1. Total Cost of Risk: Strategic Risk Management Approaches in the Face of Challenging Economic Times CONFERENCE PRESENTS

2. Definition Total Cost of Risk (TCOR) –Simple equation of: Retained losses Insurance premiums Outside services Risk management costs

3. Retained Losses Combination of active retention and passive retention

4. Insurance Premiums Includes all premiums and commissions

5. Outside Services Incorporates the myriad of service providers available to risk managers including brokers, outside consultants, third-party administrators, legal, or actuarial services, etc.

6. Risk Management Costs All of the direct internal costs of operating the risk management function in a company (i.e. salaries, office expenses, training and education, travel expenses, safety supplies, employee benefits, and any other costs that can appropriately be assigned to the effort).

7. Corporate Strategy In light of the challenging economic times and an enhanced level scrutiny relating to corporate governance, there is a greater link between the corporate strategy of an organization and its risk management philosophy and function.

8. “What are your clients’ drivers in this economy?” Broker Perspective –Aligning risk management activities with corporate strategy –Cost savings/increased value for risk management spend TPA Perspective –The cost of claims handling –Disaster/mass tort costs –Employee injury costs –Brand and reputational risk costs –Data management and analysis Insurer Perspective –Stability of carrier –Global Programs – compliance with local regulators vis a vis their Master policy/local placement –Expense reductions –Benchmarking Premium costs with Peers – where do you fit?

9. “What is happening in your industry right now?” Broker Perspective –Focus on understanding options with regard to risk management/insurance spend Third Party Administrator (TPA) Perspective –Desire to reduce claims spend and to understand and plan ahead for claims spend Insurer Perspective –CAT Exposures – limit availability & increased costs

10. “What are your clients’ corporate priorities?” Broker Perspective –Differentiation against peers –Understanding and potentially reducing risk management spend –Enhanced risk identification and solutions TPA Perspective –Reducing expenses –Understanding potential spend and exposure for catastrophic loss or mass tort –Looking for cost relief in areas like workers’ compensation Insurer Perspective –Reducing expenses –Reducing perceived gaps in coverage vis-à-vis global program –Quality of underwriting submissions

11. Tool Box – Strategic Approaches to TCOR Insurance Premiums –Broker Perspective Approach to risk management and loss control Conscious risk identification Risk transfer to third parties Assumption of appropriate deductible amounts Proactive and aggressive claims management Willingness to work with your insurers (or going to market) –TPA Perspective Data and quality of submission and how it impacts premium Preparedness –Insurer Perspective Quality of underwriting submissions Peer group benchmarking – where do you fit? Insurer relationships

12. Tool Box – Strategic Approaches to TCOR Retained Losses –Broker Perspective Insurable/not recognized –Risk analysis/internal funding mechanism Exclusions to the policy that could be removed –Policy review/analysis and peer benchmarking Insured/self-insured –Reassessment of operation risks Deductible/self-insured retention (SIR) –Deductible analysis/approach markets for viable options/manage open claims

13. Tool Box – Strategic Approaches to TCOR Retained Losses –TPA Perspective Flat rate vs. hourly Procurement (cost vs. benefit) Performance pricing –Insurer Perspective Contractual transfer of risk Robust management of SIR/Retained risk including data

14. Tool Box – Strategic Approaches to TCOR Outside Services –Broker Perspective Fee vs. commission Full disclosure –Efficient use of broker resources (what do you need/value/want) –Review, discuss, and negotiate »Core services »Additional services »3-year mandate –TPA Perspective Procurement-goals and measurement Reporting and authority Types of pricing Indemnity and recovery First party investigation Ongoing efficiency should be a focus –Insurer Perspective TPA appointments Preferred legal counsel Claims management – catastrophic losses

15. Tool Box – Strategic Approaches to TCOR Risk Management Costs –Broker Perspective In-house vs. outsourced Review all component costs –Premium allocation/recovery –Training »Conferences/seminars »Lunch and learn sessions »Insurance 101 sessions »Web-based seminars »Associations (e.g. RIMS) –Outsourcing of risk management services (portion thereof) to broker –TPA Perspective Preplan, prepare, and practice Data management and analysis –It has a cost, understand it –Make it useful Return to work/incident management RMIS or access –Insurer Perspective Understand the coverage afforded and why Cost/benefit analysis of broadened/increased coverage Robust relationship with your insurer

16. Disclaimer The information contained herein is based on sources we believe reliable, but we did not verify nor do we guarantee its accuracy. It should be understood to be general risk management and insurance information only. Marsh makes no representations or warranties, expressed or implied, concerning the financial condition, solvency, or application of policy wordings of insurers or reinsurers nor does Marsh make any representations or warranty that coverages may be placed on terms acceptable to you. The information contained in this presentation provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation, and should not be relied upon as such. Statements concerning tax and/or legal matters should be understood to be general observations based solely on our experience as risk consultants and insurance brokers and should not be relied upon as tax and/or legal advice, which we are not authorized to provide. Insureds should consult their own qualified insurance, tax and/or legal advisors regarding specific risk management and insurance coverage issues. Marsh assumes no responsibility for any loss or damage sustained in reliance of this presentation. Marsh is part of the family of MMC companies, including Guy Carpenter, Mercer, the Oliver Wyman Group (including Lippincott and NERA Economic Consulting), and Kroll. The materials, data and/or methodologies used in this presentation are proprietary to Marsh. This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh Canada Limited, except that clients of any of the companies of MMC need not obtain such permission when using this report for their internal purposes, so long as this page is included with all such copies or reproductions. Copyright 2009 Marsh Canada Limited. All rights reserved.

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