Property and casualty insurance has traditionally been a cyclical industry, meaning it goes through phases of firm pricing and tight capacity followed by softer market conditions that tend to favor insurance buyers. The ups and downs of insurance cycles complicate brokers’ and insurers’ plans for profitable growth. Commission income increases relatively easily in the tailwind of a hard market cycle, but it’s difficult to notch commission growth in the stiff headwind of falling premiums. Can brokers achieve steady growth amid market cycles?
Consistent growth for brokers is challenging, but it is possible. A proven strategy for increasing top-line results is mergers and acquisitions. Beyond the basic numbers, integrating another successful brokerage firm can expand the combined entity’s market presence and service capabilities. That is why so many insurance brokers are committed to M&A. There is, however, another method to achieving steady growth: placement optimization.
To understand how placement strategy can work separately from, and in tandem with, M&A strategies, let’s look at how insurance market cycles themselves have evolved.
Historical Trends
An analysis of the P/C market by ALIRT Insurance Research shows the average hard market cycle since the 1980s lasted three or four years, followed by a roughly equal or longer soft cycle. From the 1970s until 2002, ALIRT found each hard market was punctuated by spikes in premiums and then precipitous drops in pricing. This pattern changed in 2018, however, when a combination of factors pushed P/C lines into a hard market that lasted into 2024–six years.
A notable departure from earlier decades is a longer, smoother set of pricing increases. If this pattern holds, insurance brokers and buyers will see incremental change in rates, rather than sharp peaks and valleys.
The shift away from the price spikes is a good thing for all
concerned. During severe hard markets, when capacity is constrained and rates are high, brokers lean heavily on their creativity and relationships with underwriters to meet clients’ coverage needs. Risk managers find large increases and declines in insurance pricing difficult to budget for and even harder to explain to their executive teams. Insurers, for their part, may see longtime policyholders buy less limit or leave altogether.
Insurance market conditions ahead appear to be stabilizing. Swiss Re forecasts that U.S. property and casualty insurers will see premium growth slow to 5% in 2025 and to 4% 2026, following a 10% average in 2024. The easing of economic inflation should help insurers’ results, but social inflation continues to drive claim costs in liability lines.
