In an indication that the market may be hardening, commercial insurance prices in aggregate increased by nearly 1.5% during the second quarter of 2011 the first time since the fourth quarter of 2003 that all standard commercial lines showed an uptick in pricing according to global professional services company Towers Watson's most recent Commercial Lines Insurance Pricing Survey (CLIPS).
CLIPS findings are consistent with preliminary results from a soon-to-be released Towers Watson survey, which reveal that 75% of CFOs believe standard property market prices were at the bottom or turning upward. Further, while 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.
Findings from CLIPS indicate the increase was led by workers compensation, which continued the trend of pricing increases that began in the first quarter of this year, and commercial property, which increased for the first time in more than a year. While price increases were observed across all account sizes for standard commercial lines, they were more pronounced in mid-market and large accounts.
“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 & 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 survey this quarter 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.
The survey compared prices charged on policies underwritten during the second quarter of 2011 to the prices charged for the same coverage during the same quarter in 2010. Survey data were contributed by 38 participating insurance companies representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds).
Historical loss cost information reported by participating carriers points to a 3% deterioration in loss ratios in the first half of 2011 relative to the same period in 2010. This preliminary indication is similar to the estimated level of deterioration for the full accident-year 2010 loss ratio over 2009 of nearly 4%.
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 second quarter of 2011 to the prices charged for the same coverage during the same quarter in 2010. For the most recent survey, data were contributed by 38 participating insurance companies representing approximately 20% of the 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.
The survey results track the differing trends in pricing across various regions, lines of business and account sizes on a quarterly basis. Historically, price-level and loss ratio change results vary considerably by line of business and market segment.