Total Cost of Risk Declines Again

This post first appeared on Risk Management Magazine. Read the original article.

total cost of riskAbundant risk capital exerted downward pressure on insurance prices in 2017, resulting in a reduction in total cost of risk for the fourth year in a row, according to the 2018 RIMS Benchmark Survey.

Produced in collaboration with Advisen, the survey found that the average total cost of risk—defined as the costs of insurance, retained losses and risk management department administration—fell to $9.75 per $1,000 of revenue in 2017, a 3% decrease from $10.07 in 2016. The decline was driven by decreases in property, liability and workers compensation, as well as overall administrative costs.

Not all industries experienced a lower cost of risk, however—information technology, health care, government and nonprofit, and consumer staples all saw increases largely due to rising insurance rates in their segments.

Overall, the cost of risk has trended downward in recent years, falling from $10.90 per $1,000 of revenue in 2013, due to a competitive insurance market, a growing economy, increased administrative efficiencies and, in certain lines of business, improved loss experience.

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