2025 Commercial Insurance Market Outlook

The commercial insurance market is cyclical in nature, fluctuating between hard and soft markets. These cycles affect the availability, terms, and price of commercial insurance, so it’s helpful to know what to expect in both a hard and soft insurance market.
A soft market, which is sometimes called a buyer’s market, is characterized by stable or even lowered premiums, broader terms of coverage, increased capacity, higher available limits of liability, easier access to excess layers of coverage and competition among insurance carriers for new business. On the other hand, a hard market, sometimes called a seller’s market, is characterized by increased premium costs for insureds, stricter underwriting criteria, less capacity, restricted terms of coverage and less competition among insurance carriers for new business.
As we continue into 2025, the market is expected to soften for certain lines of coverage, building off the momentum and easing conditions created in 2024. Experts believe 2025 will be characterized by looser underwriting and broader coverage (notably for directors and officers liability and cyber insurance insureds), pointing to a gradual market softening. Still, certain trends and uncertainty could create volatility, and some lines of insurance remain challenged.
Many factors affect insurance pricing, but the following are some of the most common contributors to market changes:
- Catastrophic losses—hurricanes, wildfires, wind & hail, etc.—Floods, hurricanes, wildfires and other natural disasters are increasingly common and devastating. Years of costly disasters like these have compounded losses for carriers, driving up the cost of coverage overall, especially when it comes to commercial property policies.
- Underwriting profitability—Underwriting profits refer to the difference between the premiums a carrier collects and the money paid out in claims and expenses. When an insurance company collects more in premiums than it pays out in claims and expenses, it will earn an underwriting profit. Conversely, an insurance company that pays more in claims and expenses than it collects in premiums will sustain an underwriting loss. The company’s combined ratio after dividends is a measure of underwriting profitability. This ratio reflects the percentage of each premium dollar an insurance company puts toward spending on claims and expenses. A combined ratio above 100 indicates an underwriting loss.
- Mixed investment returns—Insurance companies also generate income through investments. Commercial insurance companies typically invest in various stocks, bonds, mortgages and real estate investments. Due to regulations, insurance companies invest significantly in bonds. These provide stability against underwriting results, which can vary from year to year. When interest rates are high and returns from other investments are solid, insurance companies can make up underwriting losses through their investment income. However, when interest rates are low, carriers must pay close attention to their underwriting standards and other investment returns.
- Economic Factors—interest rates and inflation—The economy also affects an insurance company’s ability to write new policies. During periods of economic downturn and uncertainty, some businesses may purchase less coverage or forgo insurance altogether. Additionally, a business’s revenue and payroll, which factor into how premiums are set, may decline. This creates an environment where there is less premium income for carriers.
- Social inflation—increased cost of litigation—Prolonged periods of inflation can make it challenging for insurance carriers to maintain coverage pricing and subsequently keep pace with more volatile loss trends. Unanticipated increases in loss expenses can result in higher incurred loss ratios for insurance carriers, particularly as inflation affects key cost factors (e.g., medical care, litigation and construction expenses).
- The cost of reinsurance—Generally speaking, reinsurance is insurance for insurance companies. Carriers often buy reinsurance for risks they can’t or don’t wish to retain fully. It’s a way for carriers to protect against extraordinary losses. As a result, reinsurance helps stabilize premiums for regular businesses by making it less risky for insurance carriers to write a policy. However, reinsurers are exposed to many of the same events and trends affecting insurance companies and make pricing adjustments of their own.
Additional Factors Influencing Insurance Rates
In addition to the above, here are other key factors that may influence your insurance rates:
The coverage you’re seeking—The forms of insurance you’re seeking, as well as the details of such coverage (e.g., limits of liability and value of the insured property), affects the price of your insurance.
The size of your business—As a general rule, the more employees your business has and the larger your revenue is, the more you pay for your insurance.
The industry in which you operate—Certain industries carry more risk than others. In general, businesses in these sectors are more likely to file insurance claims. As such, businesses involved in risky industries tend to, on average, pay more in insurance premiums.
The strength of the leadership team—Strong leadership fosters a culture of accountability and compliance, which can lead to fewer incidents and claims; this, in turn, can potentially result in more favorable premiums.
The company’s financial strength—Financially stable companies are seen as less risky and more capable of maintaining safety measures and promptly addressing potential hazards.
The location of your business—The location of your business will also influence your insurance rates. If your business is in an area prone to certain natural disasters, carriers may determine that your facility is more at risk for property damage. This increased risk translates to higher premiums.
Your claims history—Your business’s claims history, often referred to as loss history, also has an impact on insurance rates. If your business has an extensive claims history, then insurance carriers tend to consider your company more likely to file future claims. This means that your business is viewed as risky to insure, subjecting you to higher commercial insurance premiums.
Your risk management practices—Now more than ever, conducting a careful assessment of your business’s unique exposures and establishing effective, well-documented risk management practices can make your establishment more attractive to insurance carriers. After all, having a robust risk management program in place reduces the likelihood of costly claims occurring and minimizes the potential losses your business could experience from an unexpected event.
Contact CoyleKiley Insurance Agency, Inc. for more wellness resources.
The content of this News Brief is of general interest and is not intended to apply to specific circumstances. It should not be regarded as legal advice and not be relied upon as such. In relation to any particular problem which they may have, readers are advised to seek specific advice. © 2025 Zywave, Inc. All rights reserved.
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