RIMS releases benchmarks

The cost of risk has risen in the U.S. but dropped in Canada, according to the recently released Risk & Insurance Management Society (RIMS) 1999 Benchmark Survey. The annual report, co-authored by Ernst & Young, polled 737 American and 79 Canadian risk managers.

Continuing the trend, which began in 1995, the Canadian cost of risk per $1000 in revenue declined again in 1998, from 1997’s $2.13 to $1.74. In comparison, U.S. risk cost $5.71 per $1000 of revenue, up from 1997’s $5.25. The economies of scale persist in Canada, organizations with more than $2.5 billion in revenue paid $1.51 per $1000 while companies yielding under $250 million paid $9.93. James Gamble, one of Ernst & Young’s project managers, says the retained loss component and survey composition accounts for the differences between the Canadian and U.S. experience. “Retained losses are somewhat volatile and as a result different companies will experience different costs of risk. This component though was somewhat more conspicuous in the U.S. group over the Canadian group. Canadian risk managers seem to be more similar and consistent with prior years in many areas.”

Still, the report indicates U.S. and Canadian risk managers share many of the same concerns — both are increasing their interest in risk integration, both acknowledge their service providers are specializing and both fear employment practices liability exposures are on the rise.

In Canada, premium costs dove in the commercial property market, down 23%, while liability cost premiums dropped a still-significant 8%. Canadian risk managers do report an 11% rise in administrative costs — relating to broker compensation, third party administrators, consulting fees, and operating resources. At the same time, the average number of employees in risk management departments rose by 0.38 to 9.74. Gamble maintains the administrative cost upward trend should not alarm the industry. “In examining the trend analysis and looking at respondents who were in the survey both this year and last across North America, their administrative costs actually dropped. Repeat respondents administrative costs actually dropped by 10%, the new respondents were the one’s whose costs brought the trend up.”

Interest has risen substantially in integrating risk across entire organizations. 1998’s survey found only 6% of Canadian respondents considering enterprise-wide alternatives compared to a staggering 51% of this year’s surveyed. The interest spans across all segments of Canadian corporations — 62% of respondents with revenues over $1 billion are exploring these options, so too are 47% of the smaller firms.

No surprise, the increasingly litigious Canadian environment has spawned greater concern among managers regarding employment practices liability exposures. While only 13% of Canadian risk managers report purchasing separate employment practices liability insurance (EPLI), the figure represents an increase over last year’s tally of 8%. U.S. risk managers are leading the way in EPLI purchases, with a significant higher percentage of 29% reporting they’ve signed on. “Liability trends tend to be more pronounced in the U.S. I would think that the difference between American and Canadian EPLI figures will become closer if and when Canada more resembles the litigious environment of the U.S.,” Gamble adds.