What often drives down rates in a soft market?

In a soft market, one of the primary factors that leads to reduced rates is the high levels of insurer competition. As multiple insurance companies vie for the same pool of customers, they often lower their prices to attract policyholders. This competitive environment can encourage companies to offer more favorable terms and endorsements, further driving rates down.

In a soft market, insurers may be more willing to take on risks, leading to an influx of new policies and an overall increase in capacity. This scenario typically results in lower premiums as companies aim to capture market share. Insurers may also diversify their offerings, providing more options for customers at competitive prices, which is another characteristic of a soft market.

While low claims frequency can also help lower rates, it is the competitive dynamic among insurers that primarily characterizes a soft market. Other factors like demand for higher coverage or government intervention play lesser roles in influencing rates compared to the impact of competition among insurers.