How much do companies spend on insurance and other measures to manage casualty risks?

Well, it all depends upon the size of the company and the industry.

Small employers pay 11 times more than the largest companies, while most companies, on average, shell out $2.45 for every $1,000 of revenues. This according to a recent study by Marsh Inc.

What accounts for this hefty bill? On average, workers compensation protection accounts for 62 cents of every dollar U.S. industry spends to manage its casualty exposures.

More specifically, companies with more than $10 billion in revenues spend $1.68 per $1,000 of revenue on their casualty program, compared with an astounding $18.74 for those with $200 million in revenues or less.

“Larger employers have been able to enjoy similar economies in each of the three areas of risk we examined,” said Timothy Brady, a managing director in the Casualty Practice of Marsh. “As a result, they generally enjoy a competitive advantage as respects the casualty insurance component of their overall cost of goods sold.”

However, Brady acknowledged that a company’s cost of risk might be more affected by how it manages its risk—and how it is perceived by an insurer—than by its size.

He noted, for example, that a small business that effectively manages its exposures can have a lower cost of risk than a larger company with poor risk management.

Marsh examined the cost of workers compensation, auto, and general liability insurance.

Among companies of all sizes, workers compensation costs far exceed those associated with the other exposures. The 62 cents of each casualty dollar spent on that risk is followed by general liability at 27 cents and auto liability at 11 cents.

“Workers’ compensation historically has accounted for the lion’s share of casualty risk costs,” said Brady. “For well over a decade it has been the focus of coordinated approaches that examine and seek to address key cost drivers, from safety and wellness programs that aim to prevent injuries and illnesses to more-effective ways to track and manage claims, and to fund this exposure.”

While all of these approaches can be productive in terms of managing costs, Brady believes organizations need to pinpoint what’s driving their costs and invest in approaches that yield the best results.

Which industry had the highest workers compensation costs? No surprise: construction.

But the two industries with the lowest costs are somewhat surprising: mining and energy.

General liability costs were highest for government entities, followed by transportation and educational entities. The lowest general liability costs were found in the transportation-equipment industry, followed by printing and publishing, finance, telecommunications, and health care.

Not surprisingly, transportation-services companies had the highest auto liability costs at $1.81 per $1,000 of revenue. This was double the next-highest category: personal and business services.

SEC Looking into Exit of Universal Health CFO

Management at Universal Health Services Inc. said the Philadelphia District Office of the Securities and Exchange Commission has launched an investigation into last week’s resignation of chief financial officer Kirk Gorman.

Universal Health’s management said it intends to fully cooperate with the inquiry.

As reported on Tuesday, Gorman mysteriously resigned after the company’s auditor, KPMG, raised certain questions about the health-care company.

In its initial press release announcing the resignation, Universal Health’s management said “no issue whatsoever has been raised regarding the integrity of the company’s financial statements.”

The company did add, however, that KPMG has concluded “it could no longer rely on the representations made by Gorman as the CFO of the company.”

Northrop Taps Veteran Finance Exec

Northrop Grumman Corp. went for an executive with a background in finance to lead the second-largest defense company.

Ronald D. Sugar, president and chief operating officer, was named the next chief executive officer.

The 35-year defense-industry veteran will retain the position of company president.

He replaces Kent Kresa, Northrop’s chairman and CEO, who will step down after reaching the board’s mandatory retirement age of 65 for senior executives. Kresa will continue as nonemployee chairman until October 1, 2003.

Sugar joined Northrop after its April 2001 acquisition of Litton Industries. At that time, he served as Litton’s president and chief operating officer.

Previously Sugar was president and chief operating officer of TRW Aerospace and Information Systems, and a member of the chief executive office of TRW Inc.

In addition, in his nearly 20 years with TRW, Sugar served as the company’s chief financial officer.

In other CFO news:

David Cosper, assistant treasurer of Ford Motor Co., will become executive vice president and chief financial officer of Ford Motor Credit Co., effective April 1.

Cosper, who joined Ford in 1979, served as vice president and treasurer of Ford Credit in 1998 and 1999.

In his new position, Cosper will be responsible for all financial planning, analysis, and accounting activities of Ford Credit’s global operations. He will also continue to work with Ford Treasury in driving strategic funding initiatives, the company added.

Cosper replaces Bibiana Boerio, who will return to Ford Motor as finance and strategy director of Ford’s international operations.

Boerio served as Ford Credit’s executive vice president and CFO for more than two years, and previously served as finance director for Jaguar Cars from 1995 until October 2000. At Jaguar, she was responsible for providing financial support and business strategy for the design, development, manufacture, and sale of Jaguar’s vehicles around the world.

Prior to joining Jaguar, Boerio held a number of finance positions at Ford Motor in product development, manufacturing, sales, and corporate profit and business planning. She also served as an assistant controller at Ford Credit from 1988 to 1991.

Elsewhere in Motown, General Motors Corp. named Chester N. Watson general auditor, effective March 17. He replaces Jacqueline Wagner, who resigned last October to become senior vice president, chief operational risk officer, and general auditor at American Express Co.

In his new position, Watson will have worldwide responsibility for GM’s internal audit staff, which focuses on monitoring risk, compliance, and controls, and also consults with GM’s business units and other corporate staffs on opportunities to improve the company’s financial performance.

Merrill Settles Enron-Related Probe

Merrill Lynch said it will pay $80 million in fines as part of a settlement with the SEC stemming from an investigation into two transactions between Merrill Lynch and Enron in 1999.

Without admitting or denying any wrongdoing, the brokerage giant said it would consent to an injunction enjoining the company from violations of the federal securities laws.

This is the first payment made by a securities firm to settle Enron-related investigations.

The probe specifically relates to Merrill’s $7 million investment in three barges moored off the Nigerian coast.

Former Enron chief financial officer Andrew Fastow is accused of pressuring Merrill to buy the boats so Enron could record $12 million in earnings. Enron financed the rest of the $28 million purchase with a loan to Merrill, according to Bloomberg, citing a criminal complaint filed against Fastow.

SEC Grounds Flying Car

Think lawyers at the SEC doesn’t read all those boring prospectuses for new public offerings?

Think a company can slip an outrageous claim past the commission’s lawyers in Washington?

Maybe. But here’s another lesson that, generally speaking, the SEC staff does indeed read its mail.

Seems that a company called Moller International Inc. was able to raise about $5.1 million from 500 investors nationwide for their “revolutionary product.”

But the unregistered stock offering seems to have turned out to be a fraud.

And now Paul Moller, the head of the company, has agreed to pay $50,000 to settle civil fraud allegations with the SEC.

Apparently, a sharp lawyer at the regulatory agency sensed that Moller’s claims for his new product might have been embellished.

You see, Moller claimed his company is developing the Skycar, a flying car that can travel above roadways at more than 400 miles an hour, according to published accounts.

The SEC accused Moller and his company of lying to the commission about the true scope of the company’s patents for the Skycar.

Moller’s lawyer confirmed the settlement to Bloomberg, while saying “there is no admission of wrongdoing of any kind.”

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