Commercial Insurance Prices Stayed Flat in 4th Quarter: Towers Watson

March 18, 2010

A competitive market landscape perpetuated flat commercial insurance prices during the fourth quarter of 2009, according to the latest market survey.

After nearly five years of steady price decreases, findings from professional service firm Towers Watson’s most recent Commercial Lines Insurance Pricing Survey (CLIPS) also revealed little or virtually no price increases throughout 2009.

The survey compared prices charged on policies underwritten by 36 participating insurance companies during the fourth quarter of 2009 to pricing for the same coverage during the fourth quarter of 2008.

Pricing data for most lines of coverage show small increases offset by price reductions in workers compensation and employment practices liability. For workers’ compensation, the latest quarterly data indicated a reduction in year-over-year loss costs that may be holding back pressure to increase prices.

“The workers compensation loss cost trend may be an outcome of fewer claims linked to factors such as the economy,” said Bruce Fell, Towers Watson senior consultant and leader of the company’s property/ casualty insurance practice in the Americas. “For example, fear of job loss or reductions in income deter claim reporting, and the workforce is, on average, more experienced, given lower-tier job reductions.”

CLIPS findings indicate that accident-year 2009 loss ratios deteriorated 3 percent relative to 2008. However, this deterioration comes in addition to an estimated deterioration for accident-year 2008 of 9 percent over 2007. Flat aggregate loss cost changes indicate an improvement in claim cost inflation, which, combined with stabilizing prices, contribute to the relatively modest 2009 change.

Aggregate price change indications showed little differentiation by account size, as all were nearly flat.

“Longer-term inflationary pressure, due in large part to financial crisis bailouts, may lead insurers to exhibit more discipline in their pricing,” said Fell. “They’re looking ahead in the event that inflation starts to negatively and dramatically impact loss reserves and loss costs.”

CLIPS data are based on both new and renewal business figures — when available — obtained directly from carriers underwriting the business. CLIPS participants include many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S.

Source: Towers Watson

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