The Role of the Broker as the advocate of the Insurance Buyer

JANUARY 26, 2012

Andrew F. SteptoweManaging Director

Houston, TX

2MARSH

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.

MMC’s subsidiaries:

•Marsh

•Guy Carpenter

•Mercer

•Oliver Wyman

3MARSH

Marsh Global Energy - Locations

New York

Calgary

San Francisco

Oslo

Singapore

Calgary

Houston

London

Oslo

Dubai

SingaporeEnergy 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 insurancemarkets, 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

4MARSH

Large Commercial Insurance Involves 3 Key Parties….

• The Client

• The Broker

• The Insurer

5MARSH

In a world with no brokers…..

6MARSH

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

7MARSH

What other important roles do brokers play?

• Development of new products

• Market analysis

• Distribution network for underwriters

8MARSH

The competitive landscape in Houston

• GLOBAL BROKERS

– Marsh– Aon– Willis

• DOMESTIC BROKERS

– Alliant– Gallagher– Lockton– McGriff Seibels– John L.Wortham– USI

MARSH

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

10MARSH

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

11MARSH

The decision whom to appoint is usually both subjective and objective…..

12MARSH

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

13MARSH

The Marsh 3D Model

14MARSH

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!

15MARSH

Example Benchmarking

Account Exp

Date

Total Insured

Values

PD Deductible BI Deductible Net Rate on Values &

Full Indemnity

Period

Policy Limit

Company A May-10 $27,292,797,418 $5,000,000 30 Days 0.0307 $750,000,000

Company B Jul-10 $1,649,869,000 $1,000,000 30 Days 0.0737 $400,000,000

Oct-10 $332,732,460 $1,000,000 30 Days 0.0553 $50,000,000

Oct-10 $1,891,739,309 $10,000,000 21 Days 0.0375 $100,000,000

Oct-10 $1,593,073,036 $5,000,000 - 0.0303 $60,000,000

Jun-10 $1,147,873,615 $750,000 15 Days/ 45 Days

0.0631 $50,000,000

May-10 $10,424,635,829 $1,000,000 30 Days 0.0884 $405,000,000

May-10 $2,223,964,977 $1,000,000 45 Days 0.0788 $300,000,000

Sep-10 $34,530,620,982 $2,000,000 30 Days 0.0270 $750,000,000

Sep-10 $4,033,338,340 $2,000,000 45 Days 0.0669 Not Known

May-10 $1,030,685,100 $1,000,000 30 Days 0.2373 $230,000,000

16MARSH

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

17MARSH

Major Markets for Energy Business

• Domestic– ACE– Chartis– Chubb– Liberty– Starr– St Paul / Travelers– WR Berkley– Zurich

• Overseas– Lloyd’s– Munich Re– Swiss Re– GARD– AXA– Bermuda (XL, Torus, OCIL)– OIL

18MARSH

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

19MARSH

Setting Expectations

JANUARY FEBRUARY MARCH APRIL

22nd

Strategy meeting with Rowan & Marsh teams to discuss goals & any issues22nd -31st

Rowan to provide renewal information & Marsh to develop submission

1ST

Marsh to send submission to Market4TH – 8th

Underwriter visits & presentations, as requiredFebruaryOngoing marketing & information exchange

MarchOngoing marketing & information exchange10th –12th

Marsh to present renewal proposal to Rowan13th –20th

Rowan to provide Binding instructions

April –MayPolicies received, reviewed & sent to Rowan

ONGOING

Monitor program & provide superb day-to-day service

JANUARY FEBRUARY MARCH APRIL

22nd

Strategy meeting with Client & Marsh teams to discuss goals & any issues22nd -31st

Client to provide Risk Information

& Marsh to develop submission

1ST

Marsh to send submission to Market4TH – 8th

Underwriter visits & presentations, as requiredFebruaryOngoing marketing & information exchange

MarchOngoing marketing & information exchange10th –12th

Marsh to present renewal proposal to Client13th –20th

Client to provide Binding instructions

APRIL 1st

EFFECTIVE DATE

April –MayPolicies received, reviewed & sent to Client

ONGOING

Monitor program & provide superb day-to-day service

An Example of a marketing timeline

20MARSH

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

21MARSH

And most importantly….

NO SURPRISES!

22MARSH

Thank you for your attention

I’m sure you must have some questions! …..