Which market conditions lead to higher workers' compensation premiums?

The correct answer is grounded in the nature of market conditions and their impact on insurance premiums. A hard market is characterized by a decline in the availability of insurance coverage, leading to higher premiums and stricter underwriting standards. In such conditions, insurers become more cautious in their assessments due to increased claims or losses, which results in elevated pricing for policies, including workers' compensation.

During hard market conditions, fewer insurers are willing to offer policies, and those that do may raise their rates substantially to compensate for perceived risks and potential losses. In contrast, a soft market typically features lower premiums and more favorable terms for policyholders as competition among insurers increases, leading to greater coverage options and affordability.

Competitive markets also imply more options for consumers and often lower premiums, while open markets further contribute to increased competition among insurers. In summary, hard markets are distinct for their tendency to raise premiums, making them the primary factor in determining higher workers' compensation costs.