Workers’ Compensation Remained Outlier as Commercial Prices Continued Rising in Q4

March 9, 2021

U.S. commercial insurance prices again grew significantly in the fourth quarter of 2020.

Again, except for workers’ compensation.

According to Willis Towers Watson’s Commercial Lines Insurance Pricing Survey (CLIPS), prices charged on policies underwritten during the fourth quarter of 2020 were 10% above those charged for the same coverage and quarter in 2019. That’s the highest increase in the 18-year history of the CLIPS.

Data for nearly all lines indicated significant price increases in the fourth quarter with the largest increases coming in excess/umbrella liability and directors’ and officers’ liability.

The outlier continues to be workers’ compensation, which indicated a slight price reduction, in contrast with all other surveyed lines.

“Commercial insurance prices continued their rise during the fourth quarter and even exceeded double-digit increases, marking the highest rate in the four quarters of 2020,” said Yi Jing, director, Insurance Consulting and Technology, Willis Towers Watson.

Jing noted that workers’ compensation prices are now flattening after the last 22 quarters of rate decreases.

Commercial auto price increases were near or above double digits for the thirteenth consecutive quarter, while commercial property coverage saw near or above double digit increases for the seventh consecutive quarter.

Specialty lines price increases in aggregate were well into double digits, driven by directors and officers and medical professional liability lines.

Price changes for most lines were consistent with the increases in the third quarter survey and differed by account sizes with small accounts muted, mid-market accounts into double digits and large accounts well into double digits.

Claim cost trends from the surveyed data indicated that loss ratios (excluding catastrophes) for accident year 2020 project to be lower than 2019 across all surveyed lines except workers’ compensation.

The fourth quarter CLIPS pricing data is consistent with reports from Marsh and some large carriers.

Marsh reported commercial insurance prices increased 17% in the U.S. for fourth quarter of 2020, and globally by 22%. In the U.S., financial and professional lines rates increased 28% in Q4, driven by D&O pricing, according to Marsh’s survey.

The Marsh index showed that price increases may be starting to plateau for some lines of insurance in certain geographies. For example, property insurance and D&O insurance pricing in the U.S. showed signs of moderating increases.

Marsh said workers’ compensation pricing in the U.S. continued to decrease slightly, although some insurers have been seeking higher rates at renewal because claim reserves are trending upward and there is a lack of interest income

Chubb’s North America Insurance arm said that its commercial P/C rate increases averaged 16.5% during the fourth quarter. CNA Financial Corp. benefited significantly from rate hikes and premium growth in Q4. Rate hikes were also a growth engine in the fourth quarter for W.R. Berkley Corp., where excluding workers’ compensation, average rate increases surged by 15.4%, with no sign of moderation in the months ahead.

In July, W.R. Berkley Corp. CEO W. Robert Berkley Jr. suggested that the trend of workers’ compensation carriers declining could start reversing itself in 2021.

“I would not be surprised as we make our way into 2021 if you started to see a change in trend, and rates actually started to move up next year,” Berkley said during the company’s Q2 2020 conference call for analysts and investors.

“As it relates to workers’ comp, which has been marching to the beat of its own drum, we are seeing the early signs that workers’ compensation pricing may be in the early stages of bottoming out,” Berkley said.

The Travelers’ CEO Alan Schnitzer expressed a similar view in July about workers’ compensation pricing going forward. Schnitzer said that while the line has been profitable for several years and prices have been going down, prices may be “at or near the bottom.”

[Note: An earlier version incorrectly identified Schnitzer as The Hartford CEO. Insurance Journal regrets the error.]

Fitch analysts note that workers’ compensation insurance has been the most consistently profitable segment in U.S. commercial lines over the last five years, with a 91% average combined ratio from 2015-2019.

However, Fitch has warned that workers’ compensation underwriting performance will likely deteriorate in 2021, as claims activity normalizes with increased business activity and premium revenue continues to fall amid recent underwriting exposure reductions and competitive pricing forces.

CLIPS data are based on both new and renewal business figures obtained directly from carriers. For this most recent survey, 38 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds) contributed data.

Source: Commercial Lines Insurance Pricing Survey

Topics Trends Workers' Compensation Commercial Lines Talent Pricing Trends

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