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Energy Insurance and Risk Management The insurance transaction distribution system

Energy Insurance and Risk Management The insurance transaction distribution system The role of the markets The role of the broker. A presentation at The University of Houston January 25, 2007. “Wonderful! Just wonderful!...So much for instilling them with a sense of awe.”.

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Energy Insurance and Risk Management The insurance transaction distribution system

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  1. Energy Insurance and Risk Management The insurance transaction distribution system The role of the markets The role of the broker A presentation at The University of Houston January 25, 2007 U of H Presentation - January 2007

  2. “Wonderful! Just wonderful!...So much for instilling them with a sense of awe.” “Wonderful! Just wonderful!...So much for instilling them with a sense of awe.” U of H Presentation - January 2007

  3. Discussion outline ? Learning is finding out that you already know. Doing is demonstrating that you know it. Teaching is reminding others that they know just as well as you. U of H Presentation - January 2007

  4. Discussion outline • What is Risk Management? • Why buy insurance? • Types of Insurance • Insurance program structure • The purpose of reinsurance • Insurance program marketing – The Insurance Transaction & Distribution System U of H Presentation - January 2007

  5. Insurance – It’s not just a job, it’s an adventure U of H Presentation - January 2007

  6. Discussion outline • What is Risk Management? <5 minutes • Why buy insurance? <5 minutes • Types of Insurance <5 minutes • Insurance program structure 10 minutes • The purpose of reinsurance <5 minutes • Insurance program marketing ??? U of H Presentation - January 2007

  7. Discussion outline • What is Risk Management? • Why buy insurance? • Types of Insurance • Insurance program structure • The purpose of reinsurance • Insurance program marketing U of H Presentation - January 2007

  8. What is “Risk Management?” • Focus on Hazard risk The Risk Management Process • Identify the Risk • Quantify the Risk • Probability of loss • Severity of loss • (Ignore the Risk) • Avoid the Risk • Minimize the Risk • Transfer the Risk U of H Presentation - January 2007

  9. Risk Transfer • Contractual risk transfer • Insurance U of H Presentation - January 2007

  10. A fundamental principle of Insurance …Stupidity is an insured peril U of H Presentation - January 2007

  11. An example of an insured peril U of H Presentation - January 2007

  12. Discussion outline • What is Risk Management? • Why buy insurance? • Types of Insurance • Insurance program structure • The purpose of reinsurance • Insurance program marketing U of H Presentation - January 2007

  13. Why buy insurance? What is insurance? What does insurance do? U of H Presentation - January 2007

  14. Why buy insurance? • Financial “protection” … from what? • Inability to absorb loss • Contractual requirements • Legal/regulatory requirements U of H Presentation - January 2007

  15. Discussion outline • What is Risk Management? • Why buy insurance? • Types of Insurance • Insurance program structure • The purpose of reinsurance • Insurance program marketing U of H Presentation - January 2007

  16. Types of Insurance • Property • Casualty • Control of Well • Management Liability • Marine • Aviation • Kidnap & Ransom • Environmental • Political Risk • Patent Infringement • Surety U of H Presentation - January 2007

  17. Types of Insurance • Property • Physical Damage • Business Interruption (a.k.a. “Time element”) • Casualty • Workers Compensation • General Liability (Legal [tort] and Contractual) • Auto Liability • Employer’s Liability U of H Presentation - January 2007

  18. Discussion outline • What is Risk Management? • Why buy insurance? • Types of Insurance • Insurance program structure • The purpose of reinsurance • Insurance program marketing U of H Presentation - January 2007

  19. Insurance Program Structure • Layers • Primary • Excess • Quota Share (a.k.a. “Subscription” or “Participation”) U of H Presentation - January 2007

  20. Insurance Program Structure ALWAYS starts with: What is the client trying to accomplish? The best process ~ yields ~ the best result U of H Presentation - January 2007

  21. Insurance Program Structure Why a “layered” or “quota share” program? • Client goals & objectives • Underwriter preference • Pricing considerations • Coverage considerations U of H Presentation - January 2007

  22. A successful renewal requires a strong foundation … 1 Week Binding & Implementation Minimum Broking All Viable Proposals 4 Weeks Develop Submission Market Tactics (Access) 2-3 Weeks Develop Marketing Strategy Market Selection 2-3 Weeks 1-2 Weeks Develop Risk Profile U of H Presentation - January 2007

  23. Insurance Program Structure A “layered” program U of H Presentation - January 2007

  24. Insurance Program Structure A “layered” program (showing layer limits) U of H Presentation - January 2007

  25. Insurance Program Structure A “quota share” program U of H Presentation - January 2007

  26. Insurance Program Structure Combination of Layering and Quota Share U of H Presentation - January 2007

  27. Insurance Program Structure “Underlying” Insurance U of H Presentation - January 2007

  28. Discussion outline • What is Risk Management? • Why buy insurance? • Types of Insurance • Insurance program structure • The purpose of reinsurance • Insurance program marketing U of H Presentation - January 2007

  29. The purpose of reinsurance • Spread of risk • Increases/supplements capacity • Facilitates writing broader coverage • Puts capacity in the control of qualified underwriters U of H Presentation - January 2007

  30. Types of Reinsurance • Facultative • Treaty • Quota Share • Excess of Loss U of H Presentation - January 2007

  31. Other Reinsurance Issues • Risks Attaching vs. Losses Occurring • Natural Catastrophe (“NatCat”) Accumulations • NatCat Risk Modeling U of H Presentation - January 2007

  32. Catastrophic Event ModelingHurricane Loss Analysis U of H Presentation - January 2007

  33. NatCat Risk Modeling U of H Presentation - January 2007

  34. Future trends? Source: Weatherstreet.com U of H Presentation - January 2007

  35. A disturbing trend… U of H Presentation - January 2007

  36. A disturbing trend… U of H Presentation - January 2007

  37. Discussion outline • What is Risk Management? • Why buy insurance? • Types of Insurance • Insurance program structure • The purpose of reinsurance • Insurance program marketing U of H Presentation - January 2007

  38. Insurance Distribution System • Insurance companies sell insurance • Insurance company agents sell insurance • Brokers help their clients buy insurance U of H Presentation - January 2007

  39. Insurance Distribution System • Insurance companies sell insurance • Insurance company agents sell insurance • Brokers help their clients buy insurance (after first helping them decide whether to buy insurance, and if so, how much to buy) U of H Presentation - January 2007

  40. The role of the broker • Transactional • Consultative U of H Presentation - January 2007

  41. Transactional Insurance placement Monitor insurer financial stability Data gathering/risk analysis Cash flow & actuarial analysis Submission preparation Manuscript policy design Negotiations Recommendations (additions/deletions, M&A, contract review) Claims advocacy and processing Documentation (policies, certificates, etc.) International Analytical/actuarial work Insurance program administration Mid-term servicing The role of the broker U of H Presentation - January 2007

  42. The role of the broker • Consultative • Total Cost of Risk (T.C.O.R.) • Safety & Loss Prevention/Risk Control • Risk Management Information Systems, AonLine, etc. • Master Service Agreements • Risk bearing capacity analysis • Manage retained losses • Global network – the Risk Manager’s “eyes & ears” • Captive Management; Captive Utilization • High level claims advocacy; economic forecasting, etc. • Enhanced claims-related services (Accelerated Claims Closure, Structured Settlements, Loss Portfolio Transfer, etc.) U of H Presentation - January 2007

  43. Broker compensation • Commissions • Fees U of H Presentation - January 2007

  44. U of H Presentation - January 2007

  45. Insurance Program Marketing Let the fun begin! U of H Presentation - January 2007

  46. Why buy insurance? What is insurance? What does insurance do? U of H Presentation - January 2007

  47. What is insurance? • CONTRACT • Payment (of premium) in exchange for a promise of payment (of claim) under certain explicitly agreed circumstances • Requires good faith U of H Presentation - January 2007

  48. Catastrophe Insurance for the Energy Industry U of H Presentation - January 2007

  49. Insurance Program Marketing Negotiation Leverage Relationships Trust U of H Presentation - January 2007

  50. The insurance profession U of H Presentation - January 2007

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