The total cost of risk (TCOR) increased 2% in 2018 due to rising insurance rates, according to the Risk & Insurance Management Society (RIMS)’s latest report.
The 2019 RIMS Benchmark Survey found that businesses and organizations paid nearly 2% more in 2018 than they did in 2017 to cover the TCOR – with the average TCOR rising from $9.75 per $1,000 of revenue in 2017 to $9.95 in 2018.
According to RIMS, the increase was primarily driven by slightly higher liability, property, and workers’ compensation costs.
Liability costs, the largest component of TCOR, increased by nearly 2% while total property costs, the second largest component, increased by 5%. Meanwhile, workers’ compensation cost, the third largest component, was up 3% from $2.64 to $2.72 per $1,000 of revenue. Higher risk management department costs also pulled the average TCOR slightly upward.
The 2019 benchmark survey also found that the TCOR was higher last year mainly due to rising insurance rates, the P/C industry had a profitable 2018, higher TOC was in part a response to a higher frequency of massive losses, property TCOR rose despite a significant decrease in catastrophe losses in 2018, and cyber insurance grew faster than the overall P&C market.
David Bradford, chief strategy officer and director of strategic partnership development of Advisen Ltd., commented that “strong capital position, combined with overall positive results once investment income is taken into consideration, creates an environment where rate increases may be in conflict with a desire to remain competitive and to increase writings to put excess capacity to work.”
Steve Pottle, vice president at RIMS, added that an effective risk financing program does much more than just protect assets.
“Understanding Total Cost of Risk (TCOR) allows organizations and their risk management professionals to successfully allocate resources and more accurately prepare for fluctuations in the insurance market,” Pottle said.
“The ability to benchmark your organization’s risk program against your peers through TCOR is a valuable tool both to your senior management and when marketing your risk at renewal time. The RIMS Benchmark Survey continues to be a valuable resource used by hundreds of organizations, helping them to develop dynamic and highly-relevant risk financing strategies.”