Study: RMs Spent 17% More On Loss Control Risk managers spent an average of 17 percent more on loss control services last year, according to a survey released by the Chubb Group recently.
Reducing exposures to obtain better insurance coverage terms and pricing was the top reason for increased loss control spending in 2002, according to the study announced by The Chubb Group of Insurance Companies at the Risk & Insurance Management Societys annual conference earlier this month.
“I’m extremely pleased with the results because only about 5 percent decreased their spending, so 50 percent increased significantly and the balance held their own,” said Jimmy R. Deaderick, managing director of Chubb & Son and worldwide loss control manager of Chubb Commercial Insurance, Whitehouse Station, N.J.
Mr. Deaderick said he thought the loss control activity was “phenomenal. And I compliment the risk managers that responded for that.”
He told National Underwriter that risk managers achieved these results “by most likely looking for alternatives in terms of where to spend their money. I think they analyzed on an in-depth basis what they need versus what they want.”
Even though he was generally pleased with those results, he noted one area of concern, saying that risk managers “may have cut back on the traditional loss control services like workers’ compensation and machinery product liability.”
The study, “Managing the Cost of Risk: Chubbs 2003 Loss Control Spending Survey,” found that organizations that increased loss control spending on security, crisis-related services or corporate governance in 2002, shifted budget dollars away from traditional loss control categories such as workers compensation and product liability.
This trend may show up later “because workers’ comp is facing rising health costs, the federal government is stepping up enforcement of safety regulations, and if you look at jury awards on products liability, they are not getting any cheaper,” he noted. “In 1994, there were $400,000 in suit rewards and in 2002 there were $1.8 million.”
When it comes to services, Mr. Deaderick said risk managers of small- to middle-size companies “are probably relying more on their insurance carriers than ever before, and they are looking for tools like business recovery and disaster recovery planning programs.”
He said risk managers are highly aware of the quality of services they receive from their carriers and outside consultants.
Nearly 50 percent of respondents increased their loss control spending in the past year; 34 percent held their budgets constant; and 5 percent decreased their loss control spending, the study found.
As a group, companies with loss control budgets of $200,000 or more were the most likely to increase their loss control spending. Companies that increased their loss control spending tended to have annual sales revenues of $500 million and more. Loss control spending for this group increased by 21 percent in 2001, according to Chubb.
Mr. Deaderick said in a statement that the greatest increase in loss control spending reflected the effects of the recent corporate scandals and the threat of terrorism on the business marketplace.
The survey found that 58 percent of respondents increased loss control spending on security, followed by disaster preparedness (54 percent) and corporate governance (52 percent).
Among those who increased loss control spending, the top three reasons were “the reduction of exposures to obtain better [insurance coverage] terms/ pricing” (44 percent), “an increase in loss activity” (39 percent), and “the threat of terrorism” (30 percent).
Chubb said its survey was conducted over the Internet in February 2003 and received 385 responses from risk management professionals almost entirely from the United States and Canada.
Respondents answered 29 questions, several with multiple parts and rankings. Respondents represented both publicly and privately held companies in all types of industries, government institutions and non-profit organizations, according to Chubb.
The Chubb report is available at www.chubb.com/rims/2003survey.pdf, or from Sharon Herner, Chubb Group of Insurance Companies, 15 Mountain View Road, Warren, NJ 07059, e-mail, firstname.lastname@example.org.
Reproduced from National Underwriter Edition, April 21, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.