Commercial insurance prices in U.S. rise in 2013 Q3, pace softening: Towers Watson

Commercial insurance prices in the United States saw a 5% in aggregate increase during 2013 Q3 compared to the same quarter in 2012, notes Towers Watson’s latest Commercial Lines Insurance Pricing Survey (CLIPS).

Although the increase marked the “11th consecutive quarter of price increases, the gains appear to be tapering off, having dropped a point since the CLIPS edition from 12 months ago,” notes a statement issued Monday by the global professional services company.

For the last five quarters, the survey notes, reported price increases were between 6% and 7%. “Price increases by line of business were lower than those reported in the second quarter in all lines, with the exception of employment practices liability (EPL),” Towers Watson states.

The latest CLIPS compares carriers’ prices charged on policies underwritten during 2013 Q3 to those charged for the same coverage underwritten in 2012 Q3. Based on both new and renewal business figures, data were contributed by 43 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers’ compensation funds).

“The survey results are really in line with our expectations,” Tom Hettinger, Towers Watson’s property & casualty sales and practice leader for the Americas, says in the statement. “This hard market is somewhat different from hard markets we have experienced before. 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,” Hettinger reports.

Overall, survey results show that EPL experienced the largest price hike year over year, where price increases spiked into double digits. Workers’ compensation and commercial auto also showed substantial increases, although for most lines, these were in the mid-single digits. No line of business reported a price decrease.

“Mid-market accounts had higher price increases than large and small commercial accounts; specialty lines prices increased at a lower rate than standard lines,” notes Towers Watson.

Hettinger says carriers are reporting flat loss costs. “Yet 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.”

Historical claim cost information reported by carriers points to an improvement of 3% to 6% in loss ratios in accident YTD 2013 relative to the same period in 2012, as earned price increases offset reported claim cost inflation, the survey adds.