1. Wortham, L.L.C., General Partner John L. Wortham & Son, L.P. Everything You Always Wanted to Know About Business Insurance and the Implications for Disaster Recovery But Were Afraid to Ask! September 9, 2014 Jim Gleaves Managing Director

2. 2 Father Guido Sarducci The Five Minute University

3. 3 Agenda Insurance Industry Landscape – Chips, Guacamole & Queso Risk Management – The Whole Enchilada Commercial Property / Casualty – Fajitas – but no Rice and Beans Business Continuity and Insurance – The Tres Leches Cake

4. 4 A Partnership That Works Placing over $1 billion in premiums annually Texas based since 1915 Over 500 professionals Wortham is the largest insurance agency headquartered in Texas, with offices in Houston, Fort Worth, Austin, San Antonio and Dallas A Limited Partnership owned by 120 Managing Directors Approximately half of our Managing Directors are technical staff

5. 5 The Commercial P&C Insurance Industry Insureds Brokers or Agents – Retail – Wholesale – Bermuda and Lloyd’s Insurance Carriers – Stock – Mutuals – Captives – Admitted vs. Non-Admitted

6. 6 10 Largest U.S. Brokers 1.Aon P.L.C. 2.Marsh & McLennan Cos. Inc. 3.Arthur J. Gallagher & Co. 4.Willis Group Holdings P.L.C. 5.BB&T Insurance Holdings, Inc. 6.Brown & Brown Inc. 7.Wells Fargo Insurance Services USA Inc. 8.Lockton Cos. L.L.C. 9.USI Holdings Corp. 10.Hub International Ltd. Note: From Business Insurance, based on revenue.

7. 7 10 Largest Property / Casualty Insurance Carriers State Farm Berkshire Hathaway Allstate Liberty Mutual Travelers AIG Nationwide Progressive Farmers USAA Note: From National Underwriters, based on premium volume.

8. 8 Risk Management Having the policies and procedures in place and understood by all levels within the organization, that are necessary to minimize the probability of a loss Having structures, such as insurance, hedges, or a plan, such as a crisis management plan, in place that will minimize the impact of a serious adverse incident, loss, or claim

9. 9 Risk Management Financial failure Strategic inability to compete Merger or takeover Force majeure Fraud Loss of key supplier Loss of key customer Why Do Businesses Fail?

10. 10 Enterprise Risk Management – The Process Step 1 – Identify risks Step 2 – Measure and assess risks Step 3 – Manage risks/response/control Step 4 – Monitor risks/communication

11. 11 Risk Categories The world of risk funnels down into three major categories: – Strategic / business risks – Financial risks – Operational risks

12. 12 Methods for Treating Risk Avoid it Reduce its likelihood Reduce its impact Transfer it

13. 13 What Sets Great Apart From Good? What risks are emerging? Do you have the proper controls in place? Are you well prepared for an event? Do you have the right people with the right skills? Are you tracking and measuring your risks with the right tools? Are you achieving the desired return relative to the risks?

14. 14 A Few Commercial Insurance Concepts Cyclical business Insurance carriers operate on thin margins You pay for your losses over time – Frequency versus Severity Complexity

15. 15 Estimated Pure Year Profit/Loss, 1985-2013 (£m) Source: Lloyd’s ’04’05’06’07’08’0910111213 858687888990919293949596979899’00’01’02’03 Lloyd’s of London

16. 16 Commercial Insurance Categories - Property Real Property / Business Personal Property Boiler & Machinery Builder’s Risk Energy Package Flood Insurance Business Income / Extra Expense Contingent Business Income

17. 17 Commercial Insurance Categories - Casualty General Liability Auto Liability Workers’ Compensation Pollution / Aviation Excess Liability / Umbrella

18. 18 Commercial Insurance Categories – Professional Liability Directors & Officers Employment Practices Crime / Fiduciary Cyber Other Professional

19. 19 Other Commercial Insurance Categories BOP – Business Owner Policies Marine and Inland Marine Farm & Ranch Credit Insurance Event Cancellation Alternative / Financial

20. 20 Four Important Coverage Parameters/Measurements Exposure Retention Limits The Total Cost of Risk

21. 21 Exposure Evaluation Probably the single most important task in risk management Many exposures are obvious The challenge – determine the less obvious exposures – Surveys and Questionnaires – Black Swan Theorizing

22. 22 Retention Analysis Typically, three variables should be considered in developing retention levels: Risk Appetite - Determine the financial strengths and operating philosophies unique to each company. Loss Profile - Analyze loss trends and translate the analysis into projections. Market Environment - Weigh the trade-off in premium cost against the potential liabilities associated with the retention level.

23. 23 Property Loss Limits Specific, Scheduled or Agreed limits Separate limits that apply to each type of property at each location based on a schedule of values supplied to underwriters or actually listed on the policy. Blanket limit A single limit of insurance that applies over more than one location or more than one category of property coverage, or both. This is in contrast to specific or scheduled limits of insurance, which are separate limits that apply to each type of property at each location. The full blanket limit can be utilized for a single location loss. Loss limit The maximum amount a carrier will pay in a single occurrence. This limit is typically lower than the total values reported and is normally tied back to values on the schedule provided to underwriters.

24. 24 Limits Analysis Potential loss level Industry experience / surveys Benchmarking Casualty and Professional Indemnity

25. 25 Benchmarking

26. 26 The Total Cost of Risk The total cost of risk is one of the most important measurements in risk management. It is comprised of: Retained losses Cost of risk transfer (insurance) Cost of insurance services

27. 27 Duties in the Event of Loss or Damage Notify the police Give the insurer prompt notice Provide information Take all reasonable steps to protection the property from further loss Furnish the insurer with inventories of the damaged and undamaged property Submit to examination under oath Cooperate Send a signed, sworn proof of loss to the insurer within sixty days after the insurer requests one

28. 28 Claims Handling Small businesses - May have claims handled by the carrier’s in-house adjuster Large businesses - Could have the benefit of a broker’s claims professionals Very large or complex claims - third party adjusters or forensic accounting firms may be engaged

29. 29 STEP ONE: Identify Risks STEP TWO: Run Like Crazy! Business Continuity and Insurance

30. 30 Hurricane Ike Damage

31. 31 Working From Rentsys Trailer

32. 32 Business Continuity and Insurance The Tres Leche Cake Remember Business Income/Extra Expense coverage? What did the Rentsys Mobile Recovery unit cost Wortham after Hurricane Ike?

33. 33 Disaster Hits Close to Home