Facing a mandate to reduce their loss exposures for a variety of reasons-from the threat of terrorism to the need to secure better insurance coverage terms-risk managers are upping the ante on loss control spending.A survey of nearly 400 risk managers conducted by Warren, N.J.-based Chubb Group of Insurance Cos. revealed that nearly 50% of respondents increased their loss control spending over the past year; 34% held their budgets constant; and 5% decreased their loss control spending.

The increase in spending was regarded as aggressive. Risk managers are spending on average 17% more on loss control services, l while their organizations confront budgetary constraints and a difficult economic environment.

"Our results indicate that the hard insurance market has had a major impact on risk managers' spending decisions," says Jimmy Deaderick, managing director, Chubb & Son, and worldwide loss control manager of Chubb Commercial Insurance.

"Many respondents noted that reducing exposures to obtain better insurance coverage terms and pricing was the top reason for increased loss control spending in 2002," he adds.

Crisis management

Obtaining better terms on their insurance coverage has traditionally been carried out via traditional loss control strategies such as workers' compensation and product liability.

Given the recent trends that affect a company's loss position, risk managers shifted budget dollars away from traditional means and allocated them toward spending on security, crisis-related services or corporate governance.

"The greatest increase in loss control spending reflected the effects of the recent corporate scandals and the threat of terrorism on the business marketplace," Deaderick says. Fifty-eight percent of respondents increased loss control spending on security, followed by disaster preparedness (54%) and corporate governance (52%).

Among those who increased loss control spending, the top three reasons were "the reduction of exposures to obtain better insurance coverage terms/pricing" (44%), "an increase in loss activity" (39%) and "the threat of terrorism" (30%).

However, shifting loss control to an array of hot-button priorities doesn't necessarily improve a corporation's loss position, Chubb states. "We found that many risk managers may be 'robbing Peter to pay Paul' by shifting loss control dollars from traditional areas of concern to emerging risks," Deaderick adds.

Conducted over the Internet, the survey, "Managing the Cost of Risk: Chubb's 2003 Loss Control Spending Survey," targeted risk management professionals predominantly from the U.S. and Canada. The survey drew from a cross-section of both publicly and privately held companies in all types of industries, government institutions and non-profit organizations.

As a group, companies with loss control budgets of $200,000 or more were the most likely to increase their loss control spending. Those companies that increased their loss control spending tended to have annual sales revenues of $500 million and more; loss control spending for this group increased by 21% over 2001, The Chubb survey indicated.

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