Organizations spending more on disaster preparedness

May 9, 2006 10:55 AM

           

Spending for loss control services increased or remained flat for a vast majority of organizations in the past year, and the greatest spending increases were in areas such as disaster preparedness and catastrophe management, according to the findings of the 2006 Loss Control Spending Survey by the Chubb Group of Insurance Companies.
More than half (52 percent) of the survey respondents indicated that loss control spending remained the same in the past year, and 43 percent indicate that spending has increased. Five percent said spending decreased. Overall, spending for loss control services rose an average of 7 percent in the past year.
"It is noteworthy that after years of overall budget cutting, most organizations continue to increase or maintain funding for loss control services," says Steven D. Hernandez, senior vice president of Chubb and Son and worldwide loss control services manager for Chubb Commercial Insurance. "Most organizations apparently share the view that loss control methodologies, when properly implemented, can be effective in reducing the frequency and severity of losses."
The areas that most often experienced increased loss control spending were disaster preparedness planning (59 percent), catastrophe management (51 percent), security (47 percent), corporate governance (47 percent) and business continuation services (46 percent).
Areas in which loss control spending remained mostly flat included employment practices liability (83 percent), product liability (79 percent) and workers compensation (61 percent). This continues a trend noted in Chubb's 2003 survey, when it appeared that many organizations were shifting funds away from traditional areas of loss control and toward emerging loss control risks.
"Organizations need to strike a balance between what has happened in the past with what may emerge in the future," Hernandez says. "They should be careful not to neglect traditional areas such as workers compensation and product liability, which represent significant long-term exposures."
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. Only 5 percent cited terrorism.
"Many organizations have adopted a reactionary attitude when it comes to loss control spending. This is apparent in the increased spending for disaster preparedness and catastrophe management, which was anticipated, based on the impact of hurricanes Katrina, Rita and Wilma and predictions for a severe hurricane season in 2006," Hernandez says. "In 2003, risk managers were implementing loss control strategies in the wake of the Sept. 11 terrorist attacks, so security and disaster preparedness were at the top of their agendas."
In addition, 17 percent cite legal/regulatory compliance as a factor for changing loss control spending in the past year, which may explain why 47 percent of those surveyed increased spending for loss control services related to corporate governance. "It's clear that Sarbanes-Oxley and recent corporate scandals are having an impact on how organizations budget their loss control funds," Hernandez says.
The survey was conducted over the Internet in April 2006. More than 125 risk management professionals, primarily from the United States, responded to the survey. The respondents, representing both publicly and privately owned companies, answered 29 multi-part questions.

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