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Average total cost of risk for businesses grows: RIMS

Posted On: Aug. 16, 2019 9:46 AM CST


The average total cost of risk for businesses rose by 2.1% in 2018, reversing four years of declines, the Risk & Insurance Management Society Inc. said Friday, as insurance rates increased.

The 2019 RIMS Benchmark Survey found that the total cost of risk, or TCOR, was up to $9.95 per $1,000 of revenue in 2018, from $9.75 per $1,000 of revenue in 2017.

The marginal increase in TCOR was driven primarily by “slightly higher liability, property and workers compensation costs,” RIMS said in a statement.

Liability costs, the largest component of TCOR, increased by nearly 2.0%, in part a response to a higher frequency of very large losses, RIMS said in the statement.

Total property costs, the second largest component, was up 5.0%, despite a significant decrease in catastrophe losses in 2018, RIMS said.

Workers compensation costs, the third largest component of TCOR, also rose 3.0% to $2.72 per $1,000 of revenue in 2018, from $2.64 per $1,000 of revenue in 2017.

Higher risk management department costs also pulled average TCOR slightly upward, RIMS said.

Increasing rates in 2018 are not likely a harbinger of a hard market like that seen in 2001-2003, RIMS said in the report.

“The industry is flush with capital and is profitable, which ordinarily signals a competitive market, not a tightening one. Some lines of business are losing money on an underwriting basis, which encourages insurers to nudge rates higher. But unlike previous hard markets, which occurred when the insurance industry was under duress, the industry today is strong and growing,” the report said.

The annual survey, produced with Advisen Ltd., a New York-based insurance data and analytics company, tracks changes in insurance policy renewal prices as reported by North American corporate risk managers.

“While some classes of business experienced rate increases, the robust health of the property/casualty industry helped to keep rate hikes in most lines – and therefore increases in TCOR – in check,” David Bradford, chief strategy officer and director of strategic partnership development of Advisen Ltd., said in the statement.

“Some insurers are trimming capacity in troubled lines, but overall the P/C industry is very well-capitalized and able to assume more risk on its balance sheet,” he said.

The total cost of risk is defined as the sum of insurance premiums, self-funded losses, risk control expenditures, and internal and external administrative costs. This includes not just insurable risks, but the risks and costs associated with those risks, RIMS said.