Rising commercial insurance rates combined with coverage prices that typically outpace cost-of-living increases spell almost certain upcoming hikes in providers’ liability and commercial policies, according to a major insurance advisory firm.

In data and insights gleaned from two separate data pools, Willis Towers Watson this month noted that liability prices were already edging up by early 2022, and that the mounting cost of responding to all sorts of claims would lead insurers to pass those costs on to policyholders. Since 2011, most periods have shown insurance costs increase above the consumer price index.

Any pricing rises would hit providers at a particularly vulnerable time. Pandemic relief is drying up and the public health emergency, and its corresponding extra funding and allowances, are expected to end in early 2023, at the latest.

“We expect large increases in the cost of claims as inflation in product prices manifest into insurance costs over the next year,” WTW analysts reported Wednesday in an article updating price indices for major lines of business written by property & casualty insurers.

The forward-looking report didn’t break out liability premiums or predict by how much those rates could rise. But earlier in September, the firm said prices across all commercial insurance lines rose by 6% in the second quarter of 2022, compared to the same period a year earlier.

That’s according to WTW’s Commercial Lines Insurance Pricing Survey (CLIPS).

Providers found some relative relief in late 2021, after skyrocketing rates and more limited coverage became the norm following the start of the pandemic. But CLIPS survey data reported in mid-September showed “nearly all lines continue to indicate significant price increases in the 2nd quarter with the exception of workers compensation and directors & officers liability.”

The highest increases came for cyber coverage, which has seen a growing demand among a range of companies, including healthcare providers. The second-largest price increase came for professional liability, which saw “significantly accelerating prices over the previous 10 quarters but experienced a lower increase than the prior quarter although still a double-digit price increase,” WTW authors said.

Overall, the commercial price changes reported by carriers spiked about 10% in the second through the fourth quarters of 2020, and since then declined to just below 6% in the second quarter of 2022. 

Where once COVID was the big cost driver, now it is insurers’ own climbing costs that threaten to cut deeper into provider’s pockets.

Insurers themselves will have to grapple with how they set pricing now, given that policies are often written a year in advance and can’t possibly capture fully accurate inflation effects. It’s a challenge that many underwriters have never seen such high inflation, or at least not for decades.

WTW predicts that general liability coverages could be highly vulnerable to inflation due to loss adjustment expenses and supply chain, legal and other operational pricing pressures.