Overall Commercial Pricing Stays Flat, Management Liability Declines

December 13, 2010

Overall commercial insurance prices were flat for the seventh consecutive quarter, declining less than one percent, according to a survey of third quarter activity.

Commercial property, directors and officers liability (D&O), and employment practices liability (EPL) pricing showed declines for the fourth straight quarter after experiencing increases in 2009.

The Commercial Lines Insurance Pricing Survey (CLIPS) by global professional services company Towers Watson compared prices charged on policies underwritten during the third quarter of 2010 to the prices charged for the same coverage during the same quarter in 2009.

“The lack of large-scale, market-moving catastrophes in the past couple of years– both natural and man-made — has led to excess capacity and price declines, and we expect to see similar results in the near term,” said Bruce Fell, director of Towers Watson’s Property & Casualty practice in the Americas. “Further, prices for management liability lines appear to be stabilizing after the increases that followed the onset of the economic crisis in late 2007 and 2008.”

CLIPS data indicate that accident-year-to-date 2010 loss ratios deteriorated 4 percent relative to the same period in 2009. This deterioration — based on nine months of information — is marginally higher than an estimated deterioration of 3 percent for accident-year 2009 over 2008. The higher loss ratios in year-to-date 2010 on an earned basis are driven primarily by higher claim cost inflation indications than those observed in 2009, according to Towers Watson.

Aggregate price change indications showed some differentiation by account size, with flat indications for small and mid-market accounts, and moderate price reductions in large accounts and specialty lines.

Consistent with findings from the previous quarter, CLIPS results continue to indicate that companies that report utilizing predictive modeling techniques for pricing and risk tiering have been more successful, on average, in holding price levels. About half of responding companies participating in CLIPS report using predictive modeling for one or more lines of business.

CLIPS data are based on both new and renewal business figures obtained directly from carriers underwriting the business. CLIPS participants includes 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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