Commercial Insurance Prices Still Flat After 8 Quarters: Towers Watson

March 25, 2011

Commercial insurance prices were relatively flat for the eighth consecutive quarter, while accident-year loss ratios deteriorated relative to the same period in the prior 12 months.

According to global professional services company Towers Watson’s most recent Commercial Lines Insurance Pricing Survey (CLIPS), commercial insurance prices, in aggregate, declined by one percent during the fourth quarter of 2010.

The survey, which compares prices charged on policies underwritten during the fourth quarter of 2010 to the prices charged for the same coverage during the same quarter in 2009, found that while pricing for the majority of lines remained flat, commercial property, professional liability, directors and officers liability, and employment practices liability lines showed price reductions for the fifth consecutive quarter.

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

Further, CLIPS findings indicate that accident 2010 loss ratios increased 5 percent relative to the same period in 2009. This deterioration is higher than the estimated deterioration of 2 percent for accident year 2009 over 2008. The relatively modest price declines experienced in 2010 on an earned basis are compounded by higher reported claim cost inflation indications than those for 2009. CLIPS findings indicate 2010 claim cost inflation of approximately 4 percent, consistent with long-term averages.

“The slightly negative 2009 claim cost inflation indicated in our survey is the lowest we’ve observed in the history of the survey,” said Bruce Fell, director of Towers Watson’s Property & Casualty practice in the Americas. “The recession appears to have had a very significant dampening effect on losses during 2009, which likely reduced pricing pressures in calendar 2010.”

Fell said that the survey results for 2010 support the contention that the “economic recovery will be accompanied by higher cost trends, and those estimates could increase if additional ‘catch-up’ from 2009 negative trends — beyond a return to long-term averages — would occur with rebounding economic conditions.”

For the most recent survey, Towers Watson said it analyzed data from 38 participating insurance companies representing approximately 20 percent of the commercial insurance market.

Average renewal premiums for commercial lines were largely unchanged during the fourth quarter of 2010 and that may remain the case for a while, according to the RIMS Benchmark Survey, which was administered by Advisen. That risk managers’ report, issued the first week of February, cautioned that a turn in the market is not imminent.

The Towers Watson findings track with those of reports from RIMS/Advisen and Marsh.

In another recent premium survey, Virginia-based SNL Financial said U.S. property/casualty industry premiums in the fourth quarter grew at their fastest rate since 2006. It said that commercial lines is softening and predicted premium increases should start happening in the coming quarters.

Topics Commercial Lines Business Insurance

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