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Tremendous insured losses from natural catastrophes in 2011 tooka toll on pricing across all insurance businesses, found the newlyreleased Risk and Insurance Management Society (RIMS) BenchmarkSurvey measuring Total Cost of Risk (TCOR) and its impact on 10industry groups.

Average TCOR for all surveyed companies, both private andnonprofit, increased by 1.7 percent from $10.02 per $1,000 ofrevenue to $10.19 per $1,000 of revenue. The contribution ofproperty 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 thatfactors together the total cost of self-retained losses,risk-management-administration expenses and insurance premiums. Itis used to identify imbalances in risk management strategy and usethis knowledge to drive down cost.

“Globally, 2011 was a near-record year for insured catastrophelosses,” states Dave Bradford, president of Advisen'sresearch and editorial division and the survey's editor inchief, in a statement. “As a result, the price ofproperty-insurance coverage increased for many insureds, especiallyin catastrophe-exposed areas. This was one of the most significantreasons TCOR grew in 2011.”

The TCOR Survey contains 2011 data, contributed by more than1,000 companies from the banking, consumer education, energy,government and nonprofit, industrial, IT, materials, non-bankfinancials, professional services, telecommunication and utilitiessectors.

“Although organizations have increasingly incorporatedrisk-management practices into their strategic planning,unpredictable natural disasters and emerging risks forceunderwriters to become increasingly diligent and selective,” saysRIMS Board Member Kim Hunton in a statement. “The 2012 RIMSBenchmark Survey explores this and other industry trends whileoffering a comprehensive risk assessment for many of the majorbusiness sectors. The book has truly become an essential resourcefor today's risk professional.”

Bradford tells PC360, “For 30 years, RIMS has been using TCOR asa metric for benchmarking purposes but had never asked riskmanagers if they are using it. The survey was designed to provide aframework for risk managers to judge the pricing limits andretentions 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 benchmarkingtool and to report to senior management about departmentalperformance. Bradford reveals that he had expected the number ofusers to be higher, but the half that was not implementing TCORreplied that they were overstretched for the budget and recoursesnecessary to conduct a TCOR analysis.

Another goal of the survey was to query risk managers abouttopical issues such as the perception of social media exposure torisk managers. Results showed that although social media isbeneficial for communicating with customers and stakeholders, mostinsurance professionals are concerned about the reputational risksrelated to social media as at least a moderate threat to theirorganizations.

Survey respondents can benchmark the structure of theircommercial insurance programs, retained loss costs, exposuredemographics and (TCOR) against their peers through personalizedsoftware and configured to view detailed downloadable schedules ofinsurance, programs for current and past years and tower charts.The 2012 RIMS Benchmark Survey™ is available for purchase atwww.RIMS.org/book.