1. © 2006 Zurich American Insurance Company State of the Market The key challenges for today's workers’ compensation underwriters Jennifer L. Tomilin Sr. Vice President, Zurich North America Commercial Markets 2006 CAS Seminar on Ratemaking

2. © 2006 Zurich American Insurance Company Today’s discussion What do the results mean? What is it going to take to change this tune? There still aren’t as many but why is the average claim cost rising? I’m beginning to have motion sickness again! Guess that emerging issue Summary (Let’s wrap it up)

3. © 2006 Zurich American Insurance Company What do the results mean to an underwriter?

4. © 2006 Zurich American Insurance Company YOY increase in medical severity: The most frustrating and uncontrollable issue to an underwriter

5. © 2006 Zurich American Insurance Company Prescription drugs driving up claim costs

6. © 2006 Zurich American Insurance Company Medical losses dominate WC claim picture

7. © 2006 Zurich American Insurance Company The best message YOY since 1997 but what is it doing to my average claim cost?

8. © 2006 Zurich American Insurance Company The cycle changes; softening market returns The challenge: “underwriting through the cycle successfully” – the key tactics Understanding and managing the key differences in what It takes to be a market leader during this market. Pro-actively promote positive legislative changes and an industry solution for Terrorism The practice of exposure based underwriting is absolutely critical! Focus on the true cost drivers of a claim and strive to mitigate those costs through loss control and claim handling excellence The cheapest price is NOT the answer The RIGHT price for the exposure and the BEST customer service practices ARE! HOLD ON!

9. © 2006 Zurich American Insurance Company The workers’ compensation underwriters favorite game: Name that Emerging Issue

10. © 2006 Zurich American Insurance Company What Am I? I make you feel weak and tired I make it hard for you to breath I cause acute lung damage I can be in an acute or chronic disease depending on the exposure level I can lead to heart enlargement and heart disease If I am not controlled I “could” effect 10,000 employer locations and 48,000 employees

11. © 2006 Zurich American Insurance Company Beryllium

12. © 2006 Zurich American Insurance Company What am I? I am chronic, disabling and can be fatal I become chronic after 10 years of exposure I become acute after just a few weeks or up to 5 years of high levels of exposure According to NIOSH at least 1.7 million U. S. workers are potentially exposed to me This is what I look like

13. © 2006 Zurich American Insurance Company

14. Silica

15. © 2006 Zurich American Insurance Company What am I? I will surprise you when you least expect it I can be disabling or fatal I cause stress, mental anguish and anxiety I’m what you never thought would happen on the job I can affect thousands of you at the same time This is what I look like

16. © 2006 Zurich American Insurance Company

17. Terrorism

18. © 2006 Zurich American Insurance Company What am I? These are my symptoms: slowing of movement, arms that do not swing when walking, tremors, delays in performing routine tasks, mumbling speech, lack of energy, difficulty sleeping, headache, anxiety 2% of the working population in industrialized countries is exposed to me I have the same symptoms of another chronic and disabling disease that affects approximately 1-2% of the population over age 50.

19. © 2006 Zurich American Insurance Company Manganese

20. © 2006 Zurich American Insurance Company What am I? I have the effect of 20 years of aging on employees’ ability to work I can limit or even restrict the type of work an employee can do An employee affected by me will have four times the prevalence of hypertension, and a much greater risk of a heart attack on the job.

21. © 2006 Zurich American Insurance Company Obesity

22. © 2006 Zurich American Insurance Company What am I? I am generally known as a premises or products liability issue I can however can also affect workers in several different industries I produce swellings on the skin that will itch and may become irritated and infected when scratched. I can cause anxiety and mental anguish You can’t see me and its very hard to find me

23. © 2006 Zurich American Insurance Company Bed Bugs

24. © 2006 Zurich American Insurance Company What am I? I am not catastrophic but I can cause a lot more frequency of common injury types I will please many, but result in a greater frequency of loss time claims Injuries resulting from me can be controlled with adequate safety and risk engineering methods, but there is a bigger risk that the employee will not follow them

25. © 2006 Zurich American Insurance Company 6-7 Fluffy Pillows 12-15 Inch Mattress Dust Ruffle Hotel Housekeeping's worst nightmare

26. © 2006 Zurich American Insurance Company On the Horizon Bird Flu or Avian Influenza Reintegration of Military Veterans Nanotech-could this be the next asbestos thing?

27. © 2006 Zurich American Insurance Company Today’s WC underwriter is faced with many challenges Improved industry results coinciding with a softening market State actions and positive reforms but with the caveat of an unproven rate reduction Medical severity and frequency trends that are not predictable We don’t know what we don’t know-emerging issues Thank you

28. © 2006 Zurich American Insurance Company For a copy of this presentation, please e- mail me at: Jennifer.tomilin@zurichna.com