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The centrepiece of the survey is an industry-wide calculation of Total Cost of Risk (TCoR)—a measure designed to capture the expenses incurred in a risk management programme including insurance premiums, administration expenses and self-retained losses.
In theory, the TCoR figure is designed to enable risk managers to compare their programmes against their peers, to present a figure to senior management that can be easily understood, and also help them negotiate better rates when renewing their insurance programmes. However, the concern is that TCoR too often relates solely to the cost of insurance.
The main finding of the 2012 RIMS survey was that the average TCoR increased by just 1.7 per cent during 2011 from $10.02 to $10.19 per $1,000 of revenue—an unexpectedly low figure given the high number of natural catastrophes that occurred in 2011.
The survey also examined the extent to which risk managers use TCoR. It found that roughly half of those surveyed use TCoR as either a means of benchmarking the cost of their own insurance programmes or for reporting to senior management.
But despite the assertion by RIMS board member Kim Hunton that the association’s annual benchmarking survey has become ‘an essential resource for today’s risk professional’, the panel discussion suggested that more work needs to be done by the risk management community if it is to produce a standard statistical measure that truly reflects the cost of risk and can act as an effective benchmark.
Carol Fox, Director of Strategic and Enterprise Risk Practice at RIMS, supported Mr Sarnie’s view. “TCoR is really a measure of the total cost of insurance or retained loss coverage rather than the total cost of risk across all lines. We really want to focus on metrics around the expected outcome and the risk tolerance level.”
Advisen principal Jim Blinn defended the TCoR measure, stating that the collection of the data to create scores is still developing because it is not yet a universally accepted metric. “The approach to using TCoR still varies across organisations so we have not been able to collect all the data that we would like and be able to report back on that data.”
The comments from the panellists on the limitations of TCoR reflected a general theme—that risk managers and senior managers are increasingly concerned about the non-insurable risks they face.