Nascent Signs of Market Hardening

For the first time in eight years, Tower Watson’s Commercial Lines Insurance Pricing Survey (CLIPS) reveals indications that the market may be hardening as commercial insurance prices in aggregate increased by nearly 1.5% during the second quarter of 2011.

The rise was the first time since the fourth quarter of 2003 that all standard commercial lines showed an uptick in pricing, according to the firm. The results dovetail with results of separate Towers Watson survey in which 75% of insurance CFOs surveyed indicated that standard property market prices were at the bottom or turning upward.

Nonetheless, Bruce Fell, managing director of Towers Watson’s Property & Casualty practice in the Americas said it was still premature to call an end to the soft market.

“It is too early to definitively call this a hardening market, but CLIPS results and the outlook of CFOs are pointing in that direction,” Fell said. “Commercial property prices were likely influenced by catastrophes earlier in the year and the level of price increases is not enough to avoid continued increases in loss ratios. However, it is significant that all of the standard lines of business indicated increases in the second quarter. We believe the third and fourth quarter indications will provide a more complete view of the industry’s direction.”

The survey also indicated broader use of predictive modeling by insurers for pricing/risk tiering and risk selection. More than 50% of reported premium volume corresponds to companies reporting use of predictive modeling for pricing/risk tiering, and more than 30% corresponds to carriers reporting use of predictive modeling for risk selection.

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