1. Insurance from a Corporate Perspective Chartered Institute of Management Accountants 28 July 2015

2. Content Typical Insurance Practices before Canterbury Earthquakes Impact of Canterbury Earthquakes Best Practice – Policies – Deductibles – Limits – Insurers – Broker Remuneration – Service Agreement/Plan – Broker Tenders – Internal Insurance Processes

3. Typical Insurance Practices before Canterbury Earthquakes Once a year “fill in the forms” exercise Typically not a “material” expense Policies purchased driven by broker suggestions – little formal link to risk management Deductibles and limits often driven by “history” Limited or no diversification of insurers Lack of developed internal insurance “processes” Lack of knowledge over how broker remunerated

4. Impact of Canterbury Earthquakes Significantly higher premiums Cover often insufficient Actions of corporates could have invalidated policies Lack of understanding of policy terms and what was covered

5. Best Practice - Policies Should align to an entity’s risk profile and risk appetite Should not be seen as the only answer – may not be the best solution – Prospectus Liability – Crime – Terrorism Is your broker incentivised to sell you additional or more expensive policies?

6. Best Practice – Deductibles Often historical or given little thought Can be imposed by insurers Should be considered in relation to risk appetite Many sound reasons why deductibles are less than risk appetite – Premiums cheap – be careful of administration – Legal/contractual requirements – Aggregation risks Consider self-insurance mechanisms

7. Best Practice – Limits Limits need thought – Often inadequate – Modelling – Benchmark – Case Law

8. Best Practice - Insurers Have credit and diversification criteria for banks – why not insurers? Many use one insurance market and sometimes one insurer – maybe appropriate for small insurance programmes

9. Best Practice - Insurers Issues to consider when considering overseas markets: – Sufficient scale or complexity of risk – Cost – Developing and maintaining long-term relationships – Many rushed to London following Canterbury quakes – Little benefit in just sending off “presentation” – Offshore markets tend to be less volatile – Can take advantage of competition and different market cycles

10. Best Practice – Broker Remuneration Brokers remunerated either by way of commission or fixed fee Commission: – Rates varied significantly – Often undisclosed – Inappropriate incentives for brokers Often contingent commissions or similar

11. Best Practice – Broker Remuneration Best Practice: – Fixed fee – Or at the very least disclosure of commission element in invoicing – Statement that receiving no other income from insurers relating to the placement of your business – Includes any portion placed by broker overseas

12. Best Practice – Service Agreement/Plan Important to have understanding of what services broker will deliver Fees – and what is included/hours Timetable What is included and excluded (e.g. claims services, risk management)

13. Best Practice – Service Agreement/Plan Term of agreement Termination clauses Conflicts of interest Confidentiality of information

14. Best Practice – Broker Tenders Only undertake one if “open to considering change” Otherwise expensive and time consuming exercise for everyone involved Carefully consider what would make you change broker

15. Best Practice – Broker Tenders Ensure broker tender questions are appropriate and targeted – Merit in asking for premium quotations – Merit in referees Understand how you will evaluate them Carefully consider what an external independent will add to evaluation process

16. Best Practice – Internal Insurance Processes Have other risk policies (e.g. treasury) – why not insurance? Very few entities have developed insurance processes

17. Best Practice – Internal Insurance Processes What should it cover? – What to do in the event of a claim – Who can sign-off insurance information/strategy – Process for disseminating insurance information following renewal – Protocols for contract works insurance – Required credit quality for insurers – Ability to do multi-year deals