US commercial lines price increases: Accelerating or running out of gas?

Brokers, insurers and other organisations that track US commercial insurance disagree about whether price increases are now accelerating or decelerating but it is clear the market is several quarters past the peak of the hikes.

Willis Towers Watson (WTW) recently released its latest Commercial Lines Insurance Pricing Survey (Clips), which indicates US price increases moderated to just above 7 percent in the third quarter. This compared with just below 8 percent in Q2.

The finding contrasts with feedback from other sources.

Other brokers and organisations that track US commercial pricing had suggested price increases picked up again in Q3 after decelerating in the first half of the year.

Marsh in its latest Global Insurance Market Index reported that US pricing was up 14 percent year on year in Q3, which was up from 12 percent in Q2 and compared with 14 percent in Q1. 

The Council of Insurance Agents & Brokers’ (CIAB) market survey indicated that US commercial premium price increases accelerated slightly in Q3 2021, up 8.9 percent on average compared with 8.3 percent in Q2 2021 and 10 percent in Q1.

MarketScout’s composite rate for commercial insurance pricing in the third quarter of 2021 was up 6.8 percent as compared to up 5.9 percent in the second quarter of 2021 and 7 percent in Q1.

However, whether or not price increases picked up slightly in the third quarter or continued to decelerate, it is clear from all of these sources that the peak for the hikes was in Q3 or Q4 of last year.

CEO feedback on rates

Commentary from leading insurance executives on third-quarter earnings calls also provided a mixed picture on the rating environment.

On an earnings call last month, Markel co-CEO Richie Whitt said that Q3 was Markel’s highest-growth quarter of the year for rates, with the executive noting a shift in momentum during the three-month period.

“I know people have been talking about rate increases having crested and that they were starting to come off, and I agree with that assessment,” he said.

“But it felt like in the third quarter the market gained back a little bit of momentum. I tend to put some of it to the cat events in the third quarter. I think that probably damaged some people’s earnings for the year.”

Whitt added that concern around inflation and social inflation may also have increased people’s resolve, and added the caveat that “one quarter doesn’t make a trend”.

In contrast, Chubb reported rate increases of 12 percent in North America commercial lines, which was down from 13.5 percent in Q2.

Asked by analysts about the pricing outlook, Chubb chairman and CEO Evan Greenberg said that while there has been a moderation in the rate of increases, the loss cost environment and retention rates that Chubb has been achieving as it has continued to raise prices are indicative of the tone of the marketplace.

“All of that tells me the industry should continue to achieve rate in excess of loss cost for some time to come,” he commented.

On AIG’s Q3 earnings call, president and CEO Peter Zaffino also pointed to “strong momentum” on rate.

“In many cases, this is the third year where we have achieved double-digit rate increases in our portfolio,” he said.

North America commercial produced an overall 11 percent rate increase, which compared with 13 percent in Q2, 15 percent in Q1 and a peak of 21 percent in Q4 2020. 

Zaffino said that in Q3 2021 increases were balanced across the portfolio, and were led by increases of over 15 percent in excess casualty and financial lines.

Feedback by line

The brokers and others that track commercial rates also provided detail on individual lines of business. 

WTW’s Clips reported that data for nearly all lines continued to indicate “significant” price increases in Q3. Increases are not broken out by line but it does provide some broad feedback.

The broker said that the largest price increase in Q3 was for professional liability, which saw significantly accelerating prices over the previous seven quarters.

Both excess/umbrella liability and D&O liability reported significant price increases in Q3, though lower than in Q2 2021. These two lines have indicated sharp adjustments upward in the past 10 quarters, peaking in 2020.

Commercial auto saw reported price increases near or above double digits for the 16th consecutive quarter, while property coverage accelerated again and saw increases near or above double digits for the 10th consecutive quarter.

In its insurance pricing index, Marsh reported property insurance pricing increased by 10 percent, the 16th consecutive quarter of increase and a slight uptick on the 9 percent from Q2.

Casualty insurance pricing in the US increased 6 percent, while excluding workers’ compensation the increase was 11 percent. This compared with figures of 6 percent and 10 percent, respectively, in Q2. 

Marsh also said that financial and professional lines pricing increased 27 percent, largely driven by cyber insurance. This was up from 25 percent in Q2. 

D&O pricing for publicly traded companies increased 10 percent in Q3, lower than the 15 percent increase in Q2 and the lowest since the first quarter of 2019.

US cyber insurance pricing was up 96 percent in Q3, Marsh said, a big acceleration from the 56 percent in Q2.

In its commercial property casualty market report, the CIAB also reported that cyber led the way in Q3, with a record 26.6 percent increase in premiums, making it the only line to record an average increase of over 20 percent in Q3.

This cyber increase was up from 25.5 percent in Q2 2021 and 18.0 percent in the first quarter of this year.

The CIAB reported that pricing increased for all lines of business except workers’ compensation, for which premiums began to decrease again after five quarters of slight increases. The 0.3 percent drop in Q3 for workers’ comp compared with a 0.3 percent increase in Q2 2021.

Of the rest of the five major lines tracked by the CIAB, price increases were higher in Q3 than in Q2 for commercial auto, commercial property and general liability, while the 16.9 percent increase for umbrella was down from 17.4 percent.

Looking to Q4 and beyond

The question now is how pricing has trended during the fourth quarter and how it will change heading into 2022. 

Applied Systems subsidiary Ivans this month provided feedback on renewal rates for six lines in November.

The exchange – which connects insurers, MGAs, agencies and insureds – reported that commercial auto, business owner’s policy and general liability average premium renewal rate increases were higher than October.

In addition, the rate of increase for commercial property and umbrella moderated slightly in November while the rate of decline in workers’ comp rates slowed. 

In addition to looking back at recent price movements through Clips, WTW provides rate predictions for the commercial insurance marketplace twice a year in its Insurance Marketplace Realities report.

In its 2022 update published last month, WTW said the US commercial insurance market is seeing a general trend of decelerating premium rate increases, with decreases even possible in some lines soon. The broker said this has been driven by additional capacity provided by insurance carriers.

Cyber liability and fiduciary liability insurance are two exceptions to the general trend. Rates have been going up steeply in these lines. 

Jon Drummond, head of broking, North America at WTW, suggested in the report that price decreases were possible soon for some lines.

“If supply continues to come back as it has in Q2 and Q3 of 2021, we could see rate decreases commence as early as Q2 of 2022,” Drummond said.

Although he added: “This will not be a wholesale development across all lines, and distressed lines of business, most notably cyber, will remain challenged well into 2022.”