Commercial Lines Prices Up for 4th Straight Quarter: Survey

Commercial insurance prices increased an aggregate 3 percent during the fourth quarter of 2011, the fourth consecutive quarter during which prices for all standard commercial lines rose.

Additionally, earned price increases are beginning to offset portions of reported claim cost inflation levels, according to the most recent Commercial Lines Insurance Pricing Survey from professional services company Towers Watson.

CLIPS data reveal that, once again, prices for workers’ compensation and commercial property showed the largest quarterly increases — in the mid- to high-single digits— followed closely by general/products liability.

During the fourth quarter of 2011, workers’ compensation pricing continued to exhibit the increasing trend observed earlier in the year, after flat pricing during all of 2010. Prices for commercial property increased for the third consecutive quarter.

“While modest, aggregate increases in prices continued, and more importantly, these increases accelerated in each quarter of 2011,” said Thomas Hettinger, property/casualty sales and practice leader for the Americas at Towers Watson. “We are now at a point where we can ‘call the pricing turn’ in the market.”

CLIPS data also show that specialty lines as a whole were relatively flat, as directors and officers (D&O) liability pricing finally showed signs of stabilizing. The D&O liability line had been the last remaining holdout with respect to soft market conditions, with significant price reductions reported in each of the prior seven quarters.

Price increases were observed across all account sizes for the standard commercial lines, with the largest increases observed in mid-market accounts.

Historical loss cost information reported by participating carriers points to a 3 percent deterioration in loss ratios in accident-year 2011 relative to 2010. This indication is more favorable than the estimated level of 5 percent deterioration for the accident-year 2010 loss ratio over 2009, as earned price increases are beginning to offset portions of reported claim cost inflation.

“We will have a more complete picture of companies’ overall 2011 performance as we analyze year-end reserve adequacy and releases,” said Hettinger. “We have seen signs of insurers reacting to the deteriorating loss ratios by raising prices, and we are still getting an understanding of how strong pricing discipline will need to be to overcome the trends in losses.”

CLIPS data are based on both new and renewal business figures obtained directly from carriers underwriting the business. This particular survey compared prices charged on policies underwritten during the fourth quarter of 2011 to the prices charged for the same coverage during the same quarter in 2010. For the most recent survey, data were contributed by 41 participating insurers representing approximately 20 percent of the commercial insurance market (excluding state workers’ compensation funds).