Magazine article Risk Management

Reversal of Fortune in Cost of Risk

Magazine article Risk Management

Reversal of Fortune in Cost of Risk

Article excerpt

After more than a decade of steady increases, the cost of risk for U.S.-based corporations decreased nearly 7 percent this year. Alicia Junta, chair of RIMS' research committee (which co-sponsored this study) and risk service manager for Hoffman-La Roche Inc.; and Jenny Emery, principal of Towers Perrin, presented the findings at a press conference in San Francisco. "This survey suggests that effective risk financing techniques, such as retaining more risk and buying less insurance as financial size increases, provide greater cost control," said Ms. Emery.

Conducted annually by Towers Perrin and RIM, The Cost of Risk Survey is based on a formula developed in 1962 by Douglas Barlow, a former RIMS president and retired risk manager for Massey-Ferguson Ltd. It consists of four elements: the cost of measures for loss prevention; insurance premiums; the losses sustained net of recoveries from insurers and third parties; and administrative expenses. This ninth edition of the survey uses 1993 data from 671 U.S. and Canadian organizations.

This year's survey showed that large organizations, which generally have the lowest cost of risk as a percentage of revenue, saved the most. …

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