Average prices for all lines of commercial insurance decreased 4 percent to 5 percent between 2006 and 2007, according to Towers Perrin’s commercial insurance pricing study. More specifically, the survey data for the third quarter of 2007 indicated an average price decrease of approximately 5 percent, with large accounts and specialty insureds experiencing the largest decreases of nearly 9 percent on average.
While prices fell in all surveyed lines, both the directors and officers liability and employment practices liability lines realized the greatest year-over-year price declines. Additionally, the survey findings suggest that insurance carriers expect loss ratios for accident-year 2007 to be higher than those in accident-year 2006, as price reductions were not matched by reductions in the expected costs of claims.
Launched in the summer of 2005, the data in Towers Perrin’s commercial lines insurance pricing and profitability trends (CLIPS) report reflect information compiled by commercial lines insurance companies based on their price monitoring systems, distinguishing the study from commercial lines pricing reports that are based solely on agent/broker perceptions.
CLIPS participants represent a cross section of U.S. property/casualty insurers that include the majority of both the top 10 commercial lines companies and the top 25 insurance groups in the United States. CLIPS’ measurement of both pricing changes and loss ratios changes also sets it apart from other studies.
“The CLIPS results have consistently indicated a less dramatic decrease in commercial insurance prices than other industry pricing surveys,” said Jeanne Hollister, managing principal and practice leader, Property/Casualty Insurance, Americas. “For example, several agent/broker surveys quoted decreases in prices in excess of 10 percent in the third quarter of 2007, compared with the CLIPS findings of 5 percent.
“Given the insurance industry’s aggregate reported premiums for the first nine months of 2007, it seems unlikely that price decreases were as dramatic as those reported in other surveys,” said Hollister.
Pricing data are a critical component of the information insurers use to develop business plans and anticipate changes in product profitability, according to Towers Perrin. Likewise, investors and regulators closely monitor insurance pricing trends and use this information to analyze insurance company performance and financial security. Thus, it is critical that these audiences have access to accurate data.
“We have confidence in CLIPS results because they reflect price change information captured in companies’ price monitoring systems,” Hollister added. “In our view, this data are the most reliable, as compared to data coming from second hand sources.”
Results for the full-year 2007, reflecting fourth-quarter survey data, are expected to be available in mid-March 2008.
Source: Towers Perrin, www.towersperrin.com