American Institute Of Constructors (AIC) Level 2 Practice Test

Which feature is associated with a hard market?

Less supply, higher demand, price increases, stricter underwriting Higher demand, more supply Lower demand, lower prices Less supply, lower prices

Correct Answer:

Less supply, higher demand, price increases, stricter underwriting

Explanation:

In a hard market, insurance capacity shrinks and buyers must compete for the available coverage. That tighter capacity leads to higher prices, as insurers charge more for the risk they take on. At the same time, underwriters tighten their standards, demanding more information and applying tougher terms to reduce risk. The combination of less supply, rising prices, and stricter underwriting is the hallmark of a hard market, and it’s why this option fits best: it recognizes the reduced capacity, increased cost, and tougher risk assessment that characterize the market. The other scenarios describe softer conditions—more capacity with lower prices and looser underwriting—or mix signals that wouldn’t align with a hard market.

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