Commercial Insurers Warned to Avoid 'Soft Market' Mistakes

In a decisively soft market, commercial insurers will have to tweak their approach to profitability and growth. Of course, some carriers are in a more precarious position than others.

Whether it’s a matter of carriers holding a high volume of policies in particularly challenging segments, such as State Farm with a wildfire-exposed commercial multi-peril business and American Transit Insurance Company with commercial auto, or it’s a pattern of underperforming underwriting commercial lines results as seen with Erie Insurance, this market may add further strain to existing vulnerabilities.

But certain attempts to shore up defenses, be it dropping rates, upping risk appetite, eliminating exclusions or skimping on reinsurance, are ill-advised.

“It has been very well telegraphed that we’re in a softening market,” said Tana Marcom, senior director at Fitch Ratings.

“Companies that maintain their pricing and their underwriting discipline today are the ones who Tana Marcom, Fitch Ratings are going to be best positioned when the next hard market inevitably arrives.”

But that may be easier said than done. According to the report by the Council of Insurance Agents & Brokers, premiums declined on average collectively across all account sizes for the first time since 2017, while rates fell across nine of the 16 lines of business, including commercial property, workers compensation, cyber and marine. On average, commercial premiums fell by 1.2% in the first quarter of the year, with large accounts dropping as much as 2.7%. Commercial property saw the biggest rate drop of the segments, at 5.5%.

While admitted commercial line pricing is weakening, the non-admitted segment is plummeting. In May, excess and surplus pricing in the U.S.’s four biggest markets – California, Texas, Florida and New York – dropped by 21%, according to a report by Jefferies.

Insurers with a substantial portion of the policies in competitively priced segments might feel pressure to lower their own rates aggressively to maintain or even increase policyholders; this would likely be a mistake, underscored Marcom.

“Maintain your pricing above trend, even if it’s at the cost of retention,” she said. “The best carriers are willing to sacrifice top-line growth to maintain their bottom-line profitability.”

But even respected underwriters can be impacted by the soft market. For example, it’s possible that Chubb already felt the impact of inadequate pricing for property coverage, with the carrier seeing its direct simple combined ratio for the segment deteriorate by nearly 13% in 2025. The fallout from the Los Angeles wildfires contributed to the setback.

Will Dogan, SVP of product and solution management at tech solutions company Patra, noted that carriers inevitably feel pressured to grow policy volume to maintain revenue, whether by expanding into new segments or broadening their overall risk appetite.

“What follows, almost predictably, is a spike in submission flow that often shows up before carriers put the necessary controls and staffing in place,” Dogan explained. “Submission volume into a carrier can jump 30% to 50% in a quarter, and underwriter processing just buckles.”

Dogan, who has worked closely with carriers on the operational end of insurance distribution, also warned against the instinct to automate the ingestion, triage and quoting process.

“That works when the underlying workflow is clean, but in a soft-market rush, it usually isn’t,” he said. “Imperfect automation layered on top of a struggling intake process doesn’t fix the problem. It accelerates it.”

Does that mean growth is automatically a bad sign? Markedly, several carriers saw their direct premiums written in commercial lines increase by 10% between the first quarter of 2026 and the same period last year: Zurich, State Farm and QBE. Indeed, according to S&P Capital IQ Pro data, Zurich saw its commercial direct premiums written grow by 21% in Q1, with notable upticks in commercial other liability lines. While a big chunk of that uptick is likely related to rate hikes, it’s likely the growth is also coming through an uptick in policies-in-force as well.

For its part, Zurich’s combined ratio for Q1 improved by nearly seven percentage points compared to the previous year, landing at about 95.8% – this may suggest a strengthened underwriting performance amid an improvement in operational efficiency.

Sidharth Ramsinghaney, director of strategy and operations at tech solutions company Twilio, pointed out that the danger of expansion often comes down to inexperience and underestimation. If a carrier pushes into a new line or region to grow their book without the claims infrastructure or reserves to support it, that’s when they get into trouble.

“The carriers that come through soft markets in stronger shape tend to have made explicit choices about what they would not write, rather than letting production pressure make those choices by default,” he said.

Marcom added that carriers may also be tempted to waive or relax certain coverage restrictions or exclusions to boost policyholder retention. This would be another risky move, especially in segments driving high loss ratios. For example, while commercial auto pricing is still up – in fact, premiums increased by 5.8% in Q1 amid rate hikes, according to CIAB – the segment remains unprofitable, with a net combined ratio of 102% and a loss ratio of 65.4% in 2025, according to S&P Global Market Intelligence.

Auto-Owners, for example, found itself on the list of 17 carriers responsible for over half of the legal costs spent by commercial insurers last year. In total for the aforementioned insurers, these costs, which include attorneys’ fees, expert witness fees and other litigation services, amounted to nearly $40 billion in 2025. Auto-Owners incurred nearly $835 million in direct defense and cost containment expenses.

Another move carriers may consider is expanding their net exposure, or financial risk, to offset competitive rate pressure. This means buying less reinsurance to retain more business directly, Marcom explained.

Overall, carriers with a history of poor underwriting performance will be at an obvious disadvantage in a softening market, and in turn, may be tempted to look for ways to make up the numbers.

As previously reported, nine carriers, including American Transit, Erie and Curi, had an average combined ratio above 100 between 2021 and 2025, according to S&P Capital IQ Pro. Notably, one-third of the cohort are medical liability insurers, while American Transit – the Freeport, based carrier that is infamously on the brink of insolvency – is a commercial auto insurer with an average combined ratio of 159% over four years.

For carriers that have consistently produced strong underwriting results, the best thing they can do is trust their data.

“When conditions change, there’s a tendency to start questioning data and rationalizing decisions based on speculation about what it shows,” said Jim Dwane, CEO of MISSION Underwriters. “That’s exactly when confidence in sound data matters most, because it keeps pricing decisions grounded.”

Dwane noted that strong relationships with customers, leadership with clear and concise priorities and hyperspecialized, nimble underwriters are all sizeable advantages in a softening market.

That being said, 2026 is not necessarily a year of doom and gloom for commercial lines. Marcom highlighted that Fitch maintains a neutral outlook for the market, adding that commercial carriers achieved an average combined of 96% for 2025. But that doesn’t mean there won’t be outliers.

“Overall, the commercial lines industry results do remain strong,” she said. “While margins are going to compress a bit, we’re still expecting underwriting profitability this year.”