WELCOME TO WPA Insurance Panel. January 20, 2014

Transcription

1 WELCOME TO WPA Insurance Panel January 20, 2014

2 MICHAEL OSKOUIAN, CRM, CIC, LUTCF BIO Michael is a Vice President within the Willis North America Practice and is located in Seattle. He specializes in identifying risks and providing valuable solutions within the areas of Property and Casualty. As a Certified Risk Manager and an Entrepreneur he understands the business risks owners face every day and has the solutions to mitigate those risks. Prior to joining Willis, Michael owned an insurance agency in Seattle for eighteen years (18) employing a staff of 20. Michael Oskouian, CRM, CIC, LUTCF (425) Cell (206) Direct (206) Office th Ave S Suite 200 Seattle, WA michael.oskouian@willis.com

3 Willis is a Risk Advisor: 100% Transparent Client Broker Insurer Client Advisor Broker Insurer

4 ANALYTIC/MODELING TOOLS bigger

5 ANALYTIC/MODELING TOOLS

6 ANALYTIC/MODELING TOOLS

7 ANALYTIC/MODELING TOOLS

8 WHAT UNDERWRITERS REQUIRE IN A SUBMISSION Description of Operations Program Specifications Value Summaries Loss History Policy Form Engineering

9 Casualty Expertise Portals Casualty Communities linking Experts and Evolution Employee Health and Safety Product Liability Casualty General and Auto Liability Catastrophic & Excess Risks Collateral and Risk Finance

10 Casualty Expert Teams Building Communities of the Best Brokers to build Best Practices and Coverage Specifications We have assembled 6 Expert Working Groups: Workers Comp Auto Liability General Liability Product Liability Umbrella and Excess Liability Collateral and Risk Finance Teams are comprised of National, Regional and Local Experts with technical expertise in an industry, risk, state or coverage.

11 National Casualty Practice Unlocking the Power of Connection Casualty Expert Team Members are easy to spot by the Blue Ribbon Banner highlighting their Avatar!

12 Great Advocates Deliver Value Cost Reduction in Casualty Costs can deliver more Cash, Capital and/or Earnings Casualty Savings drop to the Bottom Line I have yet to meet a CFO or Treasurer or Risk Manager that feels their Capital is best deployed in their Risk Management Program. I have met CFOs and Treasurers that have perceived economic value in new structures, additional limits or better coverage Communicate value in a common economic value

13 Building the Best Team Willis Service Plan Best Practices Time Table Client Name Client Name ABC Company Renewal Date 8/1/2014 Today's Date 1/6/2014 Client Coverage Lines / Industry Workers Compensation Automobile Liability General Liability Property Construction Healthcare Executive Risks Environmental / Pollution Surety Surplus Lines Guaranteed Cost Premium Financing Loss Data Team Role Assignment Client Client Advocate Client Manager Senior Client Manager Assistant Client Manager Placement Specialists / Marketing Industry Marketing Specialists Risk Consultant (Claims Specialists) Loss Control Specialists Is WC a part of this placement? Is AL a part of this placement? Is GL a part of this placement? Is Property a part of this placement? Is Construction a part of this placement? Is Healthcare a part of this placement? Is Executive Risks a part of this placement? Is Environmental / Pollution a part of this placement? Is Surety a part of this placement? Does this placement involve SL? Is this placement a guaranteed cost? Is Premium Financing an interest? Does client have credible loss data? ABC Company Pam Mike Karen Mary Steve Rob Lori Jim Yes Yes Yes Yes No No No No No No No No Yes

14 Consistently delivering a Great Casualty Program Best Practices Casualty Service Plan ABC Company Willis Service Plan (WSP) Best Practices Timetable Action Task Target Date 1. Client Advocacy Report [Annual Review / Stewardship Report] 11/4/ Client Service Evaluation [Client Survey] 12/4/ Delivery of the Client Engagement Guide 2/2/ Conduct Analytics Meetings with Incumbent Market [Actuarial / Credit / Underwriting] 2/2/ Needs Analysis / Risk Assessment / Identification Review 3/14/ Prepare for Renewal Strategy Meeting T 3/14/ Conduct Team Renewal Strategy Meeting I 3/24/ Conduct Client Renewal Strategy Meeting M 4/3/ Prepare Submission - Gather and Review Underwriting Data - E Losses, Exposures, Coverage Specs & Financials 5/3/ Send Submission to Client and Market(s) L 5/3/ Meet with Market(s) to Provide Quotes I 5/18/ Analyze Quotation Proposals N 6/2/ Prepare Renewal Proposal E 6/12/ Present Renewal Proposal to Client 6/22/ Bind Renewals 7/2/ Invoicing 7/12/ Policy Administration - Certs / ID Cards / Posting Notices / UM UIM Forms 7/17/ Renewal Incepts 8/1/ Receive and Review Renewal Policies 8/31/ Deliver Policies to Client 9/15/ Obtain Client Feedback Note: Blue italic if Action Task should have been completed by today's date. 9/15/

15 Consistently delivering a Great Casualty Program Delivering the Value > Present Client Advocacy Report - review and meet with Client - obtain BOR's if necessary 11/04/13 Overdue task Pam > Document discussions with Client 11/04/13 Overdue task Pam Days Prior - Client Service Evaluation [Client Survey] > Client Service Evaluation [Client Survey] 12/04/13 Overdue task Pam > Formal evaluation of the overall quality and delivery of broking and risk management services using the electronic client survey and open discussions 12/04/13 Overdue task Pam > Discussion about areas or activities currently not covered by the insurance program 12/04/13 Overdue task Pam > Advise Client about Survey 12/04/13 Overdue task Pam > Provide and review Client Survey results with the client team 12/04/13 Overdue task Pam > Prepare and send "Thank You" letter to Client 12/04/13 Overdue task Pam > Schedule and conduct Client Survey meeting to review the results 12/04/13 Overdue task Pam > Document discussions with Client 12/04/13 Overdue task Pam > Conduct Broker Claim Review - (Strategic Outcomes Practice delivers Claim, Risk Control, Safety and Data Analytic consulting services) 12/04/13 Overdue task Mike / Lori - Evaluate claim reserves - Reserve to present known outcome 12/04/13 Overdue task Mike / Lori - Audit claim activity 12/04/13 Overdue task Mike / Lori - Resolution of pending claims 12/04/13 Overdue task Mike / Lori - Identify subrogation potential 12/04/13 Overdue task Mike / Lori - Adherence to action plan for claim resolution / closure 12/04/13 Overdue task Mike / Lori - Evaluate claims servicing account instructions 12/04/13 Overdue task Mike / Lori - Identify adjuster service issues 12/04/13 Overdue task Mike / Lori - Evaluate Managed Care and Bill Re-pricing activity 12/04/13 Overdue task Mike / Lori > Document claim review discussions with Client, Carrier and Client Team 12/04/13 Overdue task Mike / Lori > Workers' Compensation Experience Modification review 12/04/13 Overdue task Mike / Lori Days Prior - Delivery of the Client Engagement Guide (CEG) > Create Master Marketing File (required for documentation) 02/02/14 Pam > Prepare Placing File Checklist (PFC) to document compliance requirements and place copy in file (and WPC) 02/02/14 Pam > Prepare Client Relationship Information Pack (Client Engagement Guide) 02/02/14 Pam > Present and discuss the following key documents which define the way we work together to the Client: 02/02/14 Pam

16 Willis Global Captive Practice The Willis Captive Practice provides unparalleled expertise in designing, forming, managing and providing strategic guidance to captives of all types in all major captive domiciles. Willis manages more than 375 captives in 28 domiciles worldwide, our clients gross premiums exceed $4 billion, with total captive insurance company assets of nearly $40 billion. Our operating platform has three main structures: Captive Consulting Captive Management Group Captives The Practice has over 150 dedicated employees, including CPAs, risk finance specialists, captive management experts and strategic planning consultants.

17 The Americas Les Boughner Executive VP & MD of the Willis Captive Management Practice Group Captives Randy Boomgarden Alembic Craig Ream Construction Solutions Consulting/Sales Sean Rider New York Richard W. Wright New Jersey Anne Marie Towle - Chicago Kathleen Waslov Employee Benefits Bruce Whitmore - Healthcare Willis Management (Bermuda), Ltd. Oliver Heyliger Willis Management (Cayman), Ltd. Barbados Stephen Gray Willis Management (Vermont), Ltd. New York, South Carolina, Tennessee David Guerino Willis Management (Hawaii) Arizona, Nevada, Utah Jason Palmer

18 Willis Captive Practice Captive Consulting New Captive Feasibility Strategic Consulting for Mature Captives Captive Management Liaison with Actuaries, Regulators, Auditors Ongoing servicing Preparation of captive financials Ongoing filing maintenance Shareholder Board of Directors meeting Group Captives

19 Willis Captive Consulting Practice Strategic Consulting for Mature Captives Our various efforts classed as strategic consulting for mature captives aim at assessing and maximizing how an organization achieves value from an existing captive vehicle. As organizations change and regulatory, domicile, tax, and risk tolerance regimes morph over time, the efficacy of captives and their utilization opportunities also change. Our services are focused on helping captive owners determine the optimal use, structure, and/or winding down of a captive. Periodic brainstorming with key members of the captive owner s management group and other service partners to consider risk retention levels and alternatives, additional lines of coverage, what-if scenarios, domicile issues, etc. Interpretation and analysis of actuarial, financial, and other captive data; Attendance and participation at captive board meetings; Keeping the captive s leadership current with captive industry, domicile, tax and accounting changes and assessing the impact of these changes; Providing an independent voice in vendor assessment and assisting in RFP processes as needed; Evaluating risk areas where the captive s participation would enhance protection and reduce cost-ofrisk; Evaluation of the ongoing efficacy of a captive, and management of the outcomes of that analysis.

20 Lines of Business TRADITIONAL EXPANDED EMERGING Workers Compensation Auto Liability General Liability Professional and Products Liability Director and Officer Liability Employment Practices Liability Environmental Liability Product or Service Extended Warranty Property and Business Interruption EE Benefits Terrorism (TRIA) Shipping Coverage Title and Private Mortgage Insurance Equipment Maintenance Construction Exposures Trade Credit Risk Cyber-Risk Managed Care Errors and Omissions Self-Insured Medical Stop-Loss (non- ERISA) Reputation/Brand/Loss of Income Risks Intellectual Property (patent, trademark, copyright) Product Recall Coverage Medicare Fraud and Abuse Insurance Lease Residual Value Risk Punitive Damages Coverage

21 Types of Captive Utilization Retained Risk Finance Risk Transfer Rate Arbitrage Access to Capacity Entrepreneurial Utilizations Infrastructure for providing transparency, validation, and rationalization of retained risk positions Enhancing risk management efforts Accelerating tax treatment of deductible liabilities Reinsurance market cost of risk transfer is less than commercial retail cost of risk transfer Better use of capital to retain risk than transfer it Managing total cost of risk Federal programs (TRIA) Reinsurance capacity, which may not be otherwise accessible in commercial retail market (trade credit risk, +10 yr pollutions risks) Franchisee programs Consumer facing insurance programs (warranty, service contract, point of sale insurances, etc) Affiliate business (vendors, VAPs, distributors, etc) Agency captives 3 rd party business

22 831b / Microcaptives Underwriting income for the captive is tax free. Can be utilized as a wealth transfer and estate planning vehicle for private companies. Willis will only become involved with Microcaptives when there is a sustainable business plan.

23 831b / Microcaptives Under the provisions of the United States Tax Code 831(b), a tax election may be available to U.S. Property and Casualty ("P&C") Insurers (Small Insurance Companies) with written premiums less than $1.2 million dollars. If properly structured, the insurance company is taxed on net investment income only and not on underwriting income. Non-taxed underwriting income, if any will accrue to the captive s surplus and dividends and may be eligible for the dividends received deduction when distributed to the corporate shareholder(s) or parent, and dividends distributed to an individual owner are taxed at the capital gains rate

24 The aim is to put our clients in a superior information position

25 Resilience example: ERM Maturity Model Framework Element Immature Basic Mature Advanced World-Class Risk Identification No formal process for identification of risks Annual risk identification exercise for key projects and sites Key corporate risks identified with limited interaction among groups Business risks frequently identified with assessment of likelihood, impact and mitigating actions; cross-group work All major risks regularly identified. Robust process also surfaces new and emerging risks Risk Assessment and Prioritization No formal process for assessment of risks Limited analysis to assess and provide insight. Major business risks discussed at Business Unit level Prioritization of key risks across the group with detailed quantification of selected risks Prioritization based on aggregation of all business risks across the group; risk tolerance known and included in assessment Prioritization of aggregated risks across group with classification by key underlying risk drivers and company-killer scenarios Risk Mitigation and Financing Options Little or no systematic development and comparison of options; external risk reporting requirements sometimes not met Methodologies for risk categories identified and used inconsistently; compliance mentality Options compared within business units using consistent methods but done within functions primarily Company-wide comparison of options, but within functions (finance, operations, insurance, construction, etc) Options compared across company and across functions in single language of risk and decisions made accordingly Risk Strategy and Action Plans No action plan for risk management and finance exists One or more action plans exists within one or more functions and one or more business units Functions each have an independent action plan with limited or no communication with other functions; business units may have action plans Action plans completed annually within functions and business units in consistent manner Board has owners of key black swan scenarios and is continuously engaged in assessing action plans, all of which are in single risk language Risk Implementation Little or no followthrough on option recommendations; poor results in key risk management metrics Some key risks are managed resulting in fewer surprises; but little or no preparation for major risk response Functions implement their action plans well and business units track progress of these functional plans Top management tracks business unit and function progress and oversees implementation Board receives updates on actions regularly, participates in simulation exercises and guides management

26 IMPLEMENTATION RISK STRATEGY How Willis GSCG Thinks About Risk Client Risk Landscape Risk Insight Steps Solution Choices 6. Retain - Balance Sheet - Captive Transfer Understand Define Risk Identify Model Loss Calculate - To Insurers Client and Tolerance Priority Frequency CCoR SM - To Capital Industry Exposures and Severity Markets Dynamics and Risks 8. Mitigate Data gathering, preparation and provision 9. Avoid Risk financing options Risk management options

27 Earthquake Loss OEP Curve Proprietary Tools and Processes FIA SM (Financial Impact Analysis) Measures an organizations risk tolerance based on pre-determined ranges of variability in key financial metrics 5 CCoR SM (Comprehensive Cost of Risk) Identifies technically optimal risk financing program structure for a given risk and quantifies volatility of retained risk $ Millions 4 $0.20 $0.40 $1.00 $0.50 $ $ $2.20 $4.00 $ $2.00 $ $ No Insurance Large Deductible Small Deductible Guaranteed Cost Expected Retained Losses Exp Premium Cost of Volatility Program Value PRISM SM (Privacy Risk Insurance Strategy Model) Quantifies privacy risk data and identifies optimal insurance program structure WISDOM SM (Willis Integrated Solutions Directors & Officers Model) Quantifies D&O risk, identifies optimal insurance structure Natural Catastrophe Analysis Modeling and managing natural catastrophe (nat. cat) risk ) Modelled Loss ($mn) 8 ($mn 7 7 ss o L 66 ed l el 5 d o M 4 Earthquake Loss OEP Curve 3 2 Policy Programme Activation Exhaustion ,000 Return Period (yrs)

28 FIA Financial Impact Analysis Establish the surprise negative deviations in key financial metrics that a company is able to sustain in a given year Model the company's financials to demonstrate the impact of increasing levels of retained downside risks on these metrics Incorporate the output into a risk financing strategy that achieves lowest cost of risk within the acceptable range of tolerance

29 CCoR SM Comprehensive Cost of Risk Antithesis of benchmarking Establishes the optimal premium / limit / retention configuration for a given risk Identifies what should be retained rather than what could be retained Achieves most efficient use of risk financing capital 5 $ Millions 4 3 $0.20 $0.40 $1.00 $0.50 $0.10 $ $2.20 $4.00 $ $ $1.00 -$0.30 No Insurance Large Deductible Small Deductible Guaranteed Cost Expected Retained Losses Exp Premium Cost of Volatility Program Value

30 CCoR SM 100% 90% Probability (%) 80% 70% 60% 50% 40% After risk financing (Including Prem) Before risk financing Risk Volatility 30% 20% 10% Risk Volatility 0% Impact ($MM) 12.7 Expected Loss

31 PRISM SM Privacy Risk Insurance Strategy Model Analytic model used to quantify privacy risk 0.25 Probability Distribution of Total Records Affected (Actual Total Records Affected vs Selected Distribution) Accesses a proprietary database of thousands of privacy risks Adjusts industry data relative to client-specific risks and controls Cumulative Probability 100% 90% 80% 70% 60% 50% 40% 30% 20% Applies Monte Carlo simulation to generate several thousand hypothetical loss years Historical Breach Frequency Projected Breach Frequency 10% 0% ,000 10, ,000 1,000,000 10,000, ,000,000 Total Records Affected (Logarithmic Scale) Actual Total Records Affected Selected Severity Distribution Utilizes CCoRSM to determine the optimal privacy insurance program structure UNINSURED LOSS PROBABILITY DISTRIBUTIONS Value of Various Privacy Breach Insurance Structures (Safety Level = 99.9% ) 100.0% 95.0% 3,000, % 2,500, , ,596 33, ,000 2,000,000 1,400,000 1,744, ,000 1,500,000 1,245,083 1,000, , ,090 1,260,518 CUMULATIVE PROBABILITY (CONFIDENCE LEVE 85.0% 80.0% 75.0% 70.0% 65.0% 60.0% 389, , , % 0 617, , , ,116 No Insurance 25M/25M xs 2M 50M/35M xs 2M 100M/50M xs 5M 175M/175M xs 10M Expected Retained Losses Cost of Volatility Premium Value "Break-Even" Premium 50.0% $100 $1,000 $10,000 $100,000 $1,000,000 $10,000,000 $100,000,000 AGGREGATE ANNUAL LOSSES Notification, Regulatory Fines All Other Insurable Costs Total Discovery, Response

32 WISDOM SM Willis Integrated Solutions Directors & Officers Model Analytic tool used to quantify D&O risks for public companies Generates a frequency distribution based on industry, market cap, and a robust proprietary database of historic D&O losses Generates a severity distribution using the proprietary database of historic D&O losses Combines frequency and severity distributions, simulating thousands of hypothetical loss years using Monte Carlo Simulation Utilizes CCoR SM to determine the optimal D&O insurance program structure

33 Natural Catastrophe Analysis Strategic CAT review High level review and mapping of a client s natural hazard exposures on a regional or global basis. CAT Modeling Use of natural catastrophe models to quantify a client s portfolio losses at an aggregate level and compare against their current retention levels and CAT limits in their insurance program ) Modelled Loss ($mn) 8 ($mn 7 7 ss o L 6 ed l el 5 d o M 4-3 Earthquake Loss OEP Curve 2 Policy Programme Activation Exhaustion ,000 Return Period (yrs) CAT Risk Engineering On-site risk engineering surveys for individual facilities that are identified as having high levels of localized property damage and business interruption exposures. Provision of cost-effective improvement measures to reduce the exposure.

34 LossPIQ SM Overview Prospective Identification & Quantification Quantifies low frequency / high severity risks where loss data is scare or non-existent Identifies most plausible future loss scenarios Willis develops a loss model for each risk and populates it with risk impact types and cost drivers Expert client team disassembles each major scenario into 3 sub-scenarios and then by consensus assigns impact and likelihood parameters Model aggregates data and generates an overall loss distributions curve of the risk Synthesize most plausible future scenarios Transition qualitative into quantitative measurement Integrate with historical and public domain data, run simulations

35 LossPIQ SM Risk Register XYZ BANK DENIAL OF ACCESS COSTS Notification Recovery Site Invocation Alternative Accommodations # of Locations % of Events # Days # Days % of Events # of Alt # Years % of Events Scenario Subscenario Description/Comments Likelihood Low High This Would Occur Low High This Would Occur Sites Rental This Would Occur DOA - Natural Event Anticipated UK Southern Severe Snow DOA - Natural Event Mid Range London Flood DOA - Natural Event Worst Case Pandemic Affecting >30% DOA - Man Made Event Anticipated Building evacuation DOA - Man Made Event Mid Range Terrorist non-cbnr attack DOA - Man Made Event Worst Case Terrorist CBNR attack Information Security Breach Anticipated Unauthorized access Information Security Breach Mid Range Data leakage Information Security Breach Worst Case Malicious cyber attack Infrastructure Failure Anticipated Power/cooling outage Infrastructure Failure Mid Range Data corruption Infrastructure Failure Worst Case Multiple data center losses Inadequate Planning Anticipated Included in other scenarios Inadequate Planning Mid Range Included in other scenarios Inadequate Planning Worst Case Included in other scenarios Third Party/Vendor Error Anticipated Virus Third Party/Vendor Error Mid Range Connectivity/network outage Third Party/Vendor Error Worst Case SBSA domain security outage Regulatory Censure Anticipated Greater regulatory oversight/fines Regulatory Censure Mid Range Conditions on license/fines>$10m Regulatory Censure Worst Case Loss or suspension of license/removal of senior mgt DOA - Political/Social Unrest Anticipated Industrial action DOA - Political/Social Unrest Mid Range Large scale civil unrest DOA - Political/Social Unrest Worst Case Civil war in South Africa Anticipated Mid Range Worst Case

36 LossPIQ SM Output XYZ BANK PERCENTILE EXPECTED LOSS- $M 50.0% $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ % $ AVERAGE: $4.60 STDEV: $23.48

37 RAPID SM Risk Assessment Probability & Impact Diagnostic FEATURES Consensus driven process to identify, assess, and communicate enterprise risk Can be used across an enterprise or on a surgical basis Comprehensive, accelerated, and cost effective Fully articulates and prioritizes the major risks to achieving business objectives Surfaces emerging and unforeseen risks Generates high impact, real time graphics Built-in module for Improvement Planning

38 Risk Optimizer Combines CCoR SM and FIA CCoR SM establishes optimal structure by line of coverage FIA establishes corporate risk tolerance level Probability of collective retentions breaching tolerance is determined Individual retentions are adjusted to accommodate overall tolerance and risk appetite Analytics are periodically recalculated to accommodate changes in both risks and financials Program structure is adjusted as necessary to maintain the lowest cost within the risk tolerance level

39 Risk Optimizer Risk Optimizer (Expected Cost vs Probability of Exceeding $50M Risk Tolerance, Excluding No Insurance) 1.90% Prob. of Exceeding $50M Above Expected Cost 1.85% 1.80% 1.75% 1.70% 1.65% 1.60% (12622) (12612) (12412) Current (32411) Millions Expected Cost (Premium + Discounted Expected Retained Losses)

40 We are honored to be part of Western Pallet Association. THANK YOU