Total Cost of Risk Dips in 2010

Administrative costs are up, but overall decline reflects still soft premiums, RIMS says.

Although the cost of administering corporate risk management programs rose about 4% last year, the average total cost of risk, which includes insurance costs and retained losses, declined about 3% in 2010, according to the Risk and Insurance Management Society (RIMS). That’s in line with the 3.1% drop in the total cost of risk that RIMS reported for 2009.

“Since 2004, the total cost of risk has been falling pretty steadily,” says David Bradford, executive vice president at Advisen, which conducts the survey for RIMS. That’s because insurance costs, which are the biggest component for most companies, have been declining, Bradford says.

That could begin to change in the wake of this year’s major disasters. Munich Re reported last week that losses from natural disasters during the first half totaled $265 billion, and said catastrophe costs were on track to set a record in 2011.

But Bradford says that while commercial insurance premiums may have put in a bottom, they’re still not showing much upward pressure.

Despite the disasters, “we don’t see any changes in the fundamentals of the marketplace,” says Brian Elowe, managing director of global risk management at Marsh. “A hard market has to be coupled with a change in [insurance market] capacity, and we don’t see any change in capacity, even in tough cat exposure areas,” Elowe adds.

 

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