Filed Under:Agent Broker, Commercial Business

Towers Watson: Commercial Lines Rates Up Again, but Increases May Moderate

Commercial insurance prices increased by 5% in aggregate in 2013’s third quarter, says Towers Watson, but the risk consultant forecasts the hardening trend will taper.

Data from the Towers Watson Commercial Lines Insurance Pricing Survey (CLIPS), obtained from 43 insurers representing about 20% of the U.S. property and casualty commercial-insurance market, shows the Q3 increase follows 11 consecutive quarterly price hikes.

However, aggregate pricing dropped by a point since the same period last year.

Prices increased by about 6% from the second quarter of 2011 to the second quarter of 2012. The rate of increase stayed flat at about +6.5% through this year’s second quarter, but then dropped by about a point by the third quarter of 2013.

“This hard market is somewhat different from hard markets we have experienced before,” says Tom Hettinger, Towers Watson’s P&C sales and practice leader for the Americas.

“Carriers are taking rate, which is logical, as they focus on measuring the capital required to support the business rigorously and realistically, and adjust their return expectations accordingly.”

Employment practices liability experienced the largest year-over-year price increase.

Price increases across all lines were smaller compared to the prior quarter, except for EPL. Mid-market accounts had higher price increases than large and small commercial accounts, and specialty lines prices increased at a lower rate than standard lines.

Loss ratios are “benign”, says Hettinger, as the change in earned loss ratios between accident years 2012-2013 have fallen by about 6%, a 1.5% improvement since the Q3 2011- Q3 2012 reporting period.

Still, says Hettinger, “the explicit recognition of risk, whether in the form of investment yield, inflation risk or catastrophe exposure, seems to be leading to much more disciplined pricing decisions.”

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