Commercial Insurance Prices Rise as Carriers’ Loss Ratios Improve

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Commercial insurance prices in aggregate increased by 6 percent during the third quarter of 2012. This marked the seventh consecutive quarter that aggregate prices for all commercial lines rose, according to the new Commercial Lines Insurance Pricing Survey (CLIPS). The survey, conducted by Towers Watson, a global professional services company, compared price levels on policies underwritten during the third quarter of 2012 to those charged for the same coverage during the third quarter of 2011.

The largest price increases year over year included workers compensation, now approaching double digits, and employment practices liability, followed closely by commercial property, where price increases have moderated somewhat since last quarter. Increases have accelerated for each of the remaining surveyed standard commercial lines since the second quarter. Within standard commercial lines, midmarket and large accounts saw the largest increases this quarter. Specialty lines prices also continue to increase, but not as rapidly.

“In the current environment, underpricing of current business could seriously harm net income,” said Tom Hettinger, property & casualty sales and practice leader for the Americas, Towers Watson. “Declining reserve releases, combined with insufficient investment income, have put enormous pressure on earnings. Pricing discipline, as a result, is even more important — and underwriting results really need to perform well for the foreseeable future.”

Loss costs reported by participating carriers pointed to an improvement of more than 3 percent in loss ratios to date for accident-year 2012, relative to the same period in 2011, as earned price increases more than offset reported claim cost inflation. If this level is maintained through year-end and as losses develop, it will indicate a reversal from the estimated 4 percent deterioration between 2010 and 2011.


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