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The Role of the Broker as the advocate of the Insurance Buyer JANUARY 26, 2012 Andrew F. Steptowe Managing Director Houston, TX Slide 2 MARSH 1 December 3, 2015 Marsh & McLennan Companies Inc. MMC is a global professional services firm that helps clients identify, plan for and respond to critical business issues and risks by providing analysis, advice and transactional services. MMCs subsidiaries: Marsh Guy Carpenter Mercer Oliver Wyman Slide 3 MARSH 2 December 3, 2015 Marsh Global Energy - Locations New York Calgary San Francisco Oslo Singapore Calgary Houston London Oslo Dubai Singapore Energy Teams in: Tulsa Dallas New Orleans Madrid 300+ employees helping c. 1,750 clients globally Placing approx. USD 1.8 Billion in insurance premiums into energy insurance markets, significantly more than any other broker. Integrated Global Practice, headquartered in Houston, Texas Energy practitioners in many more locations around the world Perth Sao Paulo Slide 4 MARSH 3 December 3, 2015 Large Commercial Insurance Involves 3 Key Parties. The Client The Broker The Insurer Slide 5 MARSH 4 December 3, 2015 In a world with no brokers.. Slide 6 MARSH 5 December 3, 2015 So why the Middle Man? The Broker is an impartial advisor not an Agent The Broker is able to best assimilate the risks faced by the Client to the products available from various Insurers The Broker is the advocate of the Insured not the Insurer The Broker also fulfills key administrative functions related to regulation and taxation Slide 7 MARSH 6 December 3, 2015 What other important roles do brokers play? Development of new products Market analysis Distribution network for underwriters Slide 8 MARSH 7 December 3, 2015 The competitive landscape in Houston GLOBAL BROKERS Marsh Aon Willis DOMESTIC BROKERS Alliant Gallagher Lockton McGriff Seibels John L.Wortham USI Slide 9 MARSH 12/3/2015 Being appointed by a Client. There are worse things in life than death. Have you ever spent an evening with an Insurance salesman? Woody Allen Slide 10 MARSH 9 December 3, 2015 How Brokers are chosen Usually multiple brokers are identified Certain key criteria will define the most likely candidates They are then asked to present a conceptual proposal based on a set of service and/or program requirements particular to the needs of the individual client Sometimes selection is made on an assigned markets basis Slide 11 MARSH 10 December 3, 2015 The decision whom to appoint is usually both subjective and objective.. Slide 12 MARSH 11 December 3, 2015 Having been appointed there is a great deal to be done before approaching Insurers: Gaining an in depth knowledge of the Clients business and operations Reviewing insurance policies currently in place to ensure the coverage provided is adequate Gaining an understanding of prior year losses and past experience Benchmarking limits and retentions with similar clients Assessing proposed premium levels against present market trends Identification of key Insurers Developing a marketing plan Slide 13 MARSH 12 December 3, 2015 The Marsh 3D Model Slide 14 MARSH 13 December 3, 2015 Benchmarking Brokers have access to a significant amount of key data from the clients that they work with Clients are always interested in the limits, retentions and premiums paid by their competitors Brokers are always interested in what deals have been done by whom for how much The end game is to leverage the information we have to get the right deal at the right price for the client. Very rarely is there only one option! Slide 15 MARSH 14 December 3, 2015 Example Benchmarking AccountExp Date Total Insured Values PD DeductibleBI DeductibleNet Rate on Values & Full Indemnity Period Policy Limit Company AMay-10$27,292,797,418$5,000,00030 Days 0.0307$750,000,000 Company BJul-10$1,649,869,000$1,000,00030 Days0.0737$400,000,000 Oct-10$332,732,460$1,000,00030 Days0.0553$50,000,000 Oct-10$1,891,739,309$10,000,00021 Days0.0375$100,000,000 Oct-10$1,593,073,036$5,000,000-0.0303$60,000,000 Jun-10$1,147,873,615$750,00015 Days/ 45 Days 0.0631$50,000,000 May-10$10,424,635,829$1,000,00030 Days0.0884$405,000,000 May-10$2,223,964,977$1,000,00045 Days0.0788$300,000,000 Sep-10$34,530,620,982$2,000,00030 Days 0.0270$750,000,000 Sep-10$4,033,338,340$2,000,00045 Days0.0669Not Known May-10$1,030,685,100$1,000,00030 Days0.2373$230,000,000 Slide 16 MARSH 15 December 3, 2015 How do brokers evaluate which Underwriters to approach for a particular risk? Financial Stability A proven track record in a particular class of business: Underwriting expertise Risk Management capabilities Claims capabilities An understanding of the industry in which the client operates Service Licensing Slide 17 MARSH 16 December 3, 2015 Major Markets for Energy Business Domestic ACE Chartis Chubb Liberty Starr St Paul / Travelers WR Berkley Zurich Overseas Lloyds Munich Re Swiss Re GARD AXA Bermuda (XL, Torus, OCIL) OIL Slide 18 MARSH 17 December 3, 2015 The basic marketing plan Identify two or three lead markets Prepare a detailed underwriting submission Arrange face to face meetings between the Insured and Underwriters Negotiate! Obtain terms and discuss options with the Client Refine terms as necessary Select a market and bind the risk Slide 19 MARSH 18 December 3, 2015 Setting Expectations An Example of a marketing timeline Slide 20 MARSH 19 December 3, 2015 After the deal is done. Issue all payment documentation Collect funds and pay insurers Issue documentation: Certificates, Auto ID cards, Policies etc. Prepare a summary of coverage Issue a claims procedure manual Maintain appropriate contact Slide 21 MARSH 20 December 3, 2015 And most importantly. NO SURPRISES! Slide 22 MARSH 21 December 3, 2015 Thank you for your attention Im sure you must have some questions! .. Slide 23