Marsh study shows impact of insurance on revenue

Last updated on May 13th, 2019 at 02:28 pm

For every $1,000 they earn, U.S. companies are spending $2.32 on insurance and other measures to manage the worker’s compensation, auto and general liability risks of their employees, according to a new study by Marsh Inc., an international risk and insurance services firm with offices in Milwaukee.
Worker’s compensation costs averaged $1.46 per $1,000 of revenue, while general liability costs were $0.55 and auto liability, $0.31.
The study analyzed information from 1,433 businesses and government entities for the past two years ending in November of 2003 and found that even though they were spending more, companies were retaining significantly more risk.
The cost of primary casualty risk rose by 6.9% over two years for the firms that were part of the study. At the same time, the risk these companies retained increased: 17.7% in workers compensation, 14% in general liability and 12.5 percent in auto liability.
"Businesses have elected higher retentions to mitigate higher premium costs," said Bill Paul, senior vice president of Marsh in Milwaukee.
The study also found that large employers generally enjoy substantial economies of scale when they purchase insurance or take other risk mitigation steps. Insurance costs for small employers are 16 times higher than what the largest companies pay. While companies with more than $10 billion in revenues have risk costs of $1.38 per $1,000, companies with less than $200 million in revenues pay risk costs of $21.75 per $1,000.
"Larger employers have been able to enjoy similar economies in each of the three areas of risk we examined," said Paul. "As a result, they generally enjoy a competitive advantage when it comes to the casualty insurance component of their overall cost of goods sold."
The study found that among all size businesses, an average of 80% of every primary casualty dollar goes to pay forecasted losses and related expenses.
"That means an organization’s cost of risk is more affected by how it manages its risk and how the firm is perceived by an insurer than by its size," Paul said. "In fact, a small firm that effectively manages its exposures can have a lower cost of risk than a larger company with poor risk management."
Marsh’s study examined the cost of insurance for worker’s compensation, auto and general liability. It also covered all other expenses associated with casualty risk transfer, funding and administration, including retained self-insured losses, claims handling and associated administrative costs.
Among all size companies, workers compensation costs far exceed those associated with the other exposures. The 63 cents of each casualty dollar spent on that risk is followed by general liability at 24 cents and auto liability at 13 cents.
"Workers compensation historically has accounted for the lion’s share of casualty risk costs," Paul said. "It continues to be the focus of coordinated approaches designed to prevent injuries and illness, like safety and wellness programs."
"Organizations need to pinpoint what’s driving their costs and invest in approaches that yield the best results," Paul added.
Marsh’s 129-page study also reported casualty cost of risk trends for 23 industry groupings. At $8.25 per $1,000 of revenue, governmental entities had the highest worker’s compensation costs. Finance, banking and real estate had the lowest relative costs (24 cents), followed by mining and energy (45 cents) and chemicals and pharmaceuticals (66 cents).
General liability costs were highest for educational and not-for-profit institutions, at $2.38 for every $1,000 of revenue. Governmental entities had the second-highest ($2.31), followed by construction ($0.99). Lowest general liability costs were found in financial services, including banking and real estate (14 cents) followed by printing and publishing (26 cents), transportation equipment (31 cents), healthcare (34 cents) and machinery (35 cents).
Transportation services companies had the highest auto liability costs per $1,000 of revenue. At $1.51, their costs vastly exceeded the next highest category, which was educational and non-profits ($1.18).
April 30, 2004 Small Business Times, Milwaukee

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