Commercial insurance prices rose by almost 7% in aggregate during the fourth quarter of 2012, marking the eighth consecutive quarter of price increases and the fourth showing increases across every line surveyed, according to the latest Commercial Lines Insurance Pricing Survey (CLIPS) conducted by Towers Watson, a global professional services company. The survey compared pricing data reported by carriers on policies underwritten during the fourth quarter of 2012 to those charged for the same coverage during the fourth quarter of 2011.
Although commercial insurance prices continued their year-over-year upward trend, movements from the prior survey were slight, indicating a pause in the acceleration observed since the start of 2011. These price change indications were generally consistent with price increases from the prior survey, except for specialty lines, where the survey indicated somewhat larger gains than were reported in the third quarter.
Workers compensation and employment practices liability had the largest price increases year over year, both approaching double digits. For most commercial lines, increases were reported to be in the mid-to upper-single digits, with all lines of business surveyed showing increases of at least 3%. Standard commercial accounts of all sizes saw rising prices, with larger gains observed in mid-market and large accounts. Specialty lines prices rose at a slower rate than standard lines prices.
Historical loss cost changes reported by participating carriers pointed to an improvement of almost 4% in loss ratios in accident-year 2012 relative to 2011 (excluding catastrophes), as earned price increases continued to more than offset reported claim cost inflation. This indication is a reversal from the estimated 3% deterioration between 2010 and 2011. Carriers reported claim cost inflation estimates of 1% for 2012, which is the second-lowest inflation estimate reported since the launch of CLIPS in the summer of 2005.
"Price increases taken in 2012 will push 2013 loss ratios down, assuming moderate loss inflation," said Tom Hettinger, Towers Watson's Property & Casualty sales and practice leader for the Americas.
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 2012 to the prices charged for the same coverage during the same quarter in 2011. For the most recent survey, data were contributed by 41 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds).
CLIPS participants represent a cross section of U.S. property & casualty insurers that includes many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S. Measurement of both pricing changes and loss ratio changes also sets CLIPS apart from other studies. Participation in CLIPS has been strong, as carriers believe it provides a more accurate picture of price changes, and find it useful in setting assumptions for product pricing and estimating claim liabilities.