This was one of the key findings detailed in Marsh's “Casualty Cost of Risk 2004″ research report, said the report's publisher, Timothy Brady, a managing director in the broker's U.S. Casualty Practice.

Comparing the cost of risk to businesses that were surveyed last year in the firm's 2003 report, primary casualty costs rose 6.9 percent in 2003 despite double-digit increases by insurers. The report examined three areas of risk–workers' compensation, general liability and commercial auto liability.

Mr. Brady said the percentage increase does not reflect the pressures businesses are under as they look for ways to cut higher insurance costs, largely by assuming more retentions in the face of soaring premium rates.

The cost environment is not a “simple plug and chug,” he said.

The report notes that for businesses providing two years of data, workers' comp retentions increased 17.7 percent, general liability rose 14 percent, and auto liability increased 12.5 percent.

The report surveyed 1,433 business, compared to 1,050 last year. Like 2003s survey, the results are broken down into 23 Standard Industrial Classification (SIC) codes for benchmarking purposes.

Based on a total increase in the cost of risk, rising from $1 to $1.07 for 2003, workers' comp still eats up the primary amount of risk costs, accounting for 66 cents of every dollar U.S. industry spends to manage its primary casualty exposure, compared to 65 cents last year. General liability rose a penny, from 24 cents to 25 cents. Auto liability saw the sharpest increase, going from 11 cents to 16 cents.

Still consistent with last year's report, the size of the company affects the cost of insurance. Businesses with revenues of $200 million or less paid an average of $21.75 per $1,000 in revenue for their overall cost of risk. Businesses with more than $10 billion in revenue paid $1.38 per $1,000 in revenue for their risk.

On the whole, U.S. businesses pay an average of $2.32 per $1,000 of revenue for their risk.

Government entities had the highest workers' comp costs, the report said, at $8.25 per $1,000 of revenue. Finance, banking and real estate had the lowest at 24 cents per $1,000.

General liability costs were the highest for educational and not-for-profit institutions at $2.38 for every $1,000 of revenue. Financial services again had the lowest costs at 14 cents.

In auto liability, transportation service companies had the highest costs at $1.51 per $1,000 of revenue, which translated to $2,589 per vehicle.

For all three areas of risk, the mining and energy sector had the highest retentions.

The report found that retained losses are accounting for a greater proportion of risk costs than fixed insurance costs. In workers' comp, insurance costs accounted for 13 percent, while retained losses accounted for 87 percent of expenses. On general liability, insurance cost accounted for 21 percent and retained losses 79 percent. For auto liability, insurance costs were 20 percent and retained losses 80 percent.

Because of the assumption of more and more risk by individual insureds, managing those risks will become more and more important.

In workers' comp, costs are impacted by high utilization rates, more severe injuries and illness, the expense of modern technology, and the high cost of prescription drugs, according to the report.

Another driver of cost is the increased price for health care, which is projected to increase by 13 percent in 2004, the fourth year in a row of double-digit increases. Health care costs have seen steady increases since 1998, the report said.

The report noted that as the job climate improves and businesses begin hiring new people, this could impact workers' comp costs because, traditionally, new employees have a greater likelihood of injury on the job.

Mr. Brady said this underscores the need for businesses to concentrate on their risk management tools and training to reduce exposure.

“At the end of the day, while we are still talking about insurance charges, the key to success is going to be managing loss experience,” Mr. Brady noted.

The report gives some insights into what businesses can do to control some of these costs and how to use benchmarking for improvement.

Additional information and copies of the report can be obtained by contacting Peggy Sherertz at 212-345-3393.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, March 12, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.