Continued pressure on underwriting results and a low interest rate environment motivated underwriting management to seek these higher rates, according to the 2013 RIMS Benchmark Survey.
Data from more than 52,000 insurance programs from almost 1,500 organizations indicate that the average total cost of risk (TCOR) for commercial insurance buyers increased 5 percent in 2012, compared to an increase of 1.7 percent in 2011.
The Risk Management Society (RIMS) and Advisen Ltd., a data, analytics and news provider, collected this data for its 2013 RIMS Benchmark Survey and found that average TCOR for all companies increased to $10.70 per $1,000 of revenue from $10.19 per $1,000 of revenue. The organizations attribute this increase to firming market conditions. The contribution of property premiums to average TCOR grew nearly 6 percent, to $3.09 per $1,000 of revenue from $2.92 per $1,000 of revenue.
While 2012 experienced a reduction in insured catastrophe losses, insurers continued to implement rate increases through the year, said Jim Blinn, EVP of Advisen's information and analytics unit and executive editor of the survey. Continued pressure on underwriting results and a low interest rate environment motivated underwriting management to seek these higher rates.
For the benchmark survey, a review of Advisen's umbrella/excess pricing and limit data showed that pricing influences excess insurance program limit buying trends. When prices were dropping, insurance buyers tended to increase their limits more. On the other hand, when prices were increasing, they tended to increase their limits less.
Rates are rising, but our research shows that improving rates attract new capacity, which makes it difficult to sustain the trend towards progressively higher rates, said Michael Phillipus, RIMS board director.