Commercial Insurers Continue Raising Rates, Improve Loss Ratios: Towers Watson

December 10, 2012

Commercial insurance prices in aggregate increased by six percent during the third quarter of 2012, the seventh consecutive quarter that aggregate prices for all commercial lines rose.

The latest Commercial Lines Insurance Pricing Survey (CLIPS) conducted by Towers Watson compared price levels on policies underwritten during the third quarter of 2012 to those charged for the same coverage during the third quarter of 2011.

The largest price increases year over year included workers’ compensation, now approaching double digits, and employment practices liability, followed closely by commercial property, where price increases have moderated somewhat since last quarter. Increases have accelerated for each of the remaining surveyed standard commercial lines since the second quarter. Within standard commercial lines, midmarket and large accounts saw the largest increases this quarter. Specialty lines prices also continue to increase, but not as rapidly.

“In the current environment, underpricing of current business could seriously harm net income,” said Tom Hettinger, property/casualty sales and practice leader for the Americas, Towers Watson. “Declining reserve releases, combined with insufficient investment income, have put enormous pressure on earnings. Pricing discipline, as a result, is even more important — and underwriting results really need to perform well for the foreseeable future.”

Loss costs reported by participating carriers pointed to an improvement of more than three percent in loss ratios to date for accident-year 2012, relative to the same period in 2011, as earned price increases more than offset reported claim cost inflation. If this level is maintained through year-end and as losses develop, it will indicate a reversal from the estimated four percent deterioration between 2010 and 2011.

The Towers Watson report tracks with last week’s from MarketScout, which reported that commercial accounts pricing in the U.S. ticked up 5 percent in November 2012 compared to the same month in 2011.

CLIPS data are based on both new and renewal business figures obtained directly from carriers underwriting the business. According to Towers Watson, CLIPS participants represent a cross section of U.S. property/casualty insurers that includes many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S.

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