Dr. James Kallman, ARM 9-1 Advanced PowerPoint Presentation ©2009 The National Underwriter Company

Dr. James Kallman, ARM 9-2 This Advanced PowerPoint Presentation accompanies the “Tools & Techniques of Risk Management & Insurance” textbook. Each of the 28 chapters in the textbook are presented here in the following sections:  Outline  Key concepts  Major sections  Chapter summary ©2009 The National Underwriter Company

Dr. James Kallman, ARM 9-3 Contents Techniques of Risk Management & Insurance Ch 1 Introduction to Traditional Risk Management……………1-1 Ch 2 Enterprise Risk Management…………………………….2-1 Ch 3 Risk Assessment: Identification…………………………..3-1 Ch 4 Risk Assessment: Quantification…………………………4-1 Ch 5 Overview of Risk Treatment Alternatives………………. 5-1 Ch 6 Non-insurance Transfer of Risk…………………………. 6-1 Ch 7 Insurance as a Risk Transfer Mechanism………………7-1 Ch 8 Overview of Alternative Risk Transfer Techniques…….8-1 Ch 9 Global Risk Management…………………………………9-1 Ch 10 Loss Control Techniques…………………………….….10-1 Ch 11 Emergency Response Planning…………………….….11-1 Ch 12 Business Continuity Planning……………………….….12-1 Ch 13 Claims Management………………………………….….13-1 Ch 14 Monitoring Claims for Financial Accuracy………….….14-1 Ch 15 Insurance Companies and Risk Management…….….15-1 Ch 16 Working with an Agent or Broker………………………16-1

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-4 Contents Tools of Risk Management & Insurance Ch 17 Commercial General Liability Insurance……………….17-1 Ch 18 The Workers’ Compensation System………………….18-1 Ch 19 Commercial Property Insurance……………………… Ch 20 Directors and Officers’ Liability Insurance…………… Ch 21 Employment-Related Practices Liability Insurance… Ch 22 Business Automobile Insurance……………………… Ch 23 Crime Insurance………………………………………….23-1 Ch 24 Capital Markets Risk Transfer Tools………………… Ch 25 Loss Control Tools……………………………………….25-1 Ch 26 The Certificate of Insurance…………………………….26-1 Ch 27 Surety Bonds…………………………………………… Ch 28 Claim Reviews……………………………………………28-1

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-5 Chapter 9 Global Risk Management Chapter Outline What is it? Categories within TEP Steps to Implement The Insurance Option Determining Local Insurance Requirements Identifying Territorial Limits Structuring a Worldwide Insurance Program Other Exposures Global Aspects of the Internet Appendix: Application and coverage forms Chapter Summary

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-6 Chapter 9 Global Risk Management What is it? Three types of foreign exposures Temporary exposures Export exposures Permanent multinational exposures Global challenges Physically distant from headquarters Lack of foreign exposure knowledge Limitations in domestic insurance policies Requirements for local admitted insurance Political unrest Differences in healthcare standards Claims management Currency conversions

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-7 Chapter 9 Global Risk Management Categories within TEP Specific types of exposures (some examples) Property exposures Liability exposures, including Premises and operations Products Automobile Human resource (employee) Net income, including Political exposures Creating a simple matrix: foreign X specific exposures (fig. 9.1) TemporaryExportPermanent multinational Property Buildings Personal Cargo X – portable bldg X – inventory X – shipments X – buildings X – machinery X – shipments Liability Premises Operations X – rented X – travel X – Vessels X - Shipping X – owned bldgs X - production

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-8 Chapter 9 Global Risk Management Steps to Implement Identify Global risks May be most difficult Meet with senior officers Quantify and analyze global risks Evaluate global treatment options Get suggested alternatives from vendors Use legal counsel that specialize in international matters Implement selected options Monitor and adjust

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-9 Chapter 9 Global Risk Management The Insurance Option Admitted versus Non-admitted Carriers Standard domestic policies may not provide coverage overseas Admitted insurers are authorized in a domestic market Some jurisdictions require coverage from state-owned insurers Advantages of Admitted Insurers Premiums may be tax deductible Claims handling may be easier Reduced or no fines for non-local insurance Intangible benefits from using local markets Disadvantages of Admitted Insurers Foreign language and laws Values in foreign currencies Difficult to evaluate insurer’s strength Communication with local agent May be more expensive than a world-wide policy Coordinating policy coverages a challenge

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-10 Chapter 9 Global Risk Management The Insurance Option A dvantages of Non-admitted Insurers Policies written in English and based on US laws Values in US Dollars Easier to evaluate insurer’s financial strength US underwriters and brokers Fewer intermediaries required Disadvantages of Non-admitted Insurers Premiums may not be deductible expenses Uncertain accounting of claims payments Income or transfer of capital May be taxable income to parent Discuss the global insurance options with a tax counsel

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-11 Chapter 9 Global Risk Management Determining Local Insurance Requirements Some global insurers/brokers can provide country summaries Some countries have unique insurance requirements Historic buildings Employee health benefits

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-12 Chapter 9 Global Risk Management Identifying Territorial Limits Property exposures Foreign property may be excluded from ISO forms Political perils – standard forms may exclude global perils Confiscation Currency inconvertibility Expropriation Forced abandonment Nationalization Political violence Transportation of property Imports & exports of goods and equipment Cargo “freight” charges for delays Special packing required Who owns the goods? Shipping terms to know: Ex point of origin, FOB, FAS, C&F, CIF

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-13 Chapter 9 Global Risk Management Identifying Territorial Limits Supplement Types of shipping contracts – both FOB and FAS Point of origin Point of destination Installment or conditional sales contracts Seller maintains ownership rights until the goods are delivered, installed, operating as specified, and final payment has been made

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-14 Chapter 9 Global Risk Management Identifying Territorial Limits General Liability Exposures Coverage may be limited by ISO forms for: Premises, operations, products, employee action Bodily Injury or property damage by an occurrence Occurrences during a policy period Coverage territory International waters or airspace Personal and Advertising injury An International general liability policy may be available Some insurers will endorse their policies for global coverage Is coverage worldwide for occurrences? Will it respond to claims or suits anywhere in the world? Will coverage apply regardless of where products are made?

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-15 Chapter 9 Global Risk Management Identifying Territorial Limits Automobile Exposures Overseas travelers often use or rent cars Foreign jurisdictions have diverse financial responsibility laws An international auto liability policy may cover this exposure Using a local carrier facilitates claims handling Employee Exposures Coverage of standard NCCI workers’ compensation policy unclear for US employees working abroad Temporary not defined in the policy Repatriation expense coverage may be desired Endemic disease coverage may be desired The risk manager must identify available health care sources Supplemental coverages may be available Local hires may require special coverages Third-country nationals may require special coverages Separate Employers’ liability coverage may be desired

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-16 Chapter 9 Global Risk Management Structuring a Worldwide Insurance Program A basic problem World-wide insurance programs often have multiple policies in different languages admitted and non-admitted carriers gaps in coverages Using a DIC Approach Difference-in-condition policies bridge the above gaps Provide uniform insurance terms and conditions Advantages and disadvantages of a DIC Policy + Fills in coverage and limit gaps + Provides uniform coverage - All policies must be policed - Claims may involve multiple carriers

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-17 Chapter 9 Global Risk Management Structuring a Worldwide Insurance Program Using a Controlled Master Program May be issued three ways: If admitted, issues local policy If not admitted, my use subsidiary If not admitted and no subsidiary may sub-contract Advantages of a Controlled Master Program Uniform coverages and improved claims handling One insurer handles coverage placements Reduces number of parties in insurance program One insurer issues documents (cert. of ins)

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-18 Chapter 9 Global Risk Management Other Exposures Kidnap and Ransom Types Ransom demands from actual or threatened kidnapping Extortion demands from threats of bodily injury Extortion demands from threats of property damage Extortion demands from threats to contaminate property Most K&R policies include access to security services Exchange Rate Risk (exporters) Defined: changes in value of goods sold in other countries Hedge risk with forward contracts with a bank Export Credit Risk Defined: variation in payments of foreign accounts receivable Letters of credit – guarantee payment by bank Credit insurance The EX-IM bank facilitates global trade The OPIC enhances overseas investments

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-19 Chapter 9 Global Risk Management Global Aspects of the Internet Wired companies face additional unique hazards Different legal structures or jurisdictions Different privacy requirements Non-standard information security systems Lack of jurisdictional boundaries

©2009 The National Underwriter Company Dr. James Kallman, ARM 9-20 Chapter 9 Global Risk Management Chapter Summary What is it? Temporary, export, & permanent multinational exposures Categories within TEP: Property, liability, HR, & NI Steps to Implement: same as a general RM process The Insurance Option: admitted & non-admitted insurers Determining Local Insurance Requirements: Use experts Identifying Territorial Limits: identify exposures in detail Structuring a Worldwide Insurance Program: DIC & Controlled Master Policies Other Exposures: K&R, Exchange rate risk, Export credit risk Global Aspects of the Internet: undefined jurisdictions & laws