1. CAS Seminar on Ratemaking Whose Line Is It Anyway? Session COM-7 Boiler and Machinery Presented By: Christine L. Steben, CPCU, ARe Assistant Vice President Travelers Property and Casualty

2. Overview  Market Evolution  Exposure Review  Distribution Systems  Impact of Advances in Technology  Emerging Insurance Issues  International vs. Domestic

3. Market Evolution  Large Industrial  Gas / Steam Turbines  Process Boiler  Manufacturing  Extruders  Corrugating Machines  Non-Manufacturing  Air Conditioning Equipment  Refrigeration Equipment

4. Exposure Rating Base  Machinery & Equipment (M&E) Value  Schedule of Objects  Building & Contents (B&C) Value  Schedule of Locations

5. Typical Coverage Options  Trigger: Breakdown to Covered Equipment  Property Damage  Business Income / Extra Expense  Utility Interruption  Spoilage  Hazardous Substances  Ordinance or Law  Data and Media  Expediting Expense

6. Accounting For Risk Quality  Equipment operator qualification  Availability of spare parts  Existence of maintenance agreement  Accessibility of equipment

7. Direct Distribution System  Direct  Expenses  Losses  Premium Collection

8. Reinsured Distribution Systems  Reinsured  Expenses  Losses  Premium Collection

9. Ratemaking Considerations  Jurisdictional Inspection  Loss Adjustment Expense  Delays in remittance of premium  Loss Development  Loss Trend

10. Loss Frequency / Loss Severity  Frequency  Equipment: Miscellaneous Electrical Apparatus  Cause of Loss: Arcing  Impact: Most often low cost.  Severity  Equipment: Turbines  Cause of Loss: Internal Cause  Impact: Most often high cost.

11. Impact of Advances in Technology  Replacement Cost of Equipment Increases Comparatively  Medical Equipment (ie MRI)  Repair Cost of Equipment Increases  Level of expertise required may not be readily available  Increased Business Interruption Exposure  Dependencies of insured on equipment  Equipment May Become Obsolete  Cost to repair may be prohibitive

12. Emerging Insurance Issues: Classification  Aggregating Distributed Power Generation for Demand Response  Renewable Energy  Waste to Energy  High severity potential.

13. Emerging Insurance Issues: Coverage  Ammonia Contamination  Spoilage  Contingent Business Income  High severity potential.

14. International vs. Domestic Considerations  Cost of Equipment will vary  Supply and demand of certain equipment  Supply and demand of a particular service  Cost of Inspection will vary  Availability of qualified / responsive personnel  Existence of jurisdictional inspection requirements  Cost of Loss Adjustment will vary  Availability of qualified / responsive personnel  US Dollar conversion

15. Boiler & Machinery Ratemaking In Review  Coverage provided can be “off the shelf” or tailored to meet needs of exposure  Product delivery / distribution impacts: Expenses, Losses and Premium  Unique characteristics of Boiler & Machinery: LAE, Inspection Expense, Cost to Repair / Replace  Emerging insurance issues should be identified  International and Domestic exposures should be evaluated