January 31, 2013
Property & Casualty Insurance Market Update – Year End 2012
By Jon K. Miles, CPCU, Vice President, EHD
Commercial P&C rates and prices continued to rise slowly and steadily throughout 2012, formally announcing signs of a returning “hard market”. After seven (7) consecutive years of a soft market, fourth quarter 2012 commercial rates increased by +6.5%, rising for the eighth quarter in a row.
“This market turn is not like the last hard market of 2001 to 2005 when rates spiked up as much as +30% in the early stages,” says Richard Kerr, CEO of MarketScout. “This slow and steady pace could foretell rate increases at a more sensible pace and for a longer period of time.”
Despite this slow and steady trend, some businesses in more hazardous industries, and/or with unfavorable loss experience, have seen very dramatic price increases on their recent renewals. In some cases, they have even found difficulty in finding suitable coverage in the standard market.
By line of coverage, Workers’ Compensation leads the way with overall rate increases of approximately +9%, with commercial auto, general liability and property in the +4 – +6% range.
By account size, smaller businesses were hit the hardest with rate increases averaging +6%, with medium-sized businesses at +5%. Businesses paying over $1,000,000 in annual premiums enjoyed the most competitive pricing at +3% for year-end 2012. By industry, Manufacturing, Transportation, Service and Construction accounts realized the largest rate increases.
Going forward, upward pressure on rates is expected to continue for the foreseeable future. A historically low interest rate environment, which inhibits insurance company investment income, will continue contributing to that upward rate pressure as well. However, the insurance industry remains well capitalized and, barring any major catastrophes in 2013, no major commercial insurance market dislocations are expected.
