Business owners need to brace themselves for modest insurance premium increases in 2012. Faced with high catastrophe claims from 2011 and low investment returns Property-Casualty insurance companies have no choice but to raise rates.
“We are working hard to keep pricing as low as possible for our customers”, said John B. Sullivan, President of AMERICAN INSURANCE. “We shop dozens of insurance companies to find the best pricing but rates are rising. Here in the northwest, after a prolonged period of pricing decreases of almost 50%, we are seeing some take back in certain lines of insurance that are unprofitable. Homeowners, commercial property, commercial auto and workers compensation are the most impacted.”
Nationally commercial insurance prices in aggregate increased by nearly 5% during the first quarter of 2012 — the fifth consecutive quarter that prices rose for all standard commercial lines. In addition, commercial insurers' loss ratios stabilized for most insurance lines and improved in lines with the largest price increases, according to the most recent Commercial Lines Insurance Pricing Survey (CLIPS) released by global professional services company Towers Watson (NYSE, NASDAQ: TW). The survey compared prices charged on policies underwritten during the first quarter of 2012 to those charged for the same coverage during the same quarter in 2011.
"We are seeing a continuing trend of price-level increases in the commercial insurance marketplace," said Thomas Hettinger, property & casualty sales and practice leader for the Americas at Towers Watson. "This quarter, the industry reached a significant threshold — an aggregate price increase of nearly 5% — the largest quarterly increase we've seen since 2004."
CLIPS data revealed that the largest price increases were once again in workers compensation and commercial property. Workers compensation prices increased for the fifth consecutive quarter, after flat pricing in all of 2010, while commercial property prices rose for the fourth consecutive quarter.
Price increases were observed across all account sizes for standard commercial lines, with the most significant increases observed in mid-market accounts. Specialty lines lagged, with much more modest increases (less than 2%).
Historical loss cost information reported by participating carriers points to a deterioration of less than 1% in loss ratios for accident-year 2012 data compared with 2011, a more favorable indication than the estimated 3% deterioration between 2010 and 2011. Data from the lines with the largest price increases — workers compensation, commercial property and general/products liability — indicate improving loss ratios.
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 first 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 40 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds).
Source: Towers Watson, News Release – June 11, 2012 “Towers Watson Survey Reveals Rising Commercial Insurance Prices”