Commercial Insurance Registers Small Uptick In Pricing: Towers Perrin

Third-quarter commercial insurance rates increased 0.3 percent with hardening prices in property and specialty lines such as directors and officers liability (D&O), according to a new consulting firm survey.

The findings by Stamford, Conn.-based Towers Perrin were contained in the firm's latest Commercial Lines Insurance Pricing Survey (CLIPS).

Towers Perrin said the uptick represented the second consecutive quarter-to-quarter modest increase after nearly five years of steady decreases.

The survey conducted by the global professional services firm compared prices charged on policies underwritten by 35 participating insurance companies during the third quarter of 2009 to the prices charged for the same coverage during the same quarter in 2008.

It determined that commercial insurance prices also increased 0.8 percent during the second quarter of 2009 over the same quarter in 2008.

Only two lines were found to show price reductions in the quarter: workers' compensation and commercial auto. In both cases Towers Perrin said the price decreases were minimal.

Stephen Lowe, Towers Perrin managing director, global property and casualty insurance consulting, said in a statement, "Two quarters of flat prices underscore our belief that market conditions have changed from an environment of rampant price cutting to one where greater caution prevails."

He noted, "Over the last few years, favorable claim experience caused many to believe that they had ample margins for their prices, and could therefore afford to cut prices aggressively. Our view is that prices have now fallen to the point where profit margins are very thin. Since most companies now have price-monitoring systems in place, they can see that they are at the edge of the precipice--and they are reticent to cut prices further."

In Mr. Lowe's view, "The credit crisis and recession have also helped to create a more cautious environment." However, he said, "looking forward, it's anyone's guess where the market goes from here."

"We may be witnessing a new era, where better price-monitoring information enables companies to manage prices with greater discipline. Alternatively, it's also possible that renewed pressure for top-line growth will cause prices to resume their downward trend, reflecting the cyclicality that has been typical in the past."

The Towers Perrin survey found prices for large accounts--those with premiums in excess of $50,000--rose in the third quarter, while middle-market accounts remained basically flat.

This upturn, the firm stated, "is not entirely surprising, as large accounts realized the greatest price declines in both 2007 and 2008, according to CLIPS findings. Small-account prices continue to show modest--but continually smaller--price decreases.

Year to date through the second quarter, accident-year 2009 loss ratios deteriorated 5 points relative to 2008, according to CLIPS.

Improvement in claim cost increase indications and the "earning" of price stabilizations taken in 2009 both contribute to the relatively modest 2009 loss ratio deterioration, the report said. This deterioration, it was noted, comes on top of an estimated deterioration for accident-year 2008 of 9 points over 2007.

Towers Perrin said its CLIPS survey data is based on both new and renewal business figures (when available) obtained directly from carriers underwriting the business, and indicate more conservative price reductions than other marketplace surveys.

The survey in question compared prices charged on policies underwritten during the third quarter of 2009 to the prices charged for the same coverage during the same quarter in 2008.

Survey participants were said to represent a cross section of U.S. property and casualty insurers that includes many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S.