NU Online News Service, Sept. 4, 10:16 a.m. EDT
Prices for insurance coverage for defense contractors varies widely, influenced by several key factors–especially what part of the world the risk is in–a study has revealed.
This was one of several observations drawn from a study conducted by Chicago-based insurance broker Aon.
The study–”2009 U.S. Industry Report: Defense Industry Benchmarking Report”–aims at providing defense industry clients with data “to assure stakeholders that their risk management function is not only operational, but vigilant and efficient,” said Charlie Skinner, managing director of Aon’s Defense Industry Alliance, in a statement.
“The global business environment is simultaneously full of risk and opportunity as the credit crisis and recession continue to evolve,” said Mr. Skinner. “Organizational sustainability and profitability demands the proactive understanding and management of risk.”
Aon said the report, assembled by Aon Analytics, is primarily based on data collected between May and June of this year through a survey of major contractors to the U.S. Department of Defense. The data comes from companies with major contracts with the Defense Department that have 12-month revenues greater than $8 billion.
In a comparison of premium rates, 18 unnamed clients and their Defense Base Act programs were examined.
Of the 18, two did not do business in Iraq and Afghanistan, while one only did business in those two war-torn countries. The rates ranged from less than $2 premium for $100 of insured payroll, to as high as $18 premium for $100 of insured payroll.
Eleven of the 18 contractors were charged noticeably more for the risks in Afghanistan and Iraq, while four were charged the same rate no matter what country the risk was in.
Mr. Skinner noted that only three to five carriers quote this business at any given time and every quote is unique.
Aon said the key factors driving premium rates are:
o Insurance market conditions.
o Volume of payroll.
o Loss experience.
o Type of operations and workers–noting that manual labor is a higher risk than office workers.
o Area of the world.
The study also found that while Chartis has a significant share of the Defense Base Act insurance, ACE and Zurich are continuing to pursue growth in this line of business and “appear to be making inroads in this specialist class of insurance.”
The report also notes that Congress is concerned with the cost of insurance, which is purchased by a contractor on the market and reimbursed later by the Department of Defense. The department, at the behest of Congress, was developing “a new procurement strategy that would better control costs,” according to Aon.
Additional information is available at www.aon.com/defenseindustryreport.
This story was updated on Sept. 9 at 9:53 a.m. EDT