A significant percentage of risk managers boosted spending for loss control services, while just over half at least kept their budgets level in the past year–with additional money going toward disaster preparedness and catastrophe management, an insurer survey revealed.
Overall, risk managers increased spending for loss control services an average of 7 percent in the past year, according to the “2006 Loss Control Spending Survey” released by the Chubb Group of Insurance Companies here at the Risk and Insurance Management Society’s annual conference.
The Chubb survey found that 52 percent of respondents indicated loss control spending remained the same in the past year. Forty-three percent said spending increased, while only 5 percent said it decreased.
The survey results show there’s been a leveling off in loss control budgets. A similar study Chubb conducted in 2003 indicated that 53 percent of organizations increased their loss control spending in the prior year, while 41 percent kept loss control budgets flat.
However, “with inflation running at about 3 percent and overall business spending at about the same percent, I think in today’s environment, saying spending for loss control in 95 percent of organizations was up or flat–and that overall spending was up about 7 percent–is pretty significant,” Steven D. Hernandez, senior vice president of Chubb & Son, told National Underwriter.
Mr. Hernandez, who is a worldwide loss control services manager for Chubb Commercial Insurance, said spending has increased in several areas–including disaster preparedness, catastrophe management and cyber-security. He said a challenge for risk managers is balancing today’s emerging risks with longtime threats, while becoming prepared for tomorrow’s potential problems.
“I think it becomes a dilemma that presents a complex proposition for risk managers to balance, because they have to continue to manage risks such as workers’ compensation and property, but now you throw in terrorism and catastrophe management,” said Mr. Hernandez.
The survey indicated that “in today’s world, risk managers have to be effective in balancing all of those dimensions,” because in the future other threats that need to be managed will take precedence, he warned.
“Organizations need to strike a balance between what has happened in the past with what may emerge in the future,” Mr. Hernandez said in a statement. “They should be careful not to neglect traditional areas such as workers’ compensation and product liability, which represent significant long-term exposures.”
The threat of natural disasters was cited by 15 percent of respondents as a reason for changing their loss control spending in the past year. In 2003, nearly a quarter (24 percent) cited the threat of terrorism as a factor–this year, 5 percent cited terrorism.
“Many organizations have adopted a reactionary attitude when it comes to loss control spending. This is apparent in the increased spending for disaster preparedness and catastrophe management, which–based on the impact of Hurricanes Katrina, Rita and Wilma and predictions for a severe hurricane season in 2006–was anticipated,” according to Mr. Hernandez.
“In 2003, risk managers were implementing loss control strategies in the wake of the [Sept. 11, 2001] terrorist attacks, so security and disaster preparedness were at the top of their agendas,” he added.
In addition, 17 percent cited legal/regulatory compliance as a factor for changing loss control spending in the past year–which may explain why 47 percent of those surveyed increased spending for loss control services related to corporate governance. “It’s clear that Sarbanes-Oxley and recent corporate scandals are having an impact on how organizations budget their loss control funds,” Mr. Hernandez said.
“Together, the 2003 and 2006 surveys highlight the challenges faced by risk managers–compounding risks with increased complexity,” he said. “The primary goal for organizations today should be to balance the myriad critical risks facing them.”
Chubb said the survey was conducted over the Internet in April 2006. More than 125 risk management professionals, primarily from the United States, responded. Respondents answered 29 multipart questions and represented both publicly and privately held companies in all types of industries, government institutions and nonprofit organizations.