Since 2004 the cost of risk has increased 12 cents for every $1,000 of revenue for large and midsize accounts, and appears to be stabilizing, according to a new report.
The annual study released by insurance broker Marsh said the cost of risk stood at $2.68 for every $1,000 of revenue. This was a modest increase of 4 percent over 2004, where the cost of risk stood at $2.56 for every $1,000 of revenue.
Marsh, a subsidiary of New York-based services firm Marsh & McLennan Companies, said the conclusions were drawn from data compiled last year from 1,638 businesses and government entities in its data bank.
According to the 140-page report released last week, titled "Casualty Cost of Risk 2006," in comparing firms in a smaller universe–the ones Marsh has data on from 2004 and 2005–the cost of risk decreased 3 percent, from $2.55 in 2004 to $2.48 in 2005.
Both changes are modest, Marsh said, and may reflect stability in the primary casualty insurance market.
Of that $2.68, workers' compensation took up the majority of cost of risk, standing at $1.80, followed by general liability at 59 cents and auto liability at 29 cents.
Approximately two-thirds of buyers purchased loss-sensitive plans, as opposed to guaranteed-cost plans, for workers' comp and general liability, but more than half purchased guaranteed-cost plans for auto liability.
When it comes to buyers choosing who they would deal with, Marsh said firms were inclined to remain with their current insurer. In 2004, one in four buyers changed insurers, while in 2005, one in nine made a change.
Buyers sought to retain more risk in an effort to control costs, Marsh said.
"Despite a relatively stable market, businesses have been fine-tuning their casualty insurance arrangements to strike the right balance between their premium costs and retention levels," said George Pallis, a managing director in the U.S. casualty practice of Marsh Inc., in a statement.
According to Mr. Pallis, businesses are "moving retentions up or down to take advantage of a more competitive insurance market and to get the best deal."
The report said buyers' retentions rose 2.2 percent in workers' comp as costs dropped 4.4 percent. In auto liability, retentions rose 6 percent as costs dropped 5.3 percent. But for general liability, retention dropped 4.5 percent while costs rose 4.1 percent.
Size matters, the report noted. The average cost of risk for $1,000 of revenue stood at $1.76 for buyers with more than $10 billion in revenue, contrasted by small buyers, with revenue of $200 million or less in revenue, whose cost of risk stood at $15.08.
"While there's no question that larger employers enjoy economies in each of the three areas of risk we examined, they also have more resources to invest in approaches to mitigate these costs," said Mr. Pallis. "As a result, they generally enjoy a competitive advantage as respects the casualty insurance component of their overall cost of goods sold."
Copies of the report are available through Marsh offices or by contacting Donna Mohan at (212) 345-5343.
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