NU Online News Service
Tremendous insured losses from natural catastrophes in 2011 took a toll on pricing across all insurance businesses, found the newly released Risk and Insurance Management Society (RIMS) Benchmark Survey measuring Total Cost of Risk (TCOR) and its impact on 10 industry groups.
Average TCOR for all surveyed companies, both private and nonprofit, increased by 1.7 percent from $10.02 per $1,000 of revenue to $10.19 per $1,000 of revenue. The contribution of property premiums to average TCOR grew by almost 9 percent, from $2.73 per $1,000 of revenue to $2.92 per $1,000 of revenue.
The total cost of risk, as defined by Marsh, is an equation that factors together the total cost of self-retained losses, risk-management-administration expenses and insurance premiums. It is used to identify imbalances in risk management strategy and use this knowledge to drive down cost.
“Globally, 2011 was a near-record year for insured catastrophe losses,” states Dave Bradford, president of Advisen’s research and editorial division and the survey’s editor in chief, in a statement. “As a result, the price of property-insurance coverage increased for many insureds, especially in catastrophe-exposed areas. This was one of the most significant reasons TCOR grew in 2011.”
The TCOR Survey contains 2011 data, contributed by more than 1,000 companies from the banking, consumer education, energy, government and nonprofit, industrial, IT, materials, non-bank financials, professional services, telecommunication and utilities sectors.
“Although organizations have increasingly incorporated risk-management practices into their strategic planning, unpredictable natural disasters and emerging risks force underwriters to become increasingly diligent and selective,” says RIMS Board Member Kim Hunton in a statement. “The 2012 RIMS Benchmark Survey explores this and other industry trends while offering a comprehensive risk assessment for many of the major business sectors. The book has truly become an essential resource for today’s risk professional.”
Bradford tells PC360, “For 30 years, RIMS has been using TCOR as a metric for benchmarking purposes but had never asked risk managers if they are using it. The survey was designed to provide a framework for risk managers to judge the pricing limits and retentions of their own programs against those of other companies, and to judge how they change over time.”
Half of risk managers in the survey use TCOR as a benchmarking tool and to report to senior management about departmental performance. Bradford reveals that he had expected the number of users to be higher, but the half that was not implementing TCOR replied that they were overstretched for the budget and recourses necessary to conduct a TCOR analysis.
Another goal of the survey was to query risk managers about topical issues such as the perception of social media exposure to risk managers. Results showed that although social media is beneficial for communicating with customers and stakeholders, most insurance professionals are concerned about the reputational risks related to social media as at least a moderate threat to their organizations.
Survey respondents can benchmark the structure of their commercial insurance programs, retained loss costs, exposure demographics and (TCOR) against their peers through personalized software and configured to view detailed downloadable schedules of insurance, programs for current and past years and tower charts. The 2012 RIMS Benchmark Survey™ is available for purchase at www.RIMS.org/book.