Total Cost of Risk Continues Downward Trend, RIMS Survey Finds

May 2, 2007

The commercial insurance industry continued to experience an overall decline in total cost of risk in 2006 despite coastal property premium hikes, according to the 2006 Annual Benchmark Survey book from the Risk and Insurance Management Society (RIMS).

The average total cost of risk fell by 9.2 percent for all survey participants, though there was wide variation by industry.

Property costs rose sharply in catastrophe-exposed regions, substantially offsetting decreases in other regions, according to the report.

Also, workers compensation costs fell again in 2006, driven substantially by reform measures in several large states.

Even though the above-average season for hurricane activity predicted by meteorologists never materialized, hurricane losses were a significant contributor to the total cost of risk of North American firms and governmental entities in 2006 as the impact of the record-shattering hurricanes of 2005 reverberated across 2006.

Property insurance premiums skyrocketed not only in hurricane-exposed coastal areas, but also in California as lessons learned from Hurricane Katrina were factored into earthquake pricing models.

While premiums for properties in catastrophe-exposed regions were off the chart, insurance costs for property insurance in other regions and for most other lines of business continued the downward march begun in 2004.

“Falling insurance costs continue to be driven by rapidly accumulating policyholders’ surplus, the measure of ‘supply’ in the insurance ‘supply and demand’ equation,” says David Bradford, editor-in-chief, Advisen. “The insurance industry recorded a profit in 2005, in spite of record catastrophe losses, which further fueled competition in 2006, leading to a sharp decrease in total cost of risk. Absent unusually severe natural catastrophe losses, accumulating surplus should continue to exert downward pressure on insurance costs in 2007.”

The 2006 RIMS Benchmark Survey book provides risk managers with insurance market information based on the insurance programs of more than 1,200 participants from the U.S. and Canada.

The book covers 14 industry groups (Energy, Telecommunications, Professional Services, Banks, Consumer Staples, Education, Government/Non-profit, Healthcare, Information Technology, Utilities, Consumer Discretionary, Industrials, Materials and Non-bank Financials). T

Source: RIMS
www.RIMS.org/brokerform

Topics Trends Catastrophe Market Hurricane

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