May Commercial Pricing up 4%; Increases Expected for Jumbo Accounts

NU Online News Service, June 6, 10:19 a.m. EDT

MarketScout says the composite rate for commercial insurance placed in the U.S. in May was up 4 percent compared to the same month a year ago.

In his comments on the month's rate activity, Richard Kerr, chief executive officer of MarketScout, predicts additional increases in pricing for jumbo accounts (more than $1 million) as insurers self-cure themselves from what he calls the “Show Pony Syndrome.”

“It's not unusual for underwriters to aggressively price jumbo accounts because of the cache they bring,” Kerr says. “Fortune 100 'Show Pony' accounts bring bragging rights, but sometimes rates do not justify the exposure.”

Pricing for jumbo accounts was up 1 percent in May. Small and medium accounts were up 4 percent, with large accounts seeing a 3 percent increase in pricing, according to MarketScout's Market Barometer.

“Some major insurers value Fortune 100 accounts more than they would a spread of 100 accounts at the same premium with significantly lower loss ratios,” Kerr adds. “Economically, it doesn't make sense but a few major commercial insurers are extremely aggressive when pricing jumbo accounts.”

Kerr adds that it is difficult to compare jumbo accounts to smaller accounts because the jumbo accounts involve captives, high retentions and heavy reinsurance.

By coverage class, pricing in workers' compensation and commercial property was up 5 percent. Pricing for business owners' policies was up 4 percent.

By industry, 4 percent increases were seen in manufacturing, contracting, habitational and transportation. Three percent increases were observed in service, public entity and energy accounts, says MarketScout's analysis, which is aided by a pricing survey conducted by The National Alliance for Insurance Education and Research.

Commercial property and casualty rates were up 3 percent in April compared to April 2011.

PERSONAL LINES UP 2% IN MAY

The barometer for personal-lines accounts shows a 2 percent rate increase in for May.

Kerr says rates in coastal areas are rising as wind season approaches, and many admitted insurers are pulling back.

Each segment tracked—personal articles, auto, and homes valued below and more than $1 million were each up 2 percent.

Kerr says, “The actual effective rate is higher than measured on a renewal vs. expiring basis because many of the new quotes do not include as much coverage and implement higher deductibles.”  

In reporting a 1 percent rate increase for personal lines in April, MarketScout observed rate increases of 5 to 12 percent for wind-exposed areas.