US commercial insurance rates rise in Q4

The composite rate for all property insurance saw a rate increase of 9.3% in Q4, according to MarketScout. Some catastrophe-exposed properties are being assessed increases of 25% to 30%.

“On January 1, 2023, property cat reinsurance renewals were completed except incases of poor underwriting and continuous losses,” said Richard Kerr, founder of MarketScout and CEO of the newly formed Novatae Risk Group. “Virtually everyone was assessed more restrictive terms and conditions. The trickle-down will have a notable effect on the profits of property MGAs and program managers due to lower base commissions.”

The composite rate rises in the fourth quarter continue a trend of quarterly increases. In Q3, the commercial market composite rate rose 5.28%.

Cyber insurance rates saw the most aggressive increase at 20% in Q4, MarketScout reported. However, rates did show a trend toward slight moderation.

By industry classification, contractors and trucking risks saw the steepest rate increases in Q4, at 6% and 7.3%, respectively.

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Kerr said he saw a possibility for some rate moderation this year.

“If there is a slowdown in the economy and/or the Fed continues to increase interest rates, we may well see a moderation in insurance rates,” he said. “In the early 1980s, insurers did account for an interest income float on premiums received, better known as cash flow underwriting. This concept was mostly applied to longer-tail casualty lines, which have slower and longer claims payouts.

“As insurers accounted for the increased income from interest rate payments on premiums paid, rates were adjusted downward. Arguably, an insurer could write at a 100% combined loss ratio because the interest they received on booked premiums was 12% to 20%.

“We are a long way from seeing interest rates at those levels, but even at 5% it will have a positive impact on the ROI of some insurers, possibly resulting in a moderation of rate increases.”

See below for a summary of Q4 2022 rates by coverage, industry class and account size.

By coverage class

Commercial property: up 9.3%
Business interruption: up 3.7%
BOP: up 5%
Inland marine: up 3.7%
General liability: up 6.7%
Umbrella/excess: up 7.7%
Commercial auto: up 7%
Workers’ compensation: flat, 0%
Professional liability: up 5.3%
D&O liability: up 6%
EPLI: up 6.3%
Fiduciary: up 2.3%
Crime: up 2%
Surety: up 1.3%
Cyber: up 20%

By account size

Smaller accounts (up to $25,000): up 6%
Medium accounts ($25,001 to $250,000): up 5.3%
Large accounts ($250,001 to $1 million): up 4%
Jumbo accounts (over $1 million): up 5.6%

By industry class

Manufacturing: up 4.7%
Contracting: up 6%
Service: up 5.3%
Habitational: up 6%
Public entity: up 5%
Transportation: up 7.3%
Energy: up 5.7%

MarketScout was acquired by Novatae Risk Group in November.

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