Commercial Insurance Prices Remain Flat for Eighth Consecutive Quarter, According to Towers Watson Survey

Accident-year loss ratios deteriorated versus the same year-ago period

NEW YORK, March 24, 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 (NYSE, NASDAQ: TW) most recent Commercial Lines Insurance Pricing Survey (CLIPS).

Commercial insurance prices, in aggregate, declined by 1% during the fourth quarter of 2010, according to 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.

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% relative to the same period in 2009. This deterioration is higher than the estimated deterioration of 2% 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%, 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. Our 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.”

Towers Watson once again queried respondents on their use of predictive modeling, and about half of the CLIPS participants reported they utilize it for one or more lines of business for pricing and risk tiering. Those companies using predictive modeling – a tool that uses advanced statistical modeling techniques, along with critical company and external data related to individual policyholders, competitors, marketplace conditions and customer behavior – have been, on average, more successful in holding price levels.

“Beyond the up-to-now benign loss cost trends and general improvement in prior-year loss results, carriers’ use of more sophisticated pricing and risk selection, including advanced predictive analytics, has enabled them to make smarter decisions,” said Fell. “CLIPS’ results illustrate those points, and we expect that those investments will to continue to pay off when the market eventually hardens.”


CLIPS data are based on both new and renewal business figures obtained directly from carriers underwriting the business. This particular survey compared 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. For the most recent survey, data were contributed by 38 participating insurance companies representing approximately 20% of the commercial insurance market (excluding state workers compensation funds).

CLIPS participants represent a cross section of U.S. property & casualty insurers that includes many of both the top 10 commercial lines companies and the top 25 insurance groups in the U.S. CLIPS’ measurement of both pricing changes and loss ratio changes also sets it apart from other studies.

Participation in CLIPS has been strong, as carriers believe it provides a more accurate picture of price changes, and find it useful in setting assumptions for product pricing and estimating claim liabilities.

The survey results track the differing trends in pricing across various regions, lines of business and account sizes on a quarterly basis. Historically, price-level and loss ratio change results vary considerably by line of business and market segment.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at

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