1. Teaching Risk Management and Insurance Mike Hubbel Professor Emeritus Olivet College

2. Did you know? Travelers are more likely to die from taking selfies than from shark attacks!  12 died in falls or hit by vehicles while taking selfies  8 have died from shark attacks …and earlier this year, Waterton Canyon recreation area in Denver was closed to the public after too many visitors were trying to take selfies with bears. Source: “Taking Selfies Now More Deadly Than Shark Attacks,” Business Insurance, September 28, 2015

3. Why? The process of risk management and the use of insurance is an important, integral part of our business and personal lives The fields of risk management and insurance (RMI) offer a variety of challenging and rewarding career opportunities for your students An education in risk management and insurance gives job-seekers a significant advantage The RMI industry offers many college scholarships and internships Why? The Michigan Department of Education has approved “Insurance” in the Finance Cluster, Insurance Pathway for Career and Technical Education -Tom Knight CTE Curriculum Consultant The Michigan Department of Education has approved “Insurance” in the Finance Cluster, Insurance Pathway for Career and Technical Education -Tom Knight CTE Curriculum Consultant

4. Because insurance exists… Costs to Society Insurer overhead Inflated claims Fraudulent claims Increased tendency to sue (knowing that insurance coverage exists) Benefits to Society Payment of losses Less worry & fear Source of investment funds Loss prevention & reduction Support for system of credit Meeting legal requirements

5. Promise $ The Insurance Mechanism Premium & Risk LOSS $ $ $ $ $ $ The Insurance Consumer Insurance Company Pools Exposures and $ $

6. U.S. Insurance Employment *Other includes independent claims adjusters, third party administrators, other service personnel April 2015 preliminary data; seasonally adjusted Source: U.S. Bureau of Labor Statistics; Insurance Information Institute

7. 17,390 agencies 1,607 insurers Insurance Employers in Michigan Source: Michigan Department of Insurance and Financial Services 2013 Annual Report, http://www.michigan.gov/documents/difs/DIFS_Annual_Report_2013_463315_7.pdf http://www.michigan.gov/documents/difs/DIFS_Annual_Report_2013_463315_7.pdf

8. Reinsurance Intermediary (optional) Reinsurer Retrocessionaire Reinsurer Retrocessionaire Other Insurer Retrocessionaire Other Insurer Retrocessionaire The Insurance Market *Nonadmitted insurers are also called Excess & Surplus Lines insurers Insurance Customer Risk Manager Retail Agent or Broker Coverage readily available? Go Admitted Can’t buy coverage from admitted insurer? Go Nonadmitted Admitted Primary Insurer Wholesale broker, Surplus Lines Broker, or Managing General Agent Nonadmitted Primary Insurer*

9. Non-traditional Insurance Players Google! 1 – Beginning with personal and small commercial insurance comparisons – Eventually using their data and analytics to underwrite risks in innovative ways? 1 Source: Banham, Russ, “Googlezilla – Replete with capital and data, Internet giants prepare to devour the insurance industry,” Leader’s Edge, Council of Insurance Agents and Brokers, January/February 2015. Capital markets competing through the catastrophe bond market

10. Life Cycle of an Insurance Policy Compliance obtains approvals Marketing & Product Development designs new policy Actuaries calculate rates for new policy Marketing promotes new policy to agents Agents quotes & sells policy Finance invests the premium Underwriter approves issuance & prices policy Risk Control may inspect applicant’s exposure Underwriter may reinsure policy Reinsurer assumes portion of risk Claims Department may receive claim Reinsurer may be responsible for portion of claim Claims adjuster inspects damage; pays claim Underwriter reviews policy for renewal Premium auditor audits auditable policies ABC INSURANCE We hereby agree to insure you against… ~~~~~~~~~~ ~~~~~~~~~~ ~~~~~~~~~~ ABC INSURANCE We hereby agree to insure you against… ~~~~~~~~~~ ~~~~~~~~~~ ~~~~~~~~~~

11. Source: www.salary.com October 1, 2015 (data above does not include bonuses or other benefits) (Detroit & Grand Rapids > Lansing)www.salary.com 1 O-Net OnLine, CareerOneStop, U.S. Department of Labor, http://www.onetonline.org/find/industry?i=52&g=Go, accessed October 1, 2015http://www.onetonline.org/find/industry?i=52&g=Go 2 Industry Report Prepared for Greater Lansing Insurance & Financial Services Council, Economic Modeling Specialists, Inc., www.economicmodeling.comwww.economicmodeling.com Entry-level Salaries

12. After at least seven years… Source: www.salary.com October 1, 2015www.salary.com (data above does not include bonuses or other benefits)

13. If you have an interest in… Be an underwriter! A decision scientist: decide who & who not to insure Solving puzzles, decision making? Be a claims adjuster! Investigate losses, help clients recover from losses Helping others, investigating? Be an agent! Sell insurance, help clients recover from losses Running your own business? Be an actuary! Study catastrophes, gather statistics, create formulas Math?

14. Disciplines Needed in Insurance Math, Probability & Statistics Psychology Management & Marketing Communication & Negotiation Finance & Accounting EngineeringLaw Computer Technology & Applications

15. RMI Curriculum Content Process Risk management tools The risk management process Risk transfer Pooling and the Law of Large Numbers Spreading the unbearable losses of a few over many The insurance mechanism Legal nature and structure Auto, home, life, health Insurance policies Market – structure, regulation, cycles Providers – private sector, government The business of insurance Agents/brokers Actuaries, claims investigators/adjusters, underwriters Risk management analysts Career entry points

16. Insurance Curriculum approved for High Schools* Concepts, terminology Insurance market, regulation, financial aspects, operations Nature of property and liability insurance exposures and provisions Risk management Principles Automobile Home Life and retirement Disability and health Personal Insurance Property, business interruption, crime, large equipment breakdown Inland and ocean marine General liability, business automobile, workers compensation Businessowners package, specialty and emerging coverages Commercial Insurance *Approved in 2013 by the Michigan Department of Education in the Finance Cluster, Insurance Pathway

17. Risk Management Exercise Car accident Speeding ticket Bad grades Hit a deer with car House fire Loose books “Total” car Serious injury Hurricane Flood Car stolen iPhone stolen Loss of car = loss of dates Death Illness Discuss the risk management of these exposures… Avoid? Control? Insure? Retain? …not everything is insurable! What loss exposures do you face each day?

18. What do Americans worry about? Independent survey of 1,029 Americans ages 18 to 69, by telephone and online Source: Consumer Risk Index, Travelers Insurance, October 2015, https://www.travelers.com/prepare- prevent/risk-index/consumer/2015/consumer-risk-index-report.pdf, accessed October 6, 2015.https://www.travelers.com/prepare- prevent/risk-index/consumer/2015/consumer-risk-index-report.pdf

19. Risk Management Project Personal Risk Management Plan Property – auto, apartment, personal belongings Liability – auto, other liability Life – needs following death, e.g. medical bills, burial, dependents? Health – major medical expenses Retirement – future financial security – Farm Bureau Insurance Company of Michigan financial calculators at https://www.farmbureauinsurance- mi.com/insurance_101/calculators/https://www.farmbureauinsurance- mi.com/insurance_101/calculators/

20. Insurance Policy “Puzzles” Given:  An automobile crash loss or homeowner loss scenario  A list of questions to analyze a policy for loss coverage  Parent’s auto or homeowner policy Determine: ? Covered losses ? The amount of coverage ? Options to reduce the “out-of-pocket” loss

21. RMI Curriculum Delivery RMI content fits well in the following high school courses: – Introduction to Business or Management – Careers – Consumer – Economics – Family Guest speakers – Insurance Institute of Michigan http://www.iiminfo.org/FORTHECLASSROOM/tabid/1688/Defaul t.aspx http://www.iiminfo.org/FORTHECLASSROOM/tabid/1688/Defaul t.aspx – Michigan Association of Insurance Agents http://www.mifuture.org/behindthescenes/request_speaker.asp http://www.mifuture.org/behindthescenes/request_speaker.asp – Gamma Iota Sigma – professional society of college students & faculty; chapters at Central Michigan University, Ferris State University, Northern Michigan University, Olivet College http://www.gammaiotasigma.org/ http://www.gammaiotasigma.org/

22. High School & College Partnering – Eaton ISD with Olivet College, Ingham ISD with Ferris State – Students can take 3 insurance courses and earn 9 transferrable college credits in RMI – Delivered in a blend of live meetings at Farm Bureau Insurance or Accident Fund Insurance Companies in Lansing, online coursework, field trips, job shadows, internships – May take national exams simultaneously and an ethics module to earn a professional designation – Qualifications: high reading level, average writing level, Algebra II – Other universities are interested! RMI Tours – Agencies are located in most communities – Insurers are located in the Greater Detroit, Dowagiac, Flint, Fremont, Grand Rapids, Hastings, Howell, Lansing, Traverse City – Large corporation risk management tours almost anywhere Enhancing RMI Curriculum Delivery

23. Insurance Information Institute Glossary Videos Hot topics www.iii.org Insurance Information Institute Glossary Videos Hot topics www.iii.org RMI Curriculum Resources Griffith Insurance Education Foundation Lesson plans http://www.griffithfoundation.org/k- 12/curriculum-online/lesson-plans/ Griffith Insurance Education Foundation Lesson plans http://www.griffithfoundation.org/k- 12/curriculum-online/lesson-plans/ Insurance Institute of Michigan Local issues Speakers www.iiminfo.org Insurance Institute of Michigan Local issues Speakers www.iiminfo.org PBS Videos Games www.pbs.org and www.pbslearning media.org PBS Videos Games www.pbs.org and www.pbslearning media.org Project InVEST Provides insurance agent oriented lesson plans, games and presentations Students form and operate model insurance agencies and insurance company offices www.investprogram.org Project InVEST Provides insurance agent oriented lesson plans, games and presentations Students form and operate model insurance agencies and insurance company offices www.investprogram.org

24. Brochure on careers in the insurance business http://www.mifuture.org/doc s/resources_docs/CPCU_Insur ance_Careers_Brochure.pdf RMI Career Resources Video (5 ½ minutes) about careers in “surplus lines” insurance market for large, complex business exposures http://www.youtu be.com/watch?v=L Wpq3e6Pn0s Video (7 minutes) about insurance agent careers http://www.youtube.com/wa tch?v=NsIcNsi9boc

25. Michigan Collegiate Programs RMI Programs Cooley Law School Master of Laws – Insurance Law Davenport University Grand Rapids, Lansing, Livonia, & online Ferris State University Michigan State University (new program in development) Northern Michigan University Olivet College Actuarial Programs Central Michigan University Ferris State University Michigan Technological University Michigan State University Northern Michigan University Olivet College University of Michigan

26. Why do we need young people in the insurance business? Insurance industry retirements are projected to reach 25% of the workforce by 2018 1  New, young professionals are needed to take their places! and  We need fresh ideas and approaches for the new risks that we’ll face in the years to come… 1 Source: Building a Talent Magnet: How the Property and Casualty Industry Can Solve Its People Needs, McKinsey & Company, 2010 http://www.mckinsey.com/clientservice/Financial_Services/~/media/Reports/Financial_Services/Talent_in_PandC.ashx

27. Emerging Risks for the Insurance Business High Impact Cloud computing security Contagious emerging financial market crisis Short-termism of macro- policy measures Air pollution as mortality & litigation driver Super natural catastrophes Challenges of the Internet of Things Medium Impact Concussion crisis in sports Widespread genetic testing – false results Digital slander E-cigarettes & liquids used Food and water safety trade-offs with growth Aluminum health risks Smart cities – vulnerabilities, privacy Urban farming Low Impact Action cam liability – use in “extreme” activities Epigenectics: genome modification as a liability loss driver 4D printing – adding the dimension of time (materials that change over time, implantable material, nanobots) Missing aircraft triggers technological change Methane hydrate – new energy source? Traffic jam in the skies Source: Swiss Re SONAR, Emerging risk insights, Swiss Re, 2014 and 2015

28. Driverless Vehicles Google’s Driverless Car After 6 years of testing in Mountain View, CA, the driverless car was involved in 11 accidents: 10 caused by other drivers The accident caused by the Google car was actually caused by the staffer driving in manual mode Freightliner’s Driverless Truck Source: Cheboygan Daily Tribune, May 16, 2015 Source: http://www.ft.com/cms/s/0/4a4dc50af46311e499de00144feab7d e.html#axzz3ZhUjMp7x

29. Drones Issues – Lack of operator training and safety – Invasion of privacy Two insurers provide coverage similar to aircraft hull liability Several insurers now have FAA approval to use drones – Underwriting risk assessment – Claims settlement Source: http://www.rmmagazine.com/2015/04/01/dronestakeflight/

30. Solar Storms Impact – Power grid – Communications – Air travel – Satellite navigation systems Further research needed – how widespread could the impact be? Monitoring and forecasting Mitigation – Alternative procedures/processes, business continuity plans – Back up generators, solar panels – Insurance for physical damage and business interruption Too catastrophe for private sector? Too catastrophe for government sector? Source: Space Weather Public Dialogue Final Report, 3KQ & Collingwood Environmental Planning, February 11, 2015 http://www.stfc.ac.uk/3508.aspxhttp://www.stfc.ac.uk/3508.aspx

31. Now… go out and take some risks today… …but not too many!