0. The Role of the Broker as the advocate of the Insurance Buyer
JANUARY 26, 2012
Andrew F. Steptowe Managing Director Houston, TX

1. 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
GET COMMERCIAL IN EARLY!
MAJOR PROF SERVICES FIRM
$15BN MKT CAP
TRULY GLOBAL
April 25, 2017

2. Marsh Global Energy - Locations
Oslo
Oslo
Calgary
Calgary
London
New York
Madrid
San Francisco
Houston
Dubai
Energy Teams in:
Tulsa
Dallas
New Orleans
Singapore
Singapore
HERE IS A MAP GIVING AN OVERVIEW OF MARSH’S ENERGY OPS
JUST DEDICATED TO INSURING THE ENERGY INDUSTRY
QUOTE THE FIGURES ABOVE
WE ARE WHERE OUR CLIENTS ARE
Sao Paulo
Perth
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
April 25, 2017

3. Large Commercial Insurance Involves 3 Key Parties….
The Client
The Broker
The Insurer
SO WHAT IS THE ROLE OF THE INSURANCE BROKER?
LETS START WITH THE BASICS:
EXAMPLE OF MOTOR INS SHOPPING ON LINE
COMMERCIAL INSURANCE MUCH MORE COMPLICATED WITH MULTIPLE LINES AND MANUSCRIPT WORDINGS
EXPLAIN MULTI LINE
EXPLAIN MANUSCRIPT
COMMERCIAL INSURANCE HAS 3 PARTIES….
April 25, 2017

4. In a world with no brokers…..
THIS IS HOW MOST BROKERS WOULD VIEW THE WORLD OF INSURANCE IF THEY DIDN’T EXIST!
April 25, 2017

5. 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
BROKERS HAS A VERY KEY ROLE TO PLAY IN THE PROCESS OF PROCURRING INSURANCE
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
April 25, 2017

6. What other important roles do brokers play?
Development of new products
Market analysis
Distribution network for underwriters
BROKERS ALSO PERFORM KEY ROLES INDIRECTLY RELATED TO SPECIFIC INSUREDS. BROKERS ARE ALMOST ALWAYS REPONSIBLE FOR THE DEVELOPMENT OF NEW PRODUCTS AND WORDINGS.
RELATIONSHIP TO CLIENT – DISCOVERING NEW OR ENHANCED RISKS AND WAYS TO INSURE THEM
BECAUSE THEY WORK WITH MULTIPLE INSURERS – AT MARSH ENERGY WE WORK WITH OVER 100 DIFFERENT INSURANCE COMPANIES – WE CAN SPOT MARKET TRENDS AND ADVISE BOTH CLIENTS AND INSURANCE COMPANIES WHAT IS HAPPENING
BROKERS ARE ALSO THE DISTRIBUTION NETWORK FOR MANY INSURANCE COMPANIES. WE AT MARSH HAVE SOPHISTICATED SYSTEMS THAT WE MAKE AVAILABLE TO INSURERS (AT A PRICE) WHICH ENABLES THEM TO SEE THEIR MARKET SHARE AND THE AVAILIBILITY OF ADDITIONAL BUSINESS THAT WE HANDLE
April 25, 2017

7. The competitive landscape in Houston
GLOBAL BROKERS
Marsh
Aon
Willis
DOMESTIC BROKERS
Alliant
Gallagher
Lockton
McGriff Seibels
John L.Wortham
USI
HOUSTON AS YOU ALL KNOW – MAJOR CENTER FOR O&G COMPANIES
ALSO 4TH LARGEST CITY IN US
COMM INS BROKERS VERY WELL REPRESENTED
GLOBAL BROKERS AND DOMESTIC BROKERS
MANY TALENTED PEOPLE IN THE BUSINESS
JUST IN THE ENERGY FIELD ALONE PROBABLY WELL OVER 600 PEOPLE SPECIALIZE IN THE INS BROKGE FIELD
April 25, 2017

8. Being appointed by a Client….
“There are worse things in life than death.
Have you ever spent an evening
with an Insurance salesman?”
SO HOW DOES A LARGE OILD AND GAS COMPANY FOR EXAMPLE CHOSE WHICH BROKER TO WORK WITH?
Woody Allen
4/25/2017

9. 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
Usually multiple brokers are identified
Certain key criteria will define the most likely candidates
For example: What similar clients do they handle. What is there experience with certain risks that are very important to the client deciding who to use
They are then usually asked to present a conceptual proposal based on a set of service and/or program requirements particular to the needs of the individual client
Fee or services is always important!
Sometimes selection is made on an “assigned markets” basis
April 25, 2017

10. The decision whom to appoint is usually both subjective and objective…..
DISCUSSING THIS WITH MY WIFE A FEW YEARS AGO AND SHE ASKED ME:
SO HOW DOES A CLIENT MAKE A CHOICE – DON’T ALL BROKERS PROMISE THE EARTH?
OFTEN DECISION IS SUBJECTIVE
LOTS OF GOOD PEOPLE TO CHOSE FROM
NEED A GOOD FEEL FOR HOW A WORKING RELATIONSHIP WILL WORK OUT
OBJECTIVE – MONEY, COVERAGE, REFERENCES
April 25, 2017

11. 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
SO THE CLIENT HAS DECIDED TO USE YOU AS THEIR BROKER - WHAT HAPPENS NEXT.
Well there is a great deal of work to be done before any contact is made with an insurer to negotiate a policy
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
April 25, 2017

12. The Marsh 3D Model
At Marsh, we have developed a specific model for this process we call it 3D
DEFINE
All based around Business Objectives and key performance Indicators
What’s important to the client
What risks do they really want to focus on?
Which have the most impact on their operations?
DESIGN
Custom solutions to fit what we learned in the Define stage
Is coverage available, is it cost effective, does it meet the expectation of the client?
DELIVER
Execution of an agreed strategy with Insurers
April 25, 2017

13. 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!
A key part of the define and design stages is 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!
April 25, 2017

14. Net Rate on Values & Full Indemnity Period
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
0.0737
$400,000,000
Oct-10
$332,732,460
0.0553
$50,000,000
$1,891,739,309
$10,000,000
21 Days
0.0375
$100,000,000
$1,593,073,036 -
0.0303
$60,000,000
Jun-10
$1,147,873,615
$750,000
15 Days/ 45 Days
0.0631
$10,424,635,829
0.0884
$405,000,000
$2,223,964,977
45 Days
0.0788
$300,000,000
Sep-10
$34,530,620,982
$2,000,000
0.0270
$4,033,338,340
0.0669
Not Known
$1,030,685,100
0.2373
$230,000,000
Here is an example of a typical benchmarking report
Here we are looking at Property risks for Gas Transmission companies, specifically looking at the correlation between TIV, PD/BI Deds. Premium Rates and Policy Limits
April 25, 2017

15. 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
So the broker and the client have agreed upon the structure of the program that they wish to put in place.
How do they go about choosing an Underwriter to work with?
Here are some of the key criteria
Financial Stability (Rating S&P AM Best etc.)
A proven track record in a particular class of business:
Underwriting expertise
Risk Management capabilities
Claims capabilities (I’ll let Steven talk more about this)
An understanding of the industry in which the client operates
Service
Licensing
April 25, 2017

16. 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
Here is a list of the major Energy markets that we deal with:
April 25, 2017

17. 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
Once the panel of underwriters has been agreed upon the next step is to develop a marketing plan
Talk through the steps above
April 25, 2017

18. An Example of a marketing timeline
Setting Expectations
An Example of a marketing timeline
JANUARY
FEBRUARY
MARCH
APRIL 22 nd
Strategy meeting with
Rowan & Marsh teams
to discuss goals &
any issues - 31 st
Rowan to provide
renewal information
& Marsh to develop
submission 1 ST
Marsh to send
submission to Market 4 TH – 8 th
Underwriter visits
& presentations,
as required
February
Ongoing marketing &
information exchange
March 10 12
Marsh to present
renewal proposal
to Rowan 13 20
Binding instructions
April
May
Policies received,
reviewed & sent
ONGOING
Monitor program &
provide superb
day to
day service
Client & Marsh teams
Client to provide
Risk Information
to Client
APRIL 1st
EFFECTIVE DATE
In our experience, all clients are very focused on time!
When creating a marketing plan it is important to set milestones for key activities. It is easy to let a complicated program get out of hand!
Here is an example timeline. Bear in mind – the more lines of business being handled the more detailed the timeline will become
April 25, 2017

19. 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
But the brokers job doesn’t just stop once the deal is complete wit the underwriter
Comment on above…
So as you can see the broker plays a very important role in the interface between a client and insurer. A large commercial insurance program is a very complicated animal. It is imperative that nothing is overlooked.
There will certainly be a lot of back and for the between Insurers and the client with the broker acting as the middle man.
In my experience this process usually works well if you can keep away from one very important thing….
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20. And most importantly…. NO SURPRISES!
Thank you all fro your attention – I’ll be happy to answer any questions that you may have
(Next slide)
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21. Thank you for your attention
I’m sure you must have some questions! …..
April 25, 2017