Total cost of risk.
Cost of risk is ultimately driven by several components of your entire risk management program and business operations. Included are insurance premiums, retained or indirect costs associated with losses, and the internal administrative expenses related to the risk management and insurance department.
Indirect costs associated with losses are often the largest segment of the Total Cost of Risk. Studies have shown that the ratio of indirect costs to direct costs varies widely, from a high of 20:1 to a low of 1:1. OSHA’s approach uses a scale, with claims over $10,000 having a 1.1 factor, and those under $10,000 going as high as a 4.5 factor.
While premiums vary due to market pressure, your true cost of risk is determined by your claims history. The key is to control loss costs by preventing losses in the first place, managing claims efficiently when you have a loss, and employing cost containment strategies. Kempkey Insurance Services helps clients design and implement effective risk management programs that go beyond insurance to improve bottom line performance.