Total cost of risk inched up last year: RIMS survey

A benchmark survey of more than 1,000 companies found that the total cost of risk (TCOR) increased marginally in the past year, despite fears of hefty rate hikes after a spate of natural disasters in 2011.

The Risk and Insurance Management Society’s (RIMS) annual survey, produced by Advisen, discovered only a mild bump up in the overall cost of risk. Average TCOR for all companies increased 1.7%, from $10.02 per $1,000 of revenue to $10.19 per $1,000 of revenue.

Property insurance was the main source of this increase, with the contribution of property premiums to average TCOR growing nearly 9% from $2.73 per $1,000 of revenue to $2.92 per $1,000 of revenue.

“Globally, 2011 was a near-record year for insured catastrophe losses,” said Dave Bradford, president of Advisen’s research and editorial division and editor-in-chief of the survey. “As a result, the price of property insurance coverage increased for many insureds, especially in catastrophe-exposed areas. This was one of the most significant reasons TCOR grew in 2011.”

The RIMS survey also highlighted social media as a growing concern on the radar screen of risk managers. A “vast majority of risk professionals” who participated in the survey believe that social media poses at least a moderate threat to their organizations, according to RIMS.

“Although organizations have increasingly incorporated risk management practices into their strategic planning, unpredictable natural disasters and emerging risks force underwriters to become increasingly diligent and selective,” said RIMS board member Kim Hunton.