Hard and soft markets: why car insurance prices move in cycles

Car insurance prices move in cycles because insurers set them before they know what claims will cost, and then competition and capital push the price too low or too high. When claims run well below premiums, insurers compete for customers and prices flatten or fall (a soft market). When losses overrun premiums and their capital shrinks, insurers raise prices and tighten who they accept (a hard market). The prices you saw lagged behind costs in both directions, which is why they felt flat for years and then jumped.

Personal auto follows this pattern more gently than commercial lines, but the pattern is visible in recent data. Between 2020 and 2022 the liability combined ratio, the measure of whether premiums covered costs, swung more than 16 points. The pages below explain what causes the swings, why they take so long to show up in your renewal, how to read the signs in public data, and what each phase means if you are shopping.

What the underwriting cycle is

Economists call the repeating pattern of soft and hard markets the underwriting cycle. In a review published in the Journal of Insurance Issues, Temple University risk professor Mary Weiss describes it as repeating, regular periods of soft and hard markets: in a soft market coverage is readily available at reasonable prices, while in a hard market prices are high and coverage is limited. In Weiss's 2007 synthesis, the cycles historically averaged six years in length, although she notes some research questions whether that has been lengthening. She also notes that soft markets have been associated with higher insolvency rates among insurers.

The cycle is a puzzle for economists, because in a perfectly competitive market prices would follow expected costs without swings. Weiss reviews the competing explanations. Several matter for a driver:

• Lags. Data collection, regulation and policy renewal periods slow the path from a change in costs to a change in price, which makes results look cyclical even when each insurer is acting sensibly.
• Capital and capacity. When losses eat into an insurer's surplus, it can write less business unless it raises prices or finds new capital. As profits rebuild the surplus, capacity returns and prices fall.
• Cash-flow underwriting. When interest rates are high, an insurer may accept thinner underwriting margins to get premiums to invest, then pull back when losses or rates move against it. Our companion article, do interest rates and investment income change your premium?, covers that link.

Weiss ends by saying the explanations are tangled and that it is unclear how much of the cycle is an artifact of how the industry works and how much comes from real shocks. So when you read a confident claim about what causes it, remember that researchers have not settled it.

The measuring stick: the combined ratio

To talk about the cycle you need a measure of whether prices cover costs. Insurers use the combined ratio. It adds the loss ratio (claims paid and reserved, plus the cost of adjusting claims, as a share of premium) and the expense ratio (commissions, overhead, taxes and advertising as a share of premium). Under 100 means the insurer kept more in premium than it spent on claims and expenses; over 100 means an underwriting loss, before investment income.

Here is a hypothetical, not any company's data. For every $100 of premium earned, an insurer pays $72 in claims and claim expenses and $27 in other expenses. Its combined ratio is 99, a $1 underwriting profit. If claims then rise to $82 and expenses stay at $27, the ratio becomes 109, a $9 underwriting loss on each $100.

The industry has published figures for personal auto. Triple-I, citing NAIC data from S&P Global Market Intelligence, reports these combined ratios after policyholder dividends on its auto insurance facts page, as read in November 2026:

Read those numbers as a story. In 2020 insurers were comfortably profitable. The same page's ISO figures show about 0.78 bodily injury claims per 100 car-years that year, compared with 0.93 in 2019, a fall in claim frequency. By 2022, claim costs had overtaken premiums on both sides, with ratios above 111. Prices responded. Triple-I, citing the Bureau of Labor Statistics, shows the consumer price index for motor vehicle insurance up 82.7 percent cumulatively from 2016 through 2025, including 6.0 percent in 2025. By 2024 and 2025 profitability had returned, strongly so in physical damage, and in the BLS's September 2026 CPI table the motor vehicle insurance index was down 5.0 percent over the 12 months.

The table also shows why a single label such as "soft market" is too blunt. In 2025 collision and comprehensive were at 81.0, a very profitable level, while liability, at 100.2, was only at break-even before investment income. Insurers can cut rates where the margin is wide and hold them where it is not.

What a soft market looks like

A soft market follows a stretch of good results. The signs are consistent across lines, though the details differ.

1. Profits invite competition. An insurer sees that its combined ratio is well below 100 and tries to grow by lowering its rates or spending more on marketing. Others follow. See why big insurers spend billions on advertising and what you pay for it for how marketing budgets interact with this.
2. Margins thin. As rate increases get smaller and discounts get bigger, the gap between premium and cost narrows.
3. Underwriting loosens. Companies accept applicants they would have declined, relax rules on prior claims or lapses, and reduce nonrenewals.
4. Rate changes shrink. AM Best reported in May 2026 that the average approved personal auto rate change across its state filings was 3.7 percent in 2025, down from 9.7 percent in 2024, which it said returned annual increases to pre-pandemic levels. It said the shift "may signal stabilization" after a period of higher increases. Its report also said that rates in California, Nevada, New Jersey and New York remained disproportionately high in 2025. See the InsuranceNewsNet summary of the AM Best report.

A soft market is pleasant for buyers and risky for insurers. Weiss notes the association with higher insolvency rates. The danger is that prices fall below the cost of the claims they will have to pay, and the shortfall only appears later, because auto claims, particularly injury claims, are paid months or years after the premium is collected.

What triggers a hard market

A hard market starts with a run of losses. In personal auto the trigger is usually some combination of rising claim frequency, a spike in repair and used-car prices, and medical or legal costs climbing. See how used-car prices and parts costs feed into your premium and how medical costs and injury claims shape what you pay for liability for two of the drivers.

Weiss describes the mechanism in terms of leverage. An adverse loss shock reduces underwriting profit and the insurer's surplus (its capital), which pushes up the ratio of premiums written to surplus. The market hardens as insurers cut the volume they write and raise prices to bring that ratio back to a comfortable level. In this account, capital builds back from retained earnings, and then slack capacity brings prices down again.

A hypothetical shows the arithmetic. Say an insurer has $1,000 of surplus and writes $2,000 of premium, a 2-to-1 ratio. A bad year costs it $150 in underwriting losses and the surplus drops to $850. At the same premium volume the ratio is about 2.35 to 1. To get back toward 2 to 1 it can write less ($1,700 of premium), raise rates so each dollar of premium carries more margin, or raise new capital. Rating agencies and regulators watch capital relative to premium, which is why a company in this position often does both of the first two things at once.

What drivers see during a hard phase:

• Large renewal increases, even with a clean record.
• More non-renewals, tighter acceptance rules, and fewer new-business quotes in some states.
• Tighter options on deductibles or optional coverages at some insurers.
• In extreme cases, an insurer stopping new sales in a state.

Our guide why your premium went up at renewal with no claims covers how to find out which of these applies to a specific renewal.

Why the price lags the cost

A key reason the market feels flat and then jumps is the lag between a cost change and a price change. Here is a hypothetical timeline for a single insurer, not a real filing.

1. Months 1 to 12. Claim costs rise in the first year. Many claims are not yet closed, so the full picture is not visible. Insurers set reserves, which are estimates of what open claims will cost.
2. Month 13 to 15. The insurer compiles the year's data, trends it forward, and prepares a rate filing.
3. Month 16 to 18. The state reviews the filing. Some states require prior approval; others allow file-and-use or similar systems. Review time and outcomes vary, and regulators may approve less than requested.
4. Month 19. The new rates take effect for new business and for renewals from that date.
5. Months 19 to 31. A policy with a six-month term renews with the new rate within six months; a 12-month policy within a year. Premium is earned gradually over the term, so the full effect on revenue arrives about a year after the effective date.

On this timeline, the cost shock is fully in premium revenue about two and a half years after it started. In the meantime a second or third shock can arrive. That is why a hard market can last past the point where underlying costs have stopped climbing: the premium is still catching up. It is also why a soft market can start while the books look good: the premium collected is still higher than the claims from the period. See from filing to your bill: the timeline of an auto rate increase and how car insurance rate approval works for a fuller look at the steps.

Weiss's review points to the same set of lags, listing data collection, regulation and policy renewal periods as the reasons price changes follow cost changes. She also notes research suggesting that some of these lags have shortened: computers cut data delays, price regulation has become less stringent in some places, and insurers use shorter policy terms in key lines such as auto, which allow them to reprice more often.

Why personal auto is smoother than commercial lines, but still real

Commercial liability lines have historically swung harder. Weiss recalls the mid-1980s liability crisis, when liability insurance became so scarce that some day care centers closed. Personal auto has been spared that kind of break for reasons that are structural:

• Shorter terms. Six-month and 12-month policies reprice sooner than multi-year or long-duration commercial arrangements.
• Large, diverse pools. Millions of similar policies make results more predictable than a small book of large commercial risks.
• Regulatory involvement. Rates in most states are reviewed by a regulator, which can slow very large increases and very deep cuts. Weiss lists as an open question why regulation and regulatory lag seem to affect auto insurance but not commercial lines.
• Claim types. Auto claims are frequent and relatively predictable compared with rare catastrophic commercial losses.

But the numbers above show the cycle is far from absent. A 16-point swing in the liability combined ratio from 2020 to 2022 and a 24-point swing in collision and comprehensive over the same two years (89.2 to 113.4) is a large change for a line that is called stable. "Smoother" is relative.

How to tell which phase the market is in

No single number gives the answer. Use several signals, each with its limits.

• The CPI for motor vehicle insurance. The BLS publishes this monthly. It measures the price of a fixed bundle of coverage, so it tracks price changes rather than total spending. A 12-month change that has turned negative suggests prices are easing on average. It was down 5.0 percent over the 12 months to September 2026.
• Approved rate changes. AM Best and state insurance departments publish rate filing outcomes. Falling average approvals point toward a softer market. Filings are also public in many states; see How to read a car insurance rate filing on SERFF.
• Combined ratios. Insurers that report publicly discuss them quarterly, and Triple-I and the NAIC publish industry data with a delay. Combined ratios well under 100 for several quarters tend to precede price competition.
• Your own inbox. If your renewal notice shows a decrease or flat price, and competitors are mailing offers and advertising heavily, that is a soft-market sign. If three quotes come back far above your current premium, that is a hard-market sign, or a sign about your own rating factors.
• State differences. The market is not uniform. The AM Best report found a few states, among them California and New York, with disproportionately high rates in 2025 even as the national average eased. Check your state, not just the headline.

AM Best's outlook for 2025 industry results, as summarized by Captive.com, said that rate trends in most major lines had stabilized or softened, which it said could put pressure on underwriting results in 2026. That is an analyst's view of the whole property and casualty sector, not a forecast for your policy.

What each phase means for shopping

The steps below apply in any market. The emphasis changes.

1. Compare quotes more often than once. Prices are set by company, and companies are in different positions in the cycle. In a soft market, some are cutting; in a hard market, some are still writing new business at better prices. Use the car insurance quote comparison worksheet.
2. Compare at identical coverage. In every phase, a lower quote may reflect lower limits or a higher deductible rather than a lower price.
3. Do not treat a low rate as permanent. A policy locks in a price only for its term. A very low price in a soft market can rise at renewal if the market turns.
4. Use the renewal checker. The renewal rate increase checker separates a rate-level change from changes in your own factors, such as a ticket or a new car.
5. In a hard market, expect friction. Ask about non-renewal rules in your state before you switch, and keep continuous coverage so you do not trigger a lapse surcharge.
6. Do not cut coverage you need. Raising a deductible or dropping an optional coverage cuts cost but moves risk to you. Decide on the risk, not the cycle.

Common questions

Why did prices feel flat for years and then jump?

Because prices lag costs. Premiums set in years of low claims stayed low, and the 2021 to 2022 rise in repair, used-car and injury costs showed up in the data in 2022, then in filings, then in your renewal. By then the increases looked abrupt. The Triple-I data show the liability combined ratio at 94.8 in 2020 and 111.3 in 2022.

Does a soft market mean prices will keep falling?

Not necessarily. It means insurers are competing, but costs can turn at any time. A soft market is also the condition that precedes the next hardening, because prices below cost eventually produce losses. No source can tell you the date it will turn.

Is the cycle the same in every state?

No. State regulation, litigation environment, weather, and competition differ, so states move at different speeds. AM Best's 2025 data show several states with disproportionately high rates while the national average was falling. Your state's insurance department publishes filings and trends.

Can I do anything about hard-market increases?

You can compare quotes, adjust coverage you understand, ask about discounts, and check that the information used to rate you is correct. You cannot change the market. For a dispute about a specific rate, contact your state department of insurance.

Key takeaways

• Auto insurance prices cycle because costs are uncertain when prices are set, competition erodes margins in good years, and losses and capital shortages force increases afterward.
• The combined ratio shows the phase: Triple-I data put liability at 94.8 in 2020, 111.3 in 2022 and 100.2 in 2025, and collision and comprehensive at 89.2, 113.4 and 81.0.
• Filing and approval lags mean prices reach the level of costs well after a cost shock starts, and the same lag lets a soft market begin while books still look good.
• As of September 2026 the BLS index for motor vehicle insurance was down 5.0 percent over 12 months, and AM Best reported smaller average approved increases in 2025, but conditions differ by state and coverage.
• Shop more often and compare at identical coverage in any phase; a low price in a soft market is not guaranteed at renewal.