U.S. commercial lines see price increases across the board for the first time in eight years

U.S. commercial insurance prices increased in aggregate by nearly 1.5% during 2011 Q2, the first time in eight years (since 2003 Q4) that all standard commercial lines showed an uptick in pricing, according to a study by Towers Watson.
Towers Watson says its most recent Commercial Lines Insurance Pricing Survey (CLIPS) findings are consistent with preliminary results from a soon-to-be released Towers Watson survey.
In that forthcoming survey, 75% of chief financial officers said standard property market prices were at the bottom of the soft market or turning upward.
Furthermore, although 87% of the CFOs believe the casualty market is still soft or at the bottom of the cycle, 80% of these CFOs said it is within two years of hardening.
“It is too early to definitively call this a hardening market, but CLIPS results and the outlook of CFOs are pointing in that direction,” said Bruce Fell, managing director of Towers Watson’s property and casualty practice in the Americas. “Commercial property prices were likely influenced by catastrophes earlier in the year and the level of price increases is not enough to avoid continued increases in loss ratios.
“However, it is significant that all of the standard lines of business indicated increases in the second quarter. We believe the third and fourth quarter indications will provide a more complete view of the industry’s direction.”
The CLIPS study found the increase was led by workers compensation and commercial property, which increased for the first time in more than a year. Price increases were observed across all account sizes for standard commercial lines, but they were more pronounced in mid-market and large accounts.
The survey also asked companies about their use of predictive modeling. Results indicate that companies that use predictive modeling for pricing/risk tiering and risk selection are achieving greater price increases (or smaller price decreases) than those that do not, consistent with surveyed results from the second quarter of 2010.
More than 50% of reported premium volume corresponds to companies reporting use of predictive modeling for pricing/risk tiering, and more than 30% corresponds to carriers reporting use of predictive modeling for risk selection.