What is a characteristic of a hard market in insurance?

In the context of an insurance market, a hard market is characterized by higher rates and stricter underwriting practices. During a hard market, insurers face increased claims costs and may experience losses. As a result, they adjust by raising premiums to maintain profitability and become more selective in the risks they underwrite. This often leads to tighter conditions for obtaining coverage, with insurers requiring more detailed information about prospective clients to assess risk.

Higher rates reflect the increased costs to the insurer, which can stem from various factors such as economic conditions, natural disasters, or an increase in claims frequency or severity. Stricter underwriting practices mean that insurers are less willing to take on risks that they would have accepted during a soft market, where competition is higher, leading to more lenient terms and conditions.

The other options do not accurately reflect the characteristics of a hard market. Lower rates and more flexible policies describe a soft market, where competition drives prices down and insurers are more willing to customize policies to attract clients. Longer policy durations and lower risks are also more typical of a stable market where both insurers and policyholders feel secure. Greater employer negotiation capabilities imply a favorable situation for employers, which usually aligns with more competitive conditions present in a soft market.