According to a survey conducted by Towers Watson, prices for commercial insurance policies stayed flat during the first quarter of this year and were nearly identical to the prices charged in the first quarter of last year.
The professional services company’s finding marked the fifth consecutive quarter that commercial prices have remained level, following nearly five years of decreasing prices.
“It’s apparent that the market conditions are holding down price increases, while insurers — as they have for more than a year — continue to exhibit pricing discipline, given their concerns regarding the direction the economy may take,” said Bruce Fell, who heads Towers Watson’s risk consulting and reinsurance brokerage services to the property and casualty industry, in a release.
The data revealed that most lines were flat or had small price increases that were offset by reductions in commercial property, directors and officers liability, and employment practices liability.
“Looking at D&O, the price increases we had seen in the past year in response to the financial crisis have disappeared, and pricing seems to be reverting back to pre-crisis price levels,” said Fell.
The Towers Watson report indicated that “a fragile global economy, excess capacity in virtually every line of commercial insurance and last year’s below-average catastrophic losses” were the reasons prices were flat for the first quarter of 2010. To arrive at its findings, Tower Watson surveyed 37 insurance companies that represent about 20 percent of the commercial market.
Commercial prices had dropped by 4 percent beginning in the first quarter of 2007 and continued to fall at that rate, or slightly more, through the third quarter of 2008. Smaller decreases were recorded at the start of 2009 and continued for a few quarters until prices began to flatten out at the end of last year.
The firm’s findings implied that accident-year-to-date 2010 loss ratios deteriorated 5 percent relative to year-to-date 2009. This deterioration compares to an estimated deterioration of 4 percent for accident-year 2009 over 2008. Towers Watson, though, considers its evaluation of the first-quarter deterioration rate as being “preliminary” because it’s based on only three months worth of information.
But the firm reported that early estimates of claim costs through the first quarter point to a somewhat higher inflation level than last year, which can contribute to a larger-loss deterioration ratio. Aggregate price change indicators showed little difference by account size; the survey found that all were flat.
With the market’s current dynamics, Fell said it’s becoming harder than ever for property and casualty insurers to profitably write business without using sophisticated risk selection and pricing techniques, like those found through predictive-modeling programs.
“As companies become more adept at identifying and capturing key factors and their relative influence on results, they can become more successful at selecting and pricing against their competition,” he said.