The Next FrontierMulti Line State Funds

Presented by

AASCIF 2010 POLICYHOLDER SERVICES WORKSHOP, AUSTIN, TX 10/19/10

Glen Kuball CPCU,CIC,ARM,APAVice President, Underwriting

Don CollinsChief Marketing Officer &

Vice President, Communications

The Next FrontierMulti-Line State Funds

“Irrational Exuberance?” (…To drink the Kool-Aid, or not?)

October 19th, 2010

Richard J. Foster – Managing Director, Guy Carpenter

Jason Denechaud – Director of Accident, Health & Workers Compensation Underwriting, Catlin US

3Guy Carpenter

The Next FrontierMulti-Line State Funds

Establish the Perspective

“If you have seen one State Fund… you have seen one State Fund”

Organizational structure– State Agency / Private Public Mutual / Quasi-Governmental etc..

Legislative “Charter” Mission Political environment Tax position Product distribution channel(s) Other… (economic, geographic, etc..)

4Guy Carpenter

The Next FrontierMulti-Line State Funds

Establish the Perspective

Your perspective depends upon your (unique) position and view-point..

Do you see the young, or old lady?

5Guy Carpenter

The Next FrontierMulti-Line State Funds

Establish the Perspective

Your perspective depends upon your (unique) position and view-point..

Is this a goal – or wasn’t it?.......

Not that I’m bitter!

6Guy Carpenter

The Next FrontierMulti-Line State Funds - Why consider offering other lines of insurance?

“Well, let’s see...So far, I’ve got rhythm and I’ve got music.

Actually, who could ask for anything more?”

7Guy Carpenter

The Next FrontierMulti-Line State Funds

Why consider offering other lines of insurance?

Increasing product line offerings / Diversification– Value added to:

Insureds Agents

– Accretive to portfolio balance Account retention & new business generation tool

– Competition (Package writers)– “One-stop” point of coverage delivery– Differentiator from competition on core WC offerings

Additional revenue / expense mitigation– Underwriting income– Cash flow– Fee / commission income

Utilization of capital

8Guy Carpenter

The Next FrontierMulti-Line State Funds

Why consider offering other lines of insurance?

Complimentary enhancements & benefits to core (WC) writings

– Management / exposure data etc.– Claims litigation / denial rates– Harmonization with Loss Control / Safety program

Creation of bespoke programs– Associations etc.

Political– Local market dislocations– Enhancement of “mission”

Evolution Capitalizing on corporate success and imaging Growth

9Guy Carpenter

The Next FrontierMulti-Line State Funds - What are some of the considerations?

To his horror, Irving suddenly realized he had failed to check his own boots before putting them on just minutes

ago.

10Guy Carpenter

The Next FrontierMulti-Line State Funds

What are some of the considerations?

What product lines would we consider offering? On what basis would we consider offering other product

lines?– Direct (on “our” paper / against our capital base)– Indirect (as a reinsurance of another carrier)– Passive (as a conduit for coverage / other lines)

Need to establish a vehicle (agency)– Admitted / Non-admitted

What expertise is required?– Currently present– Acquired– Provided by a third party

What risk, if any, do we want to assume?

11Guy Carpenter

The Next FrontierMulti-Line State Funds

What are some of the considerations?

What are the motivations?– Long-term commitment

Own / Third parties– Soft market “play”

What are the risks?– Financial (underwriting)– Reputational– Divergence from core area of competency– Political

Tax-exemption Alien Governmental control statutes Department of Insurance Policyholders Agents Rating Agency reactions

– Credit risk

12Guy Carpenter

The Next FrontierMulti-Line State Funds

What are some of the considerations?

Cost– Hard & Soft

Systems / IT Staffing Distraction from core (WC) & mission Reputational Legal

- Changes to legislation - Establishment of agency- Licensing etc

“Opening Pandora’s box”– Political pressure to cover “distressed” market segments

Target market segments– Small / medium / large accounts

13Guy Carpenter

The Next FrontierMulti-Line State Funds - Potential Lines of Insurance

14Guy Carpenter

The Next FrontierMulti-Line State Funds

Potential Lines of Insurance

Lines that have been entered into / discussed include, but are not limited to:

Employment Practices Liability Insurance (EPLI) General Liability Commercial Auto Property Equipment Breakdown Crime Inland Marine Liquor law liability Professional Liability (Public Officials E&O / Police Professional

etc.)

15Guy Carpenter

The Next FrontierMulti-Line State Funds

Potential Lines of Insurance

Lines that have been entered into / discussed include, but are not limited to:

“Cyber-Risk” Surety Group Medical Group Life Accident & Health

– AD&D– Group Business Travel Accident– Disability (LTD/STD)

16Guy Carpenter

The Next FrontierMulti-Line State Funds – Markets in this “space”

Hey! Look at me everybody! I’m a cowboy!…Howdy, Howdy, Howdy

17Guy Carpenter

The Next FrontierMulti-Line State Funds

Markets in this “space”

Include, but are not limited to: Lloyd’s of London & London Companies

– Various Syndicates Beazley*, Brit, Amlin, ARK, Omega, Atrium, Catlin

Hartford Steam Boiler General Re AIG / Chartis / Lexington Argo (Alteris) Beazley Insurance Company* Catlin Various life insurers & reinsurers

18Guy Carpenter

Accidental, Death & Dismemberment (AD&D) Product Pairing:“A Perfect Fit”

19Guy Carpenter

Why Offering PA Products to Casualty (WC) Clients is a “Perfect Fit”

Offers differentiator in highly competitive casualty (WC) market

Simple, low cost & customized package 24 Hour Coverage Benefits paid in addition to any other group or individual

coverage Highly Underinsured Employee Population Improved Client Retention Goodwill enhancement for Workers Comp settlement options Correlation with any workplace safety programs in place High perceived value of benefit features

20Guy Carpenter

Typical Plan Design

AD&D: Varying benefit levels based on client need and price point considerations

Range: $25,000 - $75,000 Key Riders:

Escalator (5% for 5 years) Emergency Room Visit Special Education Benefit (Spouse and/or dependents) Child Care Center Benefit Home Alteration/Vehicle Modification

21Guy Carpenter

Typical Plan Design (cont.)

Key Riders (cont.): Hospital Stay Seatbelt/Airbag Burial/Cremation Common Carrier Felonious Assault Bulletproof Vest (police/security groups) Infectious Disease (hospital/medical groups)

22Guy Carpenter

Implementation Analysis of the WC database Headcount by industry classification Demographic determination of relevant riders, benefit levels

and premium tolerance Creation of composite rate for whole group or buckets by

industry groupings Agree to final plan design: Consider value of one simple

offering or Plan A or B option

23Guy Carpenter

Implementation (cont.)

Creation of marketing plan: Branding Product marketing name Collateral (agent and consumer) Email blasts Website/dedicated URL Messaging: tie-in with workplace safety themes and

restating of value proposition Administration:

100% Employer Pay vs. Voluntary Coordinate with WC renewal notices Match WC billing frequency Administer in-house if capabilities present or defer to

writing carrier

24Guy Carpenter

Post Implementation

Regular monitoring of premium flow and characteristics of submitted business and match against initial expectations

Adapt product offering as needed based on client/agent input and sales trends

Annual audit to evaluate demographics, loss experience, persistency, take-up rates, sales practices, etc.

Consider offering of additional supplemental products as needed:

Life Short Term Disability Limited Medical Critical Illness/Cancer Hospital Cash

One carrier for all products is optimal

www.guycarp.com