commercial insurance underwriting university of illinois urbana – champaign finance 230

Commercial Insurance Underwriting

University of Illinois Urbana – Champaign

Finance 230

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Commercial Insurance UnderwritingUniversity of Illinois

Finance 230

Who are We?

Mike Myers, CPCU, ARM

Portfolio Underwriting Manager

Sue Myers, CPCU, ARM

Underwriting Specialist

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Finance 230

Liberty Mutual Group

•Founded in 1912

•Number 111 on the Fortune 500 List

•$19.6 billion in consolidated revenue

•5th largest commercial lines writer and 8th largest

personal lines writer in the United States

•38,000 people in 900 office worldwide

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Finance 230

CNA Insurance Company

•Founded in 1885

•Number on 144 the Fortune 500 List under parent Loews

Corporation

•$10 billion in revenues

•7th largest commercial insurance writer and 14th largest

Property / Casualty company in the United States

•11,000 employees in offices worldwide

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Overview

• Types of Insurance

• Commercial Insurance

• Different Markets in Commercial Insurance

• Underwriting

• Current Events

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Different Types of Insurance• Personal Insurance

• Health Insurance

• Life Insurance

• Commercial Insurance

• International Insurance

• Reinsurance

• Specialty Insurance

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Commercial Insurance

Insurance for Businesses

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Courtesy of www.bullesdoxygene.com

What Risks Do Businesses Have?

Workers

Autos

Property

Liabilities

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Workers Compensation

•Provides no-fault benefits to workers injured on the

job

•Types of benefits payable

−Medical

−Disability

−Rehabilitation

−Death

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Workers Compensation

• Grocery Stores –

• Ready Mix Concrete –

• Veterinarians –

• Newspaper Publisher –

• Metal Casting & Forging –

• Healthcare –

• Electronics Mfg –

• Television Network Sports –

Cuts, Burns

Vehicle Accidents

Animal Bites

Machine Operations

Silica

Manual Material Handling

Chemicals

Falls from Heights

What are some of the sources of Workers Compensation claims?

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Auto

• Protects the owner against losses arising out of the use of an automobile in business.

• Types of coverage include:

−Business Auto

−Garage

−Trucking

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Auto

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Auto

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Property

Protects against the perils like:

−Fire

−Theft

−Vandalism

− Wind

Covers:

−Buildings

−Contents / Stock

−Business Income

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Property

LaSalle Bank Building

12/7/05

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Liability

Protects the owner of a business for suits or claims for negligence of:

− Premises

− Products Produced

− Services Provided

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Insuring Businesses:

−Small Market

−Middle Market

−National Market

Size

Complexity of Risk and Coverage

Handling Expenses

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Middle Market:

−Single or Multiple Locations

−Auto Fleet Typically < 100 units

−Limited Flexibility of program structure

−Formal and informal controls for Risk

Exposures

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National Markets:

−Many Locations

−Auto Fleets Typically > 100 units

−Sophisticated and Formal Controls for Risk Exposures

−Significant Flexibility in Program Structure – Share

Risk

−Financial Transactions – Long Term

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Functions of an Insurance Product:

• Claims – Handles Claims and Pays the

Losses

• Loss Control – Identifies and Controls Risk

• Actuarial – Predicts and Estimates Risk

• Underwriting – Accepts and Prices Risk

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Underwriting - Simply Stated

• Analyzes a customer’s business risk

• Decides whether to insure the risk

• Decides coverages to offer

• Decide appropriate structure

• Forecasts costs / Price transferred risk

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Underwriting Skill Set

• English & Speech

• Finance & Accounting

• Statistics

• Law

• Common Sense

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It’s All About Risk

•Can have millions of dollars in limits on every

account, even the smallest

•Take on additional exposure with each added

coverage

•Even the best accounts could have a million dollar

claim (or Larger!)

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Current Events - Soft MarketSoft Market

−Excess capital leads to higher supply of insurance

−Carriers willing to offer more liberal pricing and terms,

driving rates down

−Lower rates drive down underwriting profit

−Can only maintain overall results if investment returns

are high

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Current Events – Terrorism•Terrorism Risk

Insurance Act of 2002

is a backstop for

terrorism loss

•Insurance companies

pay a deductible and

% of losses up to $100

Billion ceiling

•TRIA is set to expire at

the end of this year

Courtesy of www.whitehouse.gov

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Current Events – Oil Prices•Significant impact on all

levels of the economy

•Increased risk of

Bankruptcy

Courtesy of almostaproverb.com

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Current Events – Hurricane Katrina

•Worst National disaster the

Insurance Industry has ever

handled:

−Multiple states

−Devastated a Major Metro area

−Flooding vs. Wind

−Economic Losses to region

Courtesy of www.nola.com

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Current Events – Hurricane Katrina

•$125 Billion “Economic”

Damage

•$60 Billion to Insurance

Industry

•In comparison Hurricane

Andrew (1992):

−$21 Billion in Current $

Courtesy of www.nola.com

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Any Questions?

Thank youUniversity of Illinois Urbana – Champaign

Finance 230

commercial insurance underwriting university of illinois urbana – champaign finance 230

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