year MarketScout began monitoring rates in personal lines.
The RIMS monitor tracks premium changes on accounts provided by more than 1,200 risk managers nationwide. It looks at
four lines of business—property, general liability, workers’ compensation, and directors and officers. The combined rate changes
reflect an average of those four lines, weighted by the country-wide premium in the lines as reported in the prior year’s A.M.
Best’s Aggregates and Averages.
The report stretches back to the late 1970s. Advisen took
over the survey from RIMS in 2003. Those interested in updating the report in real time must subscribe to Advisen’s services.
“We’ve had CEOs in insurance tell us that it reflects what
they’re hearing in the market,” said David Bradford, executive
vice president.
In recent years, the service has become more aggressive in
maintaining the integrity of its data set. Since Advisen knows
when policies will be renewing, it nudges risk managers to fill
out their paperwork. It also tries to make filling out the survey
easy. New respondents can forward raw data to Advisen, whose
workers will fill out the initial forms. A respondent also can
authorize its broker to fill out paperwork.
The survey does not typically adjust for terms and conditions.
It will, however, make adjustments for significant trends, such as
the way a recession reduces workers’ comp exposures because
fewer people are working. It also makes some adjustments for
changes in the cohort of risks—for instance, if banks are overrepresented in one quarter. It also scrubs the data for outliers.
The survey looks only at renewal data. And because it is
filled out by risk managers, the survey includes only policies
for companies that employ risk managers. That means it has
a large-account bias; the smallest respondent has annual revenues in the $25 million to $50 million range. (The first quartile
ends at $240 million.) Advisen does have a separate survey of
agents and brokers, but it is still in the development stages.
The survey is most useful for brokers and risk managers
seeking to understand market trends, Bradford said. A broker
can show how, for instance, a company’s limit profile compares
with those of its competitors. If most competitors buy higher
limits, a company may want to follow suit. Or risk managers can
show their bosses how their insurance program compares with
competitors’ programs.
A Better Mousetrap?
The consulting firm of Towers Watson started its Commercial
Lines Insurance Pricing Survey (CLIPS for short) in 2005 to bring
a “more quantitative” approach to rate monitoring, said Bruce
Fell, head of Towers’ property/casualty practice in the Americas.
The time was right, Fell said. Companies were chastened
by the severe underpricing of risks between 1997 and 2001.
In setting their loss reserves, many companies had underestimated rate decreases. The result: Initial loss ratios were too
low. Many companies were forced to raise reserve estimates as
losses emerged, an action that reduces company profits. As a
result, many companies stepped up their own rate monitoring.
“Companies were starting to get more religion,” Fell said, to
learn “how could they have missed the boat so badly?”
Meanwhile, Towers needed rate change information for its own
internal forecasts and to help its client analysis. CLIPS was born.
The initial survey collected rate information going back to
2003. The survey uses voluntary reports from insurers that
write approximately $45 billion in commercial lines premium.
Since the reports reflect a company’s own rate monitor, it adds
to the survey’s credibility; if the company is using the data, it’s
taking steps to ensure data quality.
CLIPS attempts to make an “apples-to-apples” rate comparison. It asks the insurer for rate changes that account for changes
in exposure and terms and conditions. It also asks for information
on new business, though only about half the companies respond.
The resulting rate change is a blend of new and renewal business.
(Towers would like to break out new vs. renewal data but needs
more companies submitting information on new business.)
In addition, Towers recollects data for the previous eight
quarters, said Alejandra Nolibos, the Towers senior consultant
who oversees the survey. If a company’s rate change for, say,
June 2011 changed because in August it received additional data
on June renewals, the CLIPS will capture that change.
For participating, companies receive detailed CLIPS reports
by line of business, by region, and by size of account, though
of course they get no information on what other individual
companies are doing.
The Council of Insurance Agents and Brokers surveys
about 1,500 brokers every quarter, with about 100 responses.
The survey asks brokers to estimate changes in premium
rates within ranges—down 30 percent to 40 percent, down
20 percent to 10 percent, etc. The change is an estimate and,
unlike other surveys, concentrates on changes from prior quarters. Most other surveys look at changes from prices or rates
charged a year earlier.
The survey covers 15 lines of business—large ones such as
general liability and medical malpractice but also areas generally not touched by other surveys, such as business interruption,
terrorism, and umbrella.
It also collects information by size of insured. Small is less
than $25,000 premium, large is over $100,000, and medium is
in between. And it collects information by region.
Barclays Capital Equity Research assembles results into
point estimates. The council’s survey was created in 1999—
near the nadir of the last soft market—to respond to the lack
of solid pricing information. And Coletta Kemper, the vice
president of industry affairs at the Council of Insurance
Agents and Brokers, says the survey has done a good job as a
snapshot tracking overall trend.
