What is meant by the term "insurance cycle"?

The term "insurance cycle" refers to the recurring pattern of fluctuating insurance rates and capacity in the market. This cycle encompasses phases of soft markets, where insurance premiums are low, coverage is abundant, and competition is high, as well as hard markets, characterized by high premiums, reduced capacity, and tighter underwriting standards. During a hard market, insurers may become more selective in underwriting and may increase rates as they seek to maintain profitability amid higher claims or losses.

Understanding the insurance cycle is crucial for both insurers and policyholders. Insurers need to navigate these cycles to manage their risk and profitability effectively, while policyholders need to be aware of these trends to make informed decisions about purchasing and renewing their policies. The cycle impacts how claims are handled, the availability of coverage, and overall market balance.

The other aspects mentioned such as high claims and low premiums, underwriting processes, or cycles of policy renewals, do not encapsulate the comprehensive nature of the insurance cycle. These elements may represent specific scenarios or practices within the insurance industry but do not reflect the overall market behavior and trends indicated by the term "insurance cycle."