The average total cost of risk (TCOR) declined for the fourth year in a row in 2017, despite record-breaking natural catastrophe losses and a continually-evolving risk environment, new data from RIMS has revealed.
The risk management society’s latest Benchmark Survey found that TCOR decreased from $10.07 per $1,000 of revenue in 2016 to $9.75 per $1,000 of revenue last year – a 3% decrease.
That marginal decline was driven by decreases in property, liability – which saw an 8% drop – workers’ compensation, management liability, and professional liability costs, as well as overall risk management administration costs.
TCOR benchmarking is increasingly being used by risk managers as an important strategy to design and evaluate their organizations’ risk financing programs in the face of an increasingly competitive insurance market, RIMS said in the report. The latest annual survey was produced with Advisen, a source of industry statistics which tracks changes in insurance policy renewal prices as reported by North American corporate risk managers.
“Market conditions are favorable for insurance buyers,” said David Bradford, co-founder and chief strategy officer at Advisen.
“A competitive insurance market resulting from a chronic overabundance of risk capital strongly contributed to TCOR decreasing steadily since 2013. Not even record catastrophe losses in 2017 could derail the downward trend.”
According to Bradford, the traditional cycle of insurance price increases and decreases seems to be changing.
“For many decades the property/casualty insurance industry followed a relatively predictable cycle of price increases and decreases. However, for more than a decade, the overall trend has been downward. Rate levels have fluctuated over the years, but the last genuine hard market was in the early years of the 21st century,” he said.
“The factors contributing to this more efficient market are varied and complex, but the upshot is that a hard market like that last seen in 2001-2002, when commercial insurance rates shot up 50%, may simply never occur again. Prices may rise, but most likely they will be quickly beaten down by fresh capital flowing into the market. That is good news for risk managers.”
RIMS CEO Mary Roth said that risk management professionals have become “better equipped to strengthen their risk financing programs and apply cutting-edge, cost-cutting strategies,” as a result of the growth in tools, resources and technologies available today.
“The year-over-year data available in the RIMS Benchmark Survey allows professionals to accurately set expectations, and achieve goals while designing competitive but fair insurance programs for their organizations,” she said.
While overall TCOR fell for most industries, the healthcare, government & non-profit, information technology, and consumer staples industries saw rising TCOR in 2017.