Total cost of risk declines – RIMS Survey
An idea of the sort of information that the AIRMIC benchmarking survey could produce comes from reading the latest RIMS benchmark survey, which is also produced by Advisen.
According to the RIMS survey, the commercial insurance industry continued to experience an overall decline in total cost of risk (TCOR) in 2007. The 2008 RIMS Benchmark Survey book provides risk managers with objective and actionable insurance market information based on the insurance programs of more than 1,000 participants from the U.S. and Canada.
Insurance professionals use the RIMS Benchmark Survey book to monitor and evaluate programs, help negotiate program costs and design, and navigate the latest risk management trends. This book is the annual summary of the online version of RIMS Benchmark Survey that is updated daily throughout the year. Both the book and the online version are jointly produced by RIMS and Advisen, Ltd., which collects and analyzes the data and, for the online service, provides easy-touse interactive tools and services.
According to the 2008 RIMS Benchmark Survey book, another year free of major natural catastrophes, combined with abundant insurance market capacity, contributed to falling insurance costs, which in turn led to lower average total cost of risk (TCOR) per $1,000 of revenue. Changes in average TCOR between 2006 and 2007 were not evenly distributed across industries, as some watched TCOR rise and a few experienced savings of 30 percent or more. But, while changes in TCOR varied by industry, lower average TCOR was distributed consistently across all sizes of companies.
New to this year’s RIMS Benchmark Survey book is a special chapter dedicated to a Broker Services and Remuneration Study. Based on survey responses from more than 1,300 participants, the study found that insurance buyers benefited from a highly competitive insurance brokerage market in 2007. Survey results highlight that brokers are increasingly competing on the basis of services provided to clients, but there are significant differences by size of company and industry group in the types of services provided.
The survey also quantifies the differences in average costs to insurance buyers of fee-based broker remuneration as opposed to traditional commission-based remuneration.
The most significant risk management and insurance event of the year, the meltdown of the U.S. subprime mortgage market, is expected to cost the insurance industry billions of dollars in directors and officers liability and errors and omissions liability losses, and potentially tens of billions in investment-related losses. However, the subprime crisis had no apparent impact on overall insurance costs in 2007.
The conditions driving down the cost of risk in 2006 and 2007 should continue in 2008, says David Bradford, editor-in-chief of Advisen. Barring large catastrophe losses, which could spark higher premiums, risk managers should continue to see steadily falling insurance costs throughout the year while brokers continue to do battle over pricing and service offerings.
The 2008 RIMS Benchmark Survey book is comprised of data collected in the 12 calendar months of 2007 and covers 14 high-level industry groups (Energy, Telecommunications, Professional Services, Banks, Consumer Staples, Education, Government/Non-profit, Healthcare, Information Technology, Utilities, Consumer Discretionary, Industrials, Materials and Non-bank Financials).
The online survey provides an expanded view of the insurance industry-based 66 pre-defined industry peer groups and more than 90 lines of business. The on-line survey also permits users to define peer groups for benchmarking purposes based on criteria such as industry, territory and revenue.
