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Total Cost of Risk Drops for Fourth Straight Year, RIMS Finds

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The risk management profession is proving its resiliency. Even in the face of major hurricanes, technological influence and the seemingly common threat of international trade wars, 2017 saw the total cost of risk (TCOR) decline for the fourth consecutive year, according to the 2018 RIMS Benchmark Survey, which was jointly published by RIMS and Advisen.

Despite these uncertainties, the TCOR per $1,000 of revenue continued to drop, the survey revealed, ending at $9.75 in 2017. The main drivers were declines in liability costs (8%), by decreases in property, liability, workers compensation, management liability, and professional liability costs, as well as overall risk management administration costs. TCOR is defined in the survey as the cost of insurance, plus the costs of the losses retained and the administrative costs of the risk management department.

The survey encompassed industry data from 590 organizations and contains policy-level information from 10 coverage groups, subdivided into 90 lines of business.

Advisen Co-Founder and Chief Strategy Officer David Bradford said market conditions are favorable for insurance buyers. “A competitive insurance market resulting from a chronic overabundance of risk capital strongly contributed to TCOR decreasing steadily since 2013,” he said. “Not even record catastrophe losses in 2017 could derail the downward trend.”

Key findings from this year’s RIMS Benchmark Survey include:

  • TCOR fell despite record-high natural catastrophe losses such as hurricanes Maria, Irma and Harvey, as well as wildfires and mudslides in California.
  • While TCOR per $1,000 of revenue fell for most industries, four—healthcare, government & nonprofit, information technology and consumer staples—saw rising TCOR in 2017.
  • As predicted in the 2017 survey, the percentage of companies buying cyber insurance continued its increase since 2011, ending at 65% in 2017.
  • In 2017, the percentage of companies buying cyber insurance increased to 65%. This trend has continued upward since 2011. Additionally, the cost of cyber insurance per $1,000 of revenue increased 33% from 2016.
  • The adoption of new technologies such as machine learning and blockchain, political instability in several parts of the world, globalization, terrorism and cyber threats are expected to further shape the risk landscape in 2018 and beyond.

Bradford noted that the traditional insurance pricing cycle may seem broken, but that term is more likely a new normal resulting from a more efficient insurance market. “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 percent, may simply never occur again,” he said. “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.”

“As the tools, resources and technologies that facilitate the exchange of ideas and experiences continue to improve, risk management professionals have become better equipped to strengthen their risk financing programs and apply cutting-edge, cost-cutting strategies,” said RIMS CEO Mary Roth. “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.”

To order a copy of the 2018 RIMS Benchmark Survey, visit www.advisenltd.com/media/reports/rims-benchmark-survey/ or www.RIMS.org/book.

Total Cost of Risk Drops for Third Straight Year, RIMS Finds

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Despite the challenges of a slowed economy in an election year, a shifting risk landscape as a result of technological advances, and a slow to negative growth rate in some sectors, 2016 saw the total cost of risk (TCOR) decline for the third consecutive year, according to the 2017 RIMS Benchmark Survey.

Even in the face of such uncertainties, the TCOR per $1,000 of revenue continued to drop, ending at $10.07 in 2016. The main drivers were declines in all lines excluding fidelity, surety and crime costs, according to the report. TCOR is defined in the survey as the cost of insurance, plus the costs of the losses retained and the administrative costs of the risk management department.

The survey encompasses industry data from 759 organizations and contains policy-level information from 10 coverage groups, subdivided into 90 lines of business.

Uncertainty around policies in the new presidential administration will continue to dominate in 2017, as the nation’s trade policy, regulatory reform and tax system could see changes, RIMS reported. The new political regime is also expected to reduce regulatory oversight at the state, federal and international levels.

Key findings from this year’s RIMS Benchmark Survey include:

  • Technological advances have caused a seismic shift in the risk landscape, creating new types of claims and forcing insurers to consider new products and solutions for customers.
  • Insurers ended 2016 with average capital and surplus at the highest level in 10 years. However, excess capacity is undermining profitability, as seen by falling net income and return on average equity.
  • The personal insurance space is in the midst of a consumer-centric revolution, offering customers new transaction platforms, better metrics and more flexible pricing and coverage options. Commercial insurance is expected to adopt a similar focus, transforming the way business is transacted.
  • Predicted rate increases for cyber, E&O and workers compensation failed to materialize across the board. Projections for 2017 are more moderate, with property and most liability lines flat to down 10%.
  • Emerging trends in the 2017 risk landscape include the tech revolution, security issues, natural catastrophes and political upheaval.

“The RIMS Benchmark Survey chronicles the evolution of corporate risk management costs over time. This year’s edition highlights how risk managers have effectively managed costs in a time of evolving risks and demands, enabling them to do more with less,” said Jim Blinn, executive vice president of client solutions at Advisen.