Commercial insurance prices in aggregate increased by almost 7% during the fourth quarter of 2012, according to Towers Watson's most recent Commercial Lines Insurance Pricing Survey (CLIPS). The survey compared prices charged on policies underwritten during the fourth quarter of 2012 to those charged for the same coverage during the same quarter in 2011.
Pricing data reported by carriers for the fourth quarter of 2012 indicated a pause in the upward industry price acceleration observed since the start of 2011. Price-change indications in total and by line of business were generally consistent with price increases in the third quarter of 2012, but with some upward movement in specialty lines.
The largest price increases were in workers compensation and employment practices liability. Increases for most lines fell in the mid- to upper-single digits. No line of business had an overall price increase of less than 3%.
Price increases were observed across all account sizes for standard commercial lines, with larger increases observed in mid-market and large accounts than in small accounts. Specialty lines prices continue to increase, but still lag the results observed in standard lines.
Historical loss cost information reported by participating carriers points to an improvement of almost 4% in loss ratios in accident-year 2012 relative to 2011, as earned price increases more than offset reported claim cost inflation. We note that CLIPS results are intended to exclude catastrophes. This indication is a reversal from the estimated 3% deterioration between 2010 and 2011. This improvement comes from both earned price increases and reduced estimates of claim cost inflation. Carrier estimates of claim cost inflation come in at 1% for 2012.