Average Cost of Risk Lowest in Decade

In the United States, risk costs just about half a\r\ncent on the dollar, and is the lowest it has been in a decade, according\r\nto a survey.

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What is the cost of risk? In the United States, just about half a cent on the dollar, and is the lowest it has been in a decade, according to a the 2000 Risk Insurance Management Society (RIMS) Benchmark Survey.

The survey, which is co-produced annually be RIMS and Ernst & Young LLP, reported a reduction to $5.250 per $1,000 of revenues from last year''s level of $5.71, driven both by lower insurance premiums and lower retained losses.

"In spite of the good news about the reduced cost of risk, this trend may soon reverse," said James Gamble, senior manager with Ernst & Young''s Business Risk Solutions practice. "Over the past decade, the cost of risk has closely tracked the overall operating ratio for commercial insurers, suggesting that when they do well, they are inclined to reduce premiums. This year insurers'' results continue to worsen, which could lead to increase premiums in the future."

As a tool, RIMS said the Benchmark Survey assists risk managers to deal with the tightening marketplace and provides information on deductible levels, limits of liabilities purchased by peers and costs of risk for comparative organizations.

The survey, conducted among 779 organizations in the United States and Canada found:

While the cost of risk declined in the United States, it rose in Canada.

The most effective workers'' compensation cost control methods reported are light duty programs, accident prevention and medical bill reviews.

Most U.S. survey respondents purchase employment practices liability coverage.

In the United States, the cost of risk for large organizations (those with revenues exceeding $5 billion) dropped eight percent, while the cost for smaller organizations dropped four percent, said the study.

In general, the study found that liability costs, property costs and administrative expenses decreased, while workers'' compensation costs increased slightly.

by Virginia Sutcliffe

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