Magazine article Risk Management

Casualty Cost of Risk

Magazine article Risk Management

Casualty Cost of Risk

Article excerpt


According to the 2003 Marsh Casualty Cost of Risk report, workers' compensation, general liability and automobile liability account for 90 percent of the total financial outlays in the casualty risk programs of U.S. companies. The report, based on data from 1,050 companies and compiled through October 2002, examines how expenditures are allocated along these coverage lines.

U.S. employers spent an average of $2.45 per $1,000 of revenue on insurance and other means to manage their casualty risks. Depending on a variety of factors, however (the size of the firm, for example), specific costs for individual companies can range widely.

Reflecting obvious economies of scale, small companies (up to $200 million in revenue) spent an average of $18.74 per $1,000 of revenue to manage casualty risks while large companies (revenue of over $10 billion) spent an average of $1.68. However, exceptions do exist to this, according to Timothy Brady, managing director in Marsh's Casualty Practice. "There's no question that an organization's cost of risk might be more affected by how it manages its risk and is perceived by an insurer than by its size," he says. "A small firm that effectively manages its exposures can have a lower cost of risk than a larger company with poor risk management."

Government entities had the highest casualty cost of risk at $8.94 spent per $1,000 of revenue. Transportation services came in second at $7.30. Rounding out the top five were educational and nonprofit institutions ($6.54), construction ($6.28) and the personal, business services, hotels and amusements segment ($6.13). The lowest costs were found in finance (59 cents), insurance (73 cents) and mining and energy (80 cents).

The data is also further broken down into an analysis of specific casualty components-workers' compensation, general liability and automobile liability. Employers devote 62 cents of every dollar spent on their primary casualty insurance program to workers' compensation, as opposed to 27 cents for general liability and 11 cents for auto liability. Again, though, individual industries vary.

The construction industry had the highest cost of workers' compensation with $4.54 spent per $1,000 of revenue, accounting for 72.3 percent of its total cost of risk. This was followed by the personal, business services, hotels and amusements industry, which devoted $4.34 per $1,000 to workers' compensation, 70.8 percent of total costs. On the other side of the spectrum, mining and energy at 33 cents, insurance at 40 cents and finance at 43 cents had the lowest workers' compensation costs per $1,000 of revenue. …

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