2015 RIMS Benchmark Survey Reports Market Stability

By: williamjones
October 1, 2015

By: Jacquelyn Connelly

After three consecutive years of increases, businesses paid nearly 1% less in 2014 than they did in 2013 to cover their total cost of risk, according to the 2015 RIMS Benchmark Survey.

Defining “total cost of risk” as the cost of insurance, plus the costs of retained losses and the administrative costs of the risk management department, the survey results indicate marketplace stability, according to Jim Blinn, executive vice president and global product manager at Advisen.

“If you look over time relative to the cost, it’s been modest change,” Blinn says. “Given all these tradeoffs—some prices are going up, some are down a little bit—net on net, it works out to a relatively stable market.”

In addition to finding that risk management administration costs dropped 5%, the survey also reports declining costs for management liability, workers compensation, liability and property.

The general theme across those lines of insurance: data analytics. “Due to loss prevention involved with increased sophistication and modeling by insurers, they have been able to reduce their losses and pricing as a result,” Blinn says [see sidebar].

Taken as a whole, RIMS results over the last couple of years are “probably an indication that pricing is going to be increasingly competitive in the next couple of years,” Blinn says. Why? “When insurance company results improve, they have more capital to deploy often and are able to be more aggressive in pricing. When we see the operating ratio decline—in other words, the losses decline—that often leads to declines in pricing.”

And agents and brokers can’t afford to sit back and enjoy the ride. Advisen also reports that companies that move their insurance to a different company frequently enjoy “a more pronounced decline in pricing,” Blinn says. “So as you get to an environment where you’re enjoying greater declines in pricing if you shift from your current company, agents need to be sensitive to the fact that if they’re not out there tracking the opportunities for their clients who want to get a better price, maybe somebody else will.”

Jacquelyn Connelly is IA senior editor.

Model Behavior

According to Blinn, the enhanced loss picture that results from modeling and data analytics provides insurers with greater confidence for competitive pricing.

Consider the property class: “We’ve seen modeling to be an important force in providing insight into catastrophic losses,” Blinn says.

And it’s catching on in other lines of business. Blinn notes that many of Advisen’s management liability clients are currently developing increasingly sophisticated modeling technologies. “We expect to see the same thing for excess liability as well—all of which brings in the possibility for insurance capital into the marketplace,” he says. —J.C.