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North America risk costs fall further

Risk costs in North America have fallen for a third straight year despite rising uncertainty and increasing complexities, according to the annual Risk and Insurance Management Society Benchmark Survey.

Insurers ended last year with average capital and surplus at its highest level in 10 years, but the impact of excess capacity was highlighted by falling net income and return on average equity.

The survey, conducted with data company Advisen, calculates a total cost of risk based on insurance expenses, retained losses and administrative costs.

“This year’s edition highlights how risk managers have effectively managed costs in a time of evolving risks and demands, enabling them to do more with less,” Advisen EVP of Client Solutions Jim Blinn said.

The total cost of risk fell to $US10.07 ($13.40) per $US1000 ($1330) of revenue last year, after easing 2% in 2015 and 1% the previous year.

Predicted rate increases for cyber, errors and omissions and workers’ compensation failed to materialise across the board.

“Projections for [this year] are more moderate, with property and most liability lines flat to down 10%,” the survey report says.

“Emerging trends in the… risk landscape include the tech revolution, security issues, natural catastrophes and political upheaval.”

Technological advances have caused a seismic shift, according to the survey, creating new types of claims, forcing insurers to consider new products and solutions for customers, and driving a consumer-centric revolution in personal insurance.

“Although commercial insurance is somewhat behind this curve, there is an expectation that this customer-centric focus will flow into commercial insurance and transform the way business is transacted,” the report says.

The pace of innovation is expected to pick up, with more than 1000 insurtech start-ups in operation, and many of those well funded.

Advisen estimates the cyber-insurance market grew to about $US2.7 billion ($3.6 billion) in gross written premium last year, with the potential to pass $US5 billion ($6.7 billion) by 2020.