VideoHow 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 CFO.com 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.
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