Commercial Insurance Prices Increase 5% in the Fourth Quarter of 2013

Commercial insurance prices increased by 5% in aggregate during the fourth quarter of 2013, according to the latest Commercial Lines Insurance Pricing Survey (CLIPS) conducted by global professional services company Towers Watson (NYSE, NASDAQ: TW). This marked the third consecutive year of price increases. The survey compares carriers’ pricing on policies underwritten during the fourth quarter of 2013 to those underwritten in the same quarter of 2012. Price changes reported by carriers between the third and fourth quarters of 2013 indicate increases, although they are somewhat smaller in magnitude than the 6% to 7% increases reported in the second half of 2012 and first half of 2013.

Price increases by line of business were lower than those reported in the third quarter in all lines, with the exception of general/products liability and excess/umbrella liability. Employment practices liability experienced the largest price increase year over year, with workers compensation and excess/umbrella liability also showing substantial increases. Prices for most lines of commercial insurance showed gains in the mid-single digits, while none of the classes surveyed reported a price drop. Price increases were consistent for small, mid-market and large accounts; specialty pricing increased at a lower rate than pricing for standard lines.

According to the carriers, loss ratios improved 3% for accident-year 2013 relative to the same period in 2012 (excluding catastrophes), as earned price increases more than offset claim cost inflation. This development builds on the estimated improvement of more than 2% between 2011 and 2012. Carriers projected approximately 2% claim cost inflation underlying the loss ratio movement for both accident-years 2012 and 2013 across the aggregate commercial industry.

“Commercial insurance prices are still on the rise and have now been increasing for three full years, but we are beginning to see a moderation in that trend,” said Tom Hettinger, Towers Watson’s Property & Casualty sales and practice leader for the Americas. “Concerns about price inflation and modest fixed-income yields are making their way into rate changes that are outpacing observed claim cost inflation.”

About CLIPS

CLIPS data are based on both new and renewal business figures obtained directly from carriers underwriting the business. 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. This particular survey compared prices charged on policies underwritten during the fourth quarter of 2013 to the prices charged for the same coverage during the same quarter in 2012. For the most recent survey, data were contributed by 43 participating insurers representing approximately 20% of the U.S. commercial insurance market (excluding state workers compensation funds).

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.