This year’s RIMS Benchmarks Survey, conducted in partnership with Advisen Ltd., has revealed that the average Total Cost of Risk (TCOR) increased 5% in 2012. This is almost three times the 1.7% increase registered in 2011.
This increase has been driven largely by the instigation of tougher market conditions, according to a RIMS press release. “What has been evident is buyers have enjoyed a very favourable environment relative to the cost of risk,” Jim Blinn, executive VP of Advisen’s information and analytics unit, told Business Insurance. “Last year that started to shift.”
RIMS members tend to be large commercial insurance buyers, meaning that they can, in general, “buffer” increased risk costs. “[However,] it’s become fairly evident and widespread in our analysis of 2012 data that buyers clearly were experiencing an environment of rising costs overall,” Blinn said.
“While 2012 experienced a reduction in insured catastrophe losses, insurers continued to implement rate increases through the year,” Blinn said. “Continued pressure on underwriting results and a low interest rate environment motivated underwriting management to seek these higher rates.”
Other key findings:
Average TCOR for all companies increased from $10.19 per $1,000 of revenue to $10.70 per $1,000 of revenue
Pricing influences trends in excess insurance programme limit buying. “When prices were dropping, insurance buyers tended to increase their limits more. On the other hand, when prices were increasing, they tended to increase their limits less.”
“The contribution of property premiums to average TCOR grew nearly 6%, from $2.92 per $1,000 of revenue to $3.09 per $1,000 of revenue.”
The survey is an annual one and contains benchmark statistics with industry data for more than 52,000 insurance programmes from almost 1,500 organisations. “It’s a good cross section of what I’d like to call ‘Business America,’” Blinn said.