Total Cost of Risk Up As Market Firms: RIMS

July 15, 2013

Businesses paid about five percent more in 2012 than they did in 2011 to cover the total cost of risk.

That compares to a rise of only 1.7 percent in 2011, according to the 2013 Risk & Insurance Management Society (RIMS) Benchmark Survey.

The bigger rise in 2012 largely reflects the influence of hardening insurance market conditions, RIMS said.

“While 2012 experienced a reduction in insured catastrophe losses, insurers continued to implement rate increases through the year,” said Jim Blinn, executive vice president of Advisen’s Information and Analytics unit and executive editor of the TCOR survey. “Continued pressure on underwriting results and a low interest rate environment motivated underwriting management to seek these higher rates.”

The total cost of risk, or TCOR, includes insurance premiums, risk management expenses, self-retained losses and administrative expenses.

The annual RIMS survey, produced with Advisen Ltd., uses industry data for more than 52,000 insurance programs from almost 1,500 organizations.

Key findings of the 2013 RIMS Benchmark Survey:

  • Average TCOR for all companies increased five percent, from $10.19 per $1,000 of revenue to $10.70 per $1,000 of revenue – the result of hard market conditions.
  • A review of Advisen’s umbrella / excess pricing and limit data showed that pricing influences excess insurance program limit buying trends. When prices were dropping, insurance buyers tended to increase their limits more. On the other hand, when prices were increasing, they tended to increase their limits less.
  • The contribution of property premiums to average TCOR grew nearly six percent, from $2.92 per $1,000 of revenue to $3.09 per $1,000 of revenue.

RIMS officials suggested that the trend seen in 2012 might not last.

“Rates are rising but our research shows that improving rates attract new capacity, which makes it difficult to sustain the trend towards progressively higher rates,” said RIMS Board Director Michael D. Phillipus, ARM.

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