think by the end of this year you’ll see the market starting to soften significantly… If there are attractive markets that can be corrected by rate increases and selective underwriting, you’re going to see people get competitive again.”

Jim Hippard, president of Yates & Associates, and Michael Heagerty, president and CEO of H.W. Gorst Co., both located in California, speculated it will be up to two years before the market will turn. Heagerty pointed out that the market has traveled from east to west, a comment that Hippard agreed with. “I think the west coast is going to last longer than some parts of the country. California was about the last to get hit this time, and the heartland got hit before the west, but after the east coast,” Hippard said.

Hippard added, “This is the fourth hard market I’ve been involved in my 30-plus years. In the early 70’s, it lasted for about a year and a half to two, and in the late 70’s, it lasted about two years, then the one in ’85 lasted about a year and a half into about mid ’86. This one’s been going on for awhile, and I think it’s going to be the longest.”

Although the predictions varied, everyone in the insurance industry can agree on at least one thing. Borisoff summed it up: “Ultimately, I’m looking for a stable market.”