IASA Boot Camp+ Mastering the Art of Marketing & Selling to Insurance Companies March 19-20, 2015 TPC Sawgrass Jacksonville, Florida

FUNDAMENTALS OF P&C (AND LIFE) INSURANCE: WHAT YOU NEED TO KNOW Forrest Mills – CFO Guaranty Income Life Insurance Company, and IASA President Joe Pomilia – IASA Executive Director

Topics Definitions and Terminology Types of Insurance Companies Types of Insurance Products Types of Insurance Markets Insurance Company Operational Functions

Definitions Insurance - a practice or arrangement by which a company or government agency provides a guarantee of compensation for specified loss, damage, illness, or death in return for payment of a premium Risk – A situation where there is a chance for loss Loss - Unintentional decline in, or disappearance of, value arising from an accidental occurrence Exposure - The state of being subject to the possibility of loss Liability - The state of being legally obligated; responsible

Definitions Property Insurance - Protection against financial loss due to loss of or damage to real or personal property due to fire, windstorm, hail, etc. (perils) –Real Property – Fixed property, principally land and buildings –Personal (Tangible or Intangible) Property - Items not attached to land or dwelling, such as clothing, jewelry, an automobile etc. (tangible) or items like a securities or other non- physical assets (intangible) Casualty (Liability) Insurance - Protection against negligent acts or omissions that cause financial loss to another party

Definitions Life Insurance Annuities Long term Care Disability

Types of Insurance Companies Stock Mutual Reciprocal (or Insurance Exchange) Lloyd’s Association Captive Fraternal (type of life insurance company)

How Insurance Companies Make Money (spread versus underwriting) Insurance Company Stocks Bonds Mortgages Premium Investment Income Losses Salaries Taxes Other Costs Unallocated Expenses

P&C Insurance Product Lines Personal Policy = Contract Commercial Insurance is a Contract of Indemnity

General Policy Components Declarations Page Standard Forms –Definitions –Insuring Agreement –Exclusions –Conditions Endorsements Beneficiaries (LIFE)

Personal P&C Insurance Products Homeowners / Dwelling Fire Automobile Insurance Personal Liability Umbrella Boat Owner’s Policy Personal Floater or Personal Articles Renters Insurance

Business Owner’s Policy Commercial Auto Insurance Commercial Liability Umbrella Inland Marine Commercial Package Commercial Property Insurance Workers’ Compensation Ocean Marine Aviation Fidelity Bonds Surety Bonds Commercial P&C Insurance Products Commercial General Liability Insurance

Life Insurance Products Life Insurance –Whole Life –Term Annuities –Fixed –Indexed –Variable Other –LTC –Disability –Cancer & AD&D

IT Human Resources Underwriting Marketing & Sales Accounting Claims Reinsurance Policy Agency Mgmt HR Claims All Systems Billing AR/AP/GL Customer Functional Model Processes & Systems Functions & Staff

Marketing & Sales Agency Mgmt Customer Marketing & Sales Processes & Systems Functions & Staff

Insurance Markets Market State License Policyholder Protection Forms Rates Distribution Required Guaranty Fund State Approved Direct or by Agent Standard / Admitted State Approved None State Approved Non- regulated Surplus Line Broker Non-Standard / Non-Admitted / Surplus Not Required

Underwriting Marketing & Sales Policy Agency Mgmt Customer Underwriting Processes & Systems Functions & Staff

Marketing/Sales vs. Underwriting The role of marketing/sales is to generate insurance premium volume Underwriting’s objectives is to assure profitable results

Underwriting Responsibilities Book of Business Reinsurance Avoid Adverse Selection Agency Relationship Capacity/Surplus

Underwriting Process Quotes Rating Client Approval NO Start Submission Underwriting Meets Criteria YES Policy Issuance Policy Lifecycle Billings/ Collections YES NO

Life of a Policy Policy Issuance / Endorsement Cancellation/Lapse/Withdrawal Death Reinstatement Rewrite Renewal

Loss Prevention Deliver Safety Seminars Provide Educational Information Suggest Changes to Operational Procedures Case Management

Underwriting Marketing & Sales Policy Agency Mgmt Customer Reinsurance Processes & Systems Functions & Staff Reinsurance

Reinsurance Function Reduces risk of loss Overcomes capacity problems Assists in underwriting

Types of Reinsurance FacultativeTreatyCombination Reinsurance

Forms of Reinsurance Excess of Loss (XOL) Pro Rata Catastrophe Excess Quota share Coinsurance

Underwriting Marketing & Sales Policy Agency Mgmt Customer Claims Processes & Systems Functions & Staff Reinsurance Claims Reinsurance

What is a Claim? A claim is a request for payment of a loss First Party Claim (beneficiary) –Insured Loss Third Party Claim –Loss to Another

Claim Process Yes Investigation Claim Setup Start Coverage Verification Payments and Settlement First Notice of Loss Meets Policy Conditions NO Reserve Adjustment

Salvage and Subrogation

Underwriting Marketing & Sales Policy Agency Mgmt Customer Accounting Processes & Systems Functions & Staff Reinsurance Claims Accounting Billing AR/AP/GL Reinsurance

Accounting Operations Budget and Planning Premium Accounting (Accounts Receivable) –Agency Bill –Direct Bill 1099s Premium Finance

Accounting Operations, cont. General Accounting Financial Statements Reinsurance Accounting Internal Auditing Cash Management Investment Accounting

Methods of Accounting Statutory Accounting Generally Accepted Accounting Principles (GAAP) Differences Between Stat and GAAP Accounting Practices Tax Accounting

Premium and Loss Accounting Terms Premium –Written Premium –Earned Premium –Unearned Premium Losses –Loss Adjustment Expense (LAE) –Incurred But Not Reported (IBNR) –Reserves

Key Industry Ratios Loss Ratio Expense Ratio Combined Ratio (Loss + Expense Ratios) Return on Equity Profit Margin Premium/Surplus Ratio Risk-based capital

Underwriting Marketing & Sales Policy Agency Mgmt Customer Information Technology Processes & Systems Functions & Staff Reinsurance Claims Accounting Billing AR/AP/GL IT All Systems Reinsurance

IT Responsibilities Hardware Software Data Process Flows Business Requirements Research & Planning Disaster Recovery Security (Cyber)

IT Roles Business Analysis Systems Analysis Application Programming Systems Programming Database Administration Operations and Support Service Technical Support and Network Administration

IT Human Resources Underwriting Marketing & Sales Accounting Claims Reinsurance Policy Agency Mgmt HR Claims All Systems Billing AR/AP/GL Customer Functional Model Processes & Systems Functions & Staff Reinsurance

Conclusions The insurance industry is complicated and has a language all its own. The more you learn, the less complicated it appears. For success, it is critical for solution providers to: –Understand the business model and operations of their customers –Communicate effectively Recognize that each company is unique and learn how to apply your product/service to meet their unique needs.

Questions?