Escalations in commercial insurance prices decline

Commercial prices increased 5% in 2013, but producers shouldn’t expect heightened commission fees to last.

Escalations in commercial insurance prices decline



The increased commission fees producers have been enjoying from sales of commercial insurance policies may not last, Towers Watson’s most recent Commercial Lines Insurance Pricing Survey (CLIPS) suggests.

According to the agency’s report, commercial insurance prices increased 5% in the fourth quarter of 2013, rounding off to a 6% increase throughout last year. The increases are somewhat smaller than the 6% to 7% increases reported at the same time in 2012, however.

“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, property and casualty sales and practice leader for Towers Watson. “Concerns about price inflation and modest fixed-income yields are making their way into rate changes that are outpacing observed claim cost inflation.”

Indeed, price increases were lower than those reported in 2013’s third quarter for all lines except general/products liability and excess/umbrella liability. Prices for most commercial lines reflected just mid-single digit gains.

Employment practices liability led the commercial lines increases, with the largest price increase year-over-year, Towers Watson noted. That was true both for small, mid-market and large accounts.

The increased prices, however moderate, do reflect better commission payments for agents, Hettinger said. However, that perk comes with a greater responsibility.

“Price increases mean better commission fees for brokers, but higher expectations from customers for services received with fees paid,” Hettinger said. “If all ships rise, customers will not have much negotiating power, but they may still look to the price increases and ask, what do they get with the dollars they pay to differentiate the different companies?”

Ty Sagalow, president of the New York consultancy firm Innovation Insurance Group, said customer demand for increased value-added services will need to be reflected in carrier policies.

“This is yet another good example of the need for innovation in the insurance industry,” Sagalow said. “With these [price increases], we need modification of insurance policies. We have to keep abreast of the times and make sure our policies reflect those.”

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