The Total Cost of Insurable Risk (TCOIR), a key metric used by Aon to benchmark risk management spend, has risen for the first time in five years as a result of falling revenues suffered during the GFC.
TCOIR, which looks at the cost of insurance premiums, risk retained within the organisation, salaries for risk managers and brokerage fees as a proportion of revenue, plateaued in 2008/09 after dropping steadily for several years.
In line with expectations, median TCOIR rose to $5.20 per $1,000 of revenue, an increase of 15% on the previous year due to relatively stable premiums and decreasing revenue levels across the Australian economy.
Despite the rise, the figure is still below the pre GFC level in 2007/08 of $6.14 per $1,000 of revenue.
Aon Risk Services Chief Commercial Officer Jason Disborough said: “The rise in TCOIR is a product of decreasing company revenues, as risk transfer costs (premiums) have remained relatively constant over the past year. In 2010, we expect premiums to remain flat while revenues increase. Therefore TCOIR as a proportion of revenue may actually fall during the course of the year.”
Mr Disborough added that the TCOIR metric should be treated with caution: “It only measures insurable risks, which typically represent approximately 30 to 40 per cent of an organisation’s risk portfolio. TCOIR is a good measure but as risk management matures in the next five to ten years, the definition will likely become far broader.”
The findings of Aon’s 2009/10 Australasian Risk Management Benchmarking Survey are based on risk management information sourced from 535 major Australian and New Zealand corporate and public sector organisations in October and November 2009.
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