In an apparent move to drive down the cost of risk, risk managers are spending an average 17 percent more on loss control services while their organizations confront budgetary constraints and the difficult economic environment. Those organizations that increased loss control spending on security, crisis-related services or corporate governance in 2002 shifted budget dollars away from traditional loss control categories such as workers ‘compensation and product liability. These are among the major findings of a survey of nearly 400 risk managers released today by the Chubb Group of Insurance Companies at the Risk & Insurance Management Society’s annual conference.
“Our research provided an in-depth understanding of how risk managers manage the cost of risk through loss control and how various trends and drivers affect their current spending on such services,” said Jimmy R. Deaderick, managing director, Chubb & Son, and worldwide loss control manager of Chubb Commercial Insurance, Whitehouse Station, N.J.. “Our results indicate that the hard insurance market has had a major impact on risk managers’ spending decisions. Many respondents noted that reducing exposures to obtain better insurance coverage terms and pricing was the top reason for increased loss control spending in 2002.”
“We also found that many risk managers may be robbing Peter to pay Paul by shifting loss control dollars from traditional areas of concern to emerging risks. There is a tendency to divert funds away from programs to help control workers compensation, property and product liability exposures and to spend it on addressing topical and pressing issues such as corporate governance and terrorism,” added Deaderick. “While I applaud the response in these volatile areas, we must not forget that workers compensation and product liability remain significant long-term exposures that face escalating costs.”
Nearly 50 percent of respondents to “Managing the Cost of Risk: Chubb’s 2003 Loss Control Spending Survey” increased their loss control spending in the past year; 34 percent held their budgets constant; and 5 percent decreased their loss control spending. As a group, companies with loss control budgets of $200,000 or more were the most likely to increase their loss control spending. Those companies that increased their loss control spending tended to have annual sales revenues of $500 million and more; loss control spending for this group increased by 21 percent over 2001.
“The greatest increase in loss control spending reflected the effects of the recent corporate scandals and the threat of terrorism on the business marketplace,” said Deaderick. Fifty-eight percent of respondents increased loss control spending on security, followed by disaster preparedness (54 percent) and corporate governance (52 percent). Among those who increased loss control spending, the top three reasons were “the reduction of exposures to obtain better (insurance coverage) terms/pricing” (44 percent), “an increase in loss activity” (39 percent) and “the threat of terrorism” (30 percent).
Chubb’s survey was conducted over the Internet in February 2003 and received 385 responses from risk management professionals almost entirely from the United States and Canada. The respondents answered 29 questions, several with multiple parts and rankings. Respondents represented both publicly and privately held companies in all types of industries, government institutions and non-profit organizations.
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