Survey: Risk managers spent more on disaster preparedness, catastrophe management

Spending for loss control services increased or remained flat for a majority of organizations in the past year, and the greatest spending increases occurred in such areas as disaster preparedness and catastrophe management, according to the Internet-based 2006 Loss Control Spending Survey conducted by Chubb Group of Insurance Companies.

Survey results indicated that 52 percent of the 125-plus risk managers who responded to the survey said loss control spending remained the same in the past year, and 43 percent said spending increased, according to Steven D. Hernandez, senior vice president of Chubb & Son. Those figures are noteworthy because many organizations have tightened their budgets and are continuing to find ways to cut costs, he said.

“When you consider that inflation runs at about 3 percent and business spending is generally in line with inflation, a 7 percent increase in loss control spending is significant,” Hernandez explained. “It appears that many organizations recognize the importance, function and benefit of effective risk management.”

The threat of natural disasters was cited by 15 percent of the respondents as a reason for changing their loss control spending in the past year, and 5 percent cited terrorism. In contrast, in 2003, 24 percent cited the threat of terrorism as a factor. In 2006, legal/regulatory compliance also was a factor cited by 17 percent of survey respondents for changing spending in the past year. And 47 percent said increased spending related to corporate governance.

“The survey indicates that organizations’ loss control spending tends to correlate with the dominant risks of the day. On the heels of an unprecedented number of hurricanes and other national disasters, corporate scandals and growth in Internet activity, loss control spending in the past year has shifted toward catastrophe management, disaster preparedness planning, legal and regulatory compliance and cyber security,” Hernandez said.

The surveys bring attention to one of the challenges risk managers face: how to balance critical, time-sensitive issues with traditional risks such as workers’ compensation and basic property, against emerging risks such as the threat of diseases and epidemics, Hernandez added.

“Risks are compounding and will increase in frequency and complexity. Risks just don’t disappear,” he said. Consequently, risk managers have to be careful not to be too reactionary and neglect traditional risk areas when it comes to loss control spending.

To aid in keeping loss control spending in check, the survey indicated that organizations rely on internal and external personnel. Of risk managers surveyed, 86 percent said they rely on internal staff, 74 percent said they rely on insurers, 46 percent rely on brokers/agents and 38 percent rely on independent loss control vendors.

Chubb’s survey was conducted via the Internet in April 2006. Respondents were risk managers from both public and privately held companies, and from government institutions and nonprofits.