Total cost of risk climbed 2% in 2018, RIMS survey finds
The average increase in insurance rates last year is one explanation for the increase in TCOR, the 2019 RIMS Benchmark Survey found.
Businesses and organizations paid nearly 2% more in 2018 than they did in 2017 to cover total cost of risk (TCOR), the 2019 Risk & Insurance Management Society (RIMS) Benchmark Survey found. This reverses a five-year trend of decreases in average TCOR per $1,000 in revenue.
Average TCOR decreased year-over-year from 2013 to 2017. In 2018, average TCOR increased to $9.95 per $1,000 of revenue, up from $9.75 in 2017.
Interestingly, TCOR rose despite a significant decrease in catastrophe losses in 2018.
To explain the 2% increase, the RIMS 2019 Benchmark Survey says rising insurance rates are partly to blame, and for casualty lines, higher TCOR is in part a response to a higher frequency of very large losses.
The marginal increase was driven primarily by slightly higher liability, property, and workers’ compensation costs, the survey explains further. Liability costs, the largest component of TCOR, increased by nearly 2%, while total property costs, the second largest component, was up 5%. Workers’ compensation costs, the third largest component of TCOR, also rose 3% from $2.64 to $2.72 per $1,000 of revenue.
RIMS adds that higher risk management department costs are also partially responsible for the slight inflation in average TCOR for 2018.
Why this matters
Commenting on the significance of this increase in TCOR for 2018, RIMS Vice President Steve Pottle says 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 in a statement. “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.”
Among other main findings, the RIMS study concluded that cyber insurance remains to be a majorly successful line for insurers, as it continues to grow faster than the overall P&C market.
The annual RIMS survey, produced with Advisen Ltd., compiles benchmark statistics with industry data for insurance programs and organizations throughout the industry. The complete 2019 benchmark survey can be purchased on the RIMS website.
Related: P&C underwriting income declined 9.6% in the first half of 2019