Commercial Insurance Underwriting University of Illinois Urbana – Champaign Finance 230

Commercial Insurance Underwriting University of Illinois Finance Who are We? Mike Myers, CPCU, ARM Portfolio Underwriting Manager Sue Myers, CPCU, ARM Underwriting Specialist

Commercial Insurance Underwriting University of Illinois Finance Liberty Mutual Group Founded in 1912 Number 111 on the Fortune 500 List $19.6 billion in consolidated revenue 5th largest commercial lines writer and 8 th largest personal lines writer in the United States 38,000 people in 900 office worldwide

Commercial Insurance Underwriting University of Illinois Finance CNA Insurance Company Founded in 1885 Number on 144 the Fortune 500 List under parent Loews Corporation $10 billion in revenues 7 th largest commercial insurance writer and 14 th largest Property / Casualty company in the United States 11,000 employees in offices worldwide

Commercial Insurance Underwriting University of Illinois Finance Overview Types of Insurance Commercial Insurance Different Markets in Commercial Insurance Underwriting Current Events

Commercial Insurance Underwriting University of Illinois Finance Different Types of Insurance Personal Insurance Health Insurance Life Insurance Commercial Insurance International Insurance Reinsurance Specialty Insurance

Commercial Insurance Underwriting University of Illinois Finance Commercial Insurance Insurance for Businesses

Commercial Insurance Underwriting University of Illinois Finance Courtesy of What Risks Do Businesses Have? Workers Autos Property Liabilities

Commercial Insurance Underwriting University of Illinois Finance Workers Compensation Provides no-fault benefits to workers injured on the job Types of benefits payable − Medical − Disability − Rehabilitation − Death

Commercial Insurance Underwriting University of Illinois Finance Workers Compensation Grocery Stores – Ready Mix Concrete – Veterinarians – Newspaper Publisher – Metal Casting & Forging – Healthcare – Electronics Mfg – Television Network Sports – Cuts, Burns Vehicle Accidents Animal Bites Machine Operations Silica Manual Material Handling Chemicals Falls from Heights What are some of the sources of Workers Compensation claims?

Commercial Insurance Underwriting University of Illinois Finance Auto Protects the owner against losses arising out of the use of an automobile in business. Types of coverage include: − Business Auto − Garage − Trucking

Commercial Insurance Underwriting University of Illinois Finance Auto

Commercial Insurance Underwriting University of Illinois Finance Auto

Commercial Insurance Underwriting University of Illinois Finance Property Protects against the perils like: − Fire − Theft − Vandalism − Wind Covers: − Buildings − Contents / Stock − Business Income

Commercial Insurance Underwriting University of Illinois Finance Property LaSalle Bank Building 12/7/05

Commercial Insurance Underwriting University of Illinois Finance Liability Protects the owner of a business for suits or claims for negligence of: − Premises − Products Produced − Services Provided

Commercial Insurance Underwriting University of Illinois Finance Commercial Insurance Insuring Businesses: − Small Market − Middle Market − National Market Size Complexity of Risk and Coverage Handling Expenses

Commercial Insurance Underwriting University of Illinois Finance Commercial Insurance Middle Market: − Single or Multiple Locations − Auto Fleet Typically < 100 units − Limited Flexibility of program structure − Formal and informal controls for Risk Exposures

Commercial Insurance Underwriting University of Illinois Finance Commercial Insurance National Markets: − Many Locations − Auto Fleets Typically > 100 units − Sophisticated and Formal Controls for Risk Exposures − Significant Flexibility in Program Structure – Share Risk − Financial Transactions – Long Term

Commercial Insurance Underwriting University of Illinois Finance Functions of an Insurance Product: Claims – Handles Claims and Pays the Losses Loss Control – Identifies and Controls Risk Actuarial – Predicts and Estimates Risk Underwriting – Accepts and Prices Risk

Commercial Insurance Underwriting University of Illinois Finance Underwriting - Simply Stated Analyzes a customer’s business risk Decides whether to insure the risk Decides coverages to offer Decide appropriate structure Forecasts costs / Price transferred risk

Commercial Insurance Underwriting University of Illinois Finance Underwriting Skill Set English & Speech Finance & Accounting Statistics Law Common Sense

Commercial Insurance Underwriting University of Illinois Finance It’s All About Risk Can have millions of dollars in limits on every account, even the smallest Take on additional exposure with each added coverage Even the best accounts could have a million dollar claim (or Larger!)

Commercial Insurance Underwriting University of Illinois Finance Current Events - Soft Market Soft Market − Excess capital leads to higher supply of insurance − Carriers willing to offer more liberal pricing and terms, driving rates down − Lower rates drive down underwriting profit − Can only maintain overall results if investment returns are high

Commercial Insurance Underwriting University of Illinois Finance Current Events – Terrorism Terrorism Risk Insurance Act of 2002 is a backstop for terrorism loss Insurance companies pay a deductible and % of losses up to $100 Billion ceiling TRIA is set to expire at the end of this year Courtesy of

Commercial Insurance Underwriting University of Illinois Finance Current Events – Oil Prices Significant impact on all levels of the economy Increased risk of Bankruptcy Courtesy of almostaproverb.com

Commercial Insurance Underwriting University of Illinois Finance Current Events – Hurricane Katrina Worst National disaster the Insurance Industry has ever handled: − Multiple states − Devastated a Major Metro area − Flooding vs. Wind − Economic Losses to region Courtesy of

Commercial Insurance Underwriting University of Illinois Finance Current Events – Hurricane Katrina $125 Billion “Economic” Damage $60 Billion to Insurance Industry In comparison Hurricane Andrew (1992): − $21 Billion in Current $ Courtesy of

Commercial Insurance Underwriting University of Illinois Finance Any Questions?

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