1. ALERT! The Economy’s Impact on Claims

2. Economic Recovery is Beginning Economic indicators have been positive –Economy expanding –Job losses are slowing –Creation of new jobs Financial sector stabilizing –Banks are again profitable –Banks are beginning to lend, but only to the credit worthy Housing / Real Estate Market improving –Commercial market is lagging however –Mortgage rates remain low –New buyers attracted to low house prices Inflation under control Energy costs are down Debt loads are shrinking

3. Implications of Inflation and Deflation Inflation –Cost of claims increase –Reserves become inadequate –Retentions / deductibles reached more quickly –Reinsurance penetrated or exhausted –Rate inadequacy Deflation –Over reserving –Enrichment –No claims due to deductibles –Insureds’ misconceptions regarding ACV or other value calculations –Softening market

4. Changes in Claiming Behavior Claim frequency –Reduction due to loss of jobs, less driving –UM / UIM frequency up from 13.8% in 2007 to 16.1% in 2010 (estimated) Claim severity –Continues to rise, driven by increasing medical costs, repair costs Settlements more difficult –Uncertainty about the future, covering the deductible Fraud increasing –Arson, fabricated theft –Some estimates exceed 100% increase

5. Sub-Prime Implications Investigation reminders: –Date and cause of loss –Parties’ rights fixed at date of loss –Establish necessary evidence to prove exclusion –Locate former occupant or owner –Proof of Loss to obtain documentation from mortgagee to establish insurable interest and basis for damages claimed

6. Loss and Damage Estimation Confirm coverage and any limitations Determination of date, cause, and origin Analysis of resultant damage from the covered loss Differentiate old damage, wear and tear, etc.

7. Impact on Claims 1.Did something happen that was unexpected and in retrospect, you deduced it was caused by the bad economy? 2.Have volume and severity been impacted and how? 3.How has involvement of public adjusters and attorneys changed? 4.How has the claims adjustment process been changed? Are there new stakeholders?

8. Thank you for attending!