Cost of Risk Drops Ten Percent for Major Corporations; Five Year Decline Pressures Insurers' Profits.

NEW YORK--(BUSINESS WIRE)--February 3, 1999--The overall risk management costs for U.S. businesses declined for the fifth consecutive year, according to the "1998 RIMS Benchmark Survey," released today by the Risk and Insurance Management Society, Inc. (RIMS) and Ernst & Young LLP. The survey, a replacement of RIMS' annual "Cost of Risk Survey," examined major corporations' costs of managing business risk such as property, casualty and workers' compensation, including self-assumed losses within insurance deductibles. This year's survey also examined Y2K, industry convergence and other timely topics.

The RIMS/Ernst & Young survey found that the combined payments for liability, property, casualty, workers' compensation and other cost of risk fell ten percent in 1997, driving the decline in corporate America's average risk management costs down 37 percent since 1992.

Risk management costs now average $5.25 for every $1,000 of revenue. This cost of risk declined steadily from $8.30 per $1,000 in 1992. According to the survey, a fall in insurance premiums is a major factor for the lower cost of risk. The plummet in premiums is also forcing insurers to make competitive decisions that put additional pressure on industry profits.

"Not only are many insurers lowering premiums, but they're also providing coverage with higher limits and lower deductibles," said James Blinn, National Director of the Ernst & Young Property/Casualty Risk Management Consulting practice. "Corporations continue to get even more for less."

The benchmark survey further indicated that the insurance industry's over capacity is creating more choice for risk managers. Many managers are deciding to move their business or organization from self-insured and deductible programs to guaranteed-cost insurance programs, and they're able to do so without increasing premiums or reducing limits.

Risk managers, according to RIMS president Mark DeLillo, are also becoming involved in more business and strategic matters. "As an organization takes an expanded view of its risk profiles, a risk manager's responsibilities will expand beyond insurance, self-assumed losses and other areas of traditional risk management," he said.

Liability Leads the Decline

Major corporations paid an average of 32 percent less for liability coverage in 1997, the most recent year that complete cost of risk figures are available. The drop in premiums, however, does not represent the full decline in liability expenses, since the average company also realized a 53 percent drop in retained liability losses, which represents policyholders' deductible payments and other self-assumed expenses not covered by insurance.

Property insurance premiums declined an average of 26 percent. This drop was offset slightly by a 13 percent rise in retained losses.

Combined workers' compensation costs, according to the RIMS/Ernst & Young survey, actually increased. Even though the average costs for workers' compensation insurance slipped 21 percent, retained losses went up 12 percent. The net result was a three percent increase in major corporations' workers' compensation costs.

Other key findings in the new RIMS/Ernst & Young Survey include:

--   Interest is rising in risk financing vehicles, including capital
     market investment techniques.

--   Captives continue to be a viable option for financing risk.

--   Employment practices-liability insurance (EPLI) is becoming more
     common.

--   More than 61 percent of U.S. survey respondents assessed their
     company's Y2K risk.

--   Twenty-two percent of respondents anticipate some involvement in
     Y2K litigation.

The survey population for the "1998 RIMS Benchmark Survey" was 42 percent higher than previous years so 33 industry groups could also be analyzed. Findings represent data from 951 companies with average annual revenues of $2.6 billion.

Ernst & Young LLP (www.ey.com) provides assurance and advisory business services, tax services and consulting for domestic and global clients. The firm has 30,000 people in 87 U.S. cities. The Risk Management Consulting practice offers specialized risk-related services to provide cost-effective programs to organizations to help them reduce risk and efficiently finance the cost of unforeseen events.

The Risk and Insurance Management Society, Inc. (RIMS) is a not-for-profit organization dedicated to advancing the practice of risk management, a professional discipline that protects physical, financial and human resources. Founded in 1950, RIMS is the world's largest association for risk management, representing more than 4,200 industrial, service, nonprofit, charitable and governmental entities. The Society serves more than 7,700 individuals representing our member companies/organizations in 91 chapters across the United States and Canada. For more information, call [phone] or visit the Web site at www.rims.org.