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RIMS Benchmark Finds Capacity Ample and Growing
Gregory DL Morris is an independent business journalist currently based in New York with 25 years’ experience in industry, energy, finance and transportation. He can be reached at [email protected].
Two clear trends emerged from what was otherwise a “relatively quiet year” in 2012, according to the recently released 2013 RIMS Benchmark Survey.
The most heartening for owners is that, in many markets, plenty of capacity is available, and more is expected.
The second finding was somewhat more challenging: Exposure and actual loss that are broadly categorized as uninsurable risks are rising sharply. That is putting new pressure on risk management professionals as they work with their colleagues to try to mitigate risks that cannot be transferred.
“Far fewer earthquakes, hurricanes, and floods ravaged the world,” the survey reported, but “in addition to catastrophic losses, risk managers faced illegal business, financial, and trade practices across various industries that led to hefty payments — many of which were typically not covered by insurance.”
If anything, the exposure to uninsurable risk is underrepresented in the data, said Jim Blinn, executive vice president of Advisen Ltd., and executive editor of the Benchmark Survey. “If you look at retained loss costs, they probably don’t include those costs. But they are real and they are significant.”
He noted that, in the “very aggressive regulatory environment,” those costs are likely to continue to rise.
“These developments are like the canary in the coal mine. We see changes in TCOR for what are already challenging industries for underwriters.”
— Jim Blinn, executive vice president, Advisen, Ltd.
For example, workers’ compensation and property, two markets often regarded as difficult, saw total cost of risk (TCOR) as calculated by Advisen for RIMS rise 9 percent and 5.8 percent, respectively. But TCOR for management liability and professional liability blew past those other two markets with increases of 29.5 percent and 27 percent, respectively.
In capacity, the study cited Advisen research indicating that the sharp increase in rates over the past couple of years has attracted capacity to many markets, and that influx could serve to increase competitiveness and affect rates.
“New capacity [has been] introduced to take advantage of an improving rate environment in 2013,” according to the study. “In a market that has been characterized as ‘awash in capital,’ additional capacity could challenge the ability of underwriters to continue to push rates upward.”
Beyond those two trends, Blinn said that another trend is developing just over the horizon. That is the rising TCOR and volatile market in banks and non-bank financial institutions.
“These developments are like the canary in the coal mine,” said Blinn. “We see changes in TCOR for what are already challenging industries for underwriters. They are more volatile than the market as a whole, and continue to outpace other sectors in TCOR increase.”
Blinn explained that part of the volatility comes from the lingering effects of the credit crisis and the ponderous pace of the recovery, but noted further that many of those sectors’ problems are ones they brought on themselves, including management liability and regulatory complications.
This is not just bloodless parsing of data, Blinn stressed; there are real-life manifestations already.
“Traditionally owners would buy ABC coverage. Now they are just buying side A, but not B or C. It is the latest example of the age-old question of how much coverage to acquire and at what price. We hope we can continue to see underwriters and owners reach reasonable intermediate points.”
Among the survey’s other findings, average TCOR for all companies increased 5 percent, from $10.19 per $1,000 of revenue, to $10.70 per $1,000 of revenue, “the result of hard market conditions.”
Also, the contribution of property premiums to average TCOR grew nearly 6 percent, from $2.92 per $1,000 to $3.09 per $1,000.
