Risk Risk Management Management User GroupUser Group

June 20, 2006June 20, 2006

WELCOMEWELCOME

Michael L. Hay, CRM, Michael L. Hay, CRM, CGFM, CPPMCGFM, CPPM

MEETING AGENDAMEETING AGENDA

8:30 – 8:458:30 – 8:45 IntroductionIntroduction Mike HayMike Hay 8:45 – 9:008:45 – 9:00 Emergency RespondersEmergency Responders Jonathan Jonathan

BowBowWorkers’ Compensation ConsequencesWorkers’ Compensation Consequences

9:00 – 10:009:00 – 10:00 Lessons Learned-Hurricane RitaLessons Learned-Hurricane Rita Dr. Dr. Roland SmithRoland Smith

Ken CraycraftKen CraycraftTexas State University Texas State University

SystemSystem 10:00 – 10:1510:00 – 10:15 BREAKBREAK 10:15 – 10:3010:15 – 10:30 REPS EnhancementsREPS Enhancements Erin Erin

ThompsonThompson 10:30 – 11:0010:30 – 11:00 Exposure ClaimsExposure Claims Mary LozaMary Loza 11:00 – 11:3011:00 – 11:30 How Insurance WorksHow Insurance Works

Benny Vanden AvondBenny Vanden Avond 11:30 – 12:3011:30 – 12:30 Avian FluAvian Flu Dr. Susan Dr. Susan

PenfieldPenfield

Texas State University Texas State University SystemSystem

Hurricane Rita DamagesHurricane Rita DamagesLamar University/ComponentsLamar University/Components

Education & General and Auxiliary Education & General and Auxiliary FacilitiesFacilities

Major Repairs $18,574,000

Minor Repairs 21,841,000

Personnel Costs 407,000

Revenue Losses 8,166,000

Total $48,988,000

Texas State University Texas State University SystemSystem

Hurricane Rita DamagesHurricane Rita DamagesLamar University/ComponentsLamar University/Components

Education & General and Auxiliary FacilitiesEducation & General and Auxiliary FacilitiesState Auditor ReviewState Auditor Review

Education and General Auxiliary Totals

Debris Removal &Emergency Protective Measures $12,286,000 $4,896,000 $17,182,000

Buildings and Equipment 15,277,000 4,494,000 19,771,000

Revenue Losses 4,526,000 1,376,000 5,902,000

Totals $32,089,000 $10,766,000 $42,855,000

Texas State University Texas State University SystemSystem

Hurricane Rita DamagesHurricane Rita DamagesLamar University/ComponentsLamar University/Components

and Cardinal Villageand Cardinal VillageLamar

University/ Components

Cardinal Village Totals

Major Repairs $18,574,000 $3,466,000 $22,040,000

Minor Repairs 21,841,000 21,841,000

Personnel Costs 407,000 157,000 564,000

Revenue Losses 8,166,000 546,000 8,712,000

Totals $48,988,000 $4,169,000 $53,157,000

Texas State University Texas State University SystemSystem

Hurricane Rita DamagesHurricane Rita DamagesResourcesResources

FEMA $12,839,000 $1,173,000

FM Global $350,000

Texas Windstorm Insurance Agency $526,000

Institutional Reserves ?

Current Appropriations Bill FY 2006 $33,240,000 FY 2007 $33,265,000

Lamar University/Components Cardinal Village

Texas State University Texas State University SystemSystem

Hurricane Rita DamagesHurricane Rita DamagesConceptsConcepts

o Emergency ProclamationEmergency Proclamation

o Named WindstormNamed Windstorm

o Wind-driven RainWind-driven Rain

o Spend ForwardSpend Forward

Texas State University Texas State University SystemSystem

Hurricane RitaHurricane RitaSome Lessons LearnedSome Lessons Learned

o Develop Repair and Replacement Cost Estimates EarlyDevelop Repair and Replacement Cost Estimates Early

o Include Revenue LossesInclude Revenue Losses

o Retain all Versions of Cost Estimates, Include DatesRetain all Versions of Cost Estimates, Include Dates

o Identify Reserves, Other Revenue OptionsIdentify Reserves, Other Revenue Options

Texas State University Texas State University SystemSystem

Hurricane RitaHurricane RitaSome Lessons LearnedSome Lessons Learned

o Implement Early Action PlansImplement Early Action Planso ContractorsContractorso EquipmentEquipmento Building MaterialsBuilding Materialso FuelFuel

o Mold is Your Enemy in Any Asset Left StandingMold is Your Enemy in Any Asset Left Standing

Texas State University Texas State University SystemSystem

Hurricane RitaHurricane RitaSome Lessons LearnedSome Lessons Learned

o Familiarize Yourself with Key Office ContactsFamiliarize Yourself with Key Office Contacts o GovernorGovernoro Lieutenant GovernorLieutenant Governoro Speaker of the HouseSpeaker of the Houseo Legislative Budget Board MembersLegislative Budget Board Memberso Legislative Budget Board StaffLegislative Budget Board Staffo SORMSORMo ComptrollerComptroller

Texas State University Texas State University SystemSystem

Hurricane RitaHurricane RitaSome Lessons LearnedSome Lessons Learned

o Review FEMA RulesReview FEMA Ruleso Category A & B, Timing, LimitsCategory A & B, Timing, Limitso Category E Insurance RequirementsCategory E Insurance Requirements

o Be Prepared to Ride Out Funding NeedsBe Prepared to Ride Out Funding Needs

Time Line

The Mid-Month of September 2005:

Mon. 19th – Rita in the Gulf

Tues. 20th – “Good News”

Wed. 21st – “Not So Good News” – Close the Campus

Thurs. 22nd – “Bad News” –

Mandatory Evacuation

Fri. & Sat. 23rd & 24th – Rita hits 8,000 square miles

Time Line cont’d

The Month of October:

Sun. 2nd – Power Up On Campus Tues. 4th – Campus Phones UpThurs. 6th – Marshal Law EndsMon. 10th – Some Employees

Return to WorkMon. 17th – All Employees Return

to WorkWed. 19th – Classes Resume

Lessons Learned

Communications

1. Off campus Web & E-Mail

2. Phone intercept for main numbers

3. Phone bridge• Academic• Administrative• Technical

4. Satellite phones

Other1. Travel passes for key employees

2. Basic needs of key workers • Food• Water• Cots• Gas

3. Clean out all refrigerators

4. The cost of delay.• Lamar University VS. McNeese University

5. The Importance of Decisive Leadership

BREAKBREAK

See you in 15 minutesSee you in 15 minutes

REPS REPS EnhancementsEnhancements

Erin ThompsonErin Thompson

Exposure ClaimsExposure Claims

Mary Loza, AIC, ARMMary Loza, AIC, ARM

Occupational Disease Occupational Disease ClaimClaim

DWC1s filed online with SORMDWC1s filed online with SORM Manifestation of communicable Manifestation of communicable

disease:disease: ““Illness that occurs through the Illness that occurs through the

transmission of an infectious agent transmission of an infectious agent or its toxic products from a or its toxic products from a reservoir to a susceptible host.”reservoir to a susceptible host.”

Occupational Disease Occupational Disease ClaimClaim

Adjuster investigation:Adjuster investigation: Course & Scope - burden of proof Course & Scope - burden of proof

on claimant to show greater exposure on claimant to show greater exposure than the general public.than the general public.

Health & Safety Code 81.050 & Health & Safety Code 81.050 & 85.116 85.116

Affidavit indicating the circumstances Affidavit indicating the circumstances of the exposure incident.of the exposure incident.

Testing results taken within 10 days Testing results taken within 10 days of exposure showing negative results.of exposure showing negative results.

Requirements for SORM to Pay Requirements for SORM to Pay for Initial Testing for Employee for Initial Testing for Employee

Exposed toExposed toCommunicable DiseaseCommunicable Disease

Employee is exposed to a communicable Employee is exposed to a communicable disease disease

Is employee an emergency responder?Is employee an emergency responder? All law enforcement officersAll law enforcement officers fire fightersfire fighters emergency medical service employeesemergency medical service employees paramedicsparamedics correctional officers correctional officers

Requirements for SORM to Pay for Requirements for SORM to Pay for Initial Testing for Employee Exposed toInitial Testing for Employee Exposed to

Communicable DiseaseCommunicable Disease

Yes Yes

Rule 122.3 Applies Rule 122.3 Applies

All Communicable All Communicable DiseasesDiseases

No No

Rule 122.4 Rule 122.4 Applies Applies

HIV Exposures OnlyHIV Exposures Only

For SORM to pay for the initial baseline For SORM to pay for the initial baseline testing for the communicable disease:testing for the communicable disease:

The employee must have the baseline testing The employee must have the baseline testing performed within 10 days of exposure performed within 10 days of exposure

SORM does NOT pay for testing beyond the ten day period or for further baseline testing. SORM will NOT pay for preventative treatments associated with an exposure claim.

Procedure for State Agency Procedure for State Agency Requesting Payment for Baseline Requesting Payment for Baseline

TestingTesting Possible exposure at the agency as Possible exposure at the agency as

defined by Health & Safety Code defined by Health & Safety Code Chapter 81 & 85.Chapter 81 & 85.

Refer the employee to appropriate health Refer the employee to appropriate health care facility where employee can receive a care facility where employee can receive a baseline test for the reportable disease.baseline test for the reportable disease.

If testing provided is performed by a private If testing provided is performed by a private health care provider, or medical bill is NOT health care provider, or medical bill is NOT paid for by agency AND testing was done paid for by agency AND testing was done within 10 days of exposure, have provider within 10 days of exposure, have provider submit bill to SORM.submit bill to SORM.

Procedure for State Agencies Procedure for State Agencies Requesting Payment for Baseline Requesting Payment for Baseline

Testing Testing If agency receives the medical If agency receives the medical

billbill:: Submit the first report of injury to Submit the first report of injury to

SORM online, coding the Nature of SORM online, coding the Nature of Injury as 05, Exposure claim.Injury as 05, Exposure claim.

Submit the medical bill to SORM. Bill Submit the medical bill to SORM. Bill must be on proper format (HCFA form).must be on proper format (HCFA form).

If claim is for a specific injury as well If claim is for a specific injury as well as exposure, submit the DWC1s with as exposure, submit the DWC1s with the first Nature of Injury code as the the first Nature of Injury code as the specific diagnosis and the second code specific diagnosis and the second code as 05. as 05.

Procedure for State Agencies in Procedure for State Agencies in Reporting Billing for Baseline Reporting Billing for Baseline

Testing , cont.Testing , cont. Upon receipt of DWC1s from agency:Upon receipt of DWC1s from agency:

Adjuster will verify information and pay Adjuster will verify information and pay for the initial testing only.for the initial testing only.

Adjuster will document on adjuster notes Adjuster will document on adjuster notes to cost containment vendor that only to cost containment vendor that only baseline testing is to be paid.baseline testing is to be paid.

Adjuster will flag claim so all future Adjuster will flag claim so all future medical bills should be routed to medical bills should be routed to adjuster for review. adjuster for review.

Claim set up will NOT be transmitted to Claim set up will NOT be transmitted to DWC if claim for medical billing only.DWC if claim for medical billing only.

Procedure for State Agencies in Procedure for State Agencies in Reporting Billing for Baseline Reporting Billing for Baseline

Testing , cont.Testing , cont. If employee later shows If employee later shows

symptoms of the reportable symptoms of the reportable disease, agency should file first a disease, agency should file first a new first report (DWC1s) for a new first report (DWC1s) for a communicable disease claim, communicable disease claim, code 73.code 73.

How Insurance WorksHow Insurance Works

Presented by:Presented by:

Benny Vanden AvondBenny Vanden Avond

SORM Risk Management SpecialistSORM Risk Management Specialist

Agencies Agencies CanCan Buy Insurance!! Buy Insurance!!

Industry at a GlanceIndustry at a Glance

Total World Insurance Premiums, 2004*Total World Insurance Premiums, 2004*

A.A. $3.2 Million$3.2 Million

B.B. $3.2 Billion$3.2 Billion

C.C. $3.2 Trillion$3.2 Trillion

D.D. $3.2 Quadrillion$3.2 Quadrillion

**The I.I.I. Insurance Fact Book 2006The I.I.I. Insurance Fact Book 2006

Industry at a GlanceIndustry at a Glance

Total U.S. Insurance Premiums, 2004*Total U.S. Insurance Premiums, 2004*

A.A. $960.3 Million$960.3 Million

B.B. $960.3 Billion$960.3 Billion

C.C. $960.3 Trillion$960.3 Trillion

D.D. $960.3 Quadrillion$960.3 Quadrillion

**The I.I.I. Insurance Fact Book 2006The I.I.I. Insurance Fact Book 2006

Industry at a GlanceIndustry at a Glance

Largest Insurance Country, 2004* Largest Insurance Country, 2004* (Ranked by Direct Premiums Written)(Ranked by Direct Premiums Written)

A.A. United StatesUnited StatesB.B. JapanJapanC.C. United KingdomUnited KingdomD.D. FranceFrance

**The I.I.I. Insurance Fact Book 2006The I.I.I. Insurance Fact Book 2006

Industry at a GlanceIndustry at a Glance

Largest Insurance Company, 2004* Largest Insurance Company, 2004* (Ranked by Revenue)(Ranked by Revenue)

A.A. AXA (France)AXA (France)B.B. Allianz (Germany)Allianz (Germany)C.C. ING Group (Netherlands)ING Group (Netherlands)D.D. AIG (US)AIG (US)

**The I.I.I. Insurance Fact Book 2006The I.I.I. Insurance Fact Book 2006

Industry at a GlanceIndustry at a Glance

World Insurance Premium Breakdown, World Insurance Premium Breakdown, 2004*2004*

Life

Non-Life

*The I.I.I. Insurance Fact Book 2006*The I.I.I. Insurance Fact Book 2006

A.A. B.B.

InsuranceInsurance

Contractual relationship whereby one Contractual relationship whereby one party (insurer) for a consideration party (insurer) for a consideration (premium) agrees to indemnify or (premium) agrees to indemnify or guarantee another party (insured or 3guarantee another party (insured or 3rdrd party on behalf of insured) against loss to party on behalf of insured) against loss to a specified article (risk) caused by a specified article (risk) caused by designated contingenciesdesignated contingencies

Key ElementsKey Elements

ContractContract

PremiumPremium

Conditional BenefitsConditional Benefits

Pooling of ResourcesPooling of Resources

HistoryHistory

First evidence of insuranceFirst evidence of insurance Phoenicians (1200 BC) Phoenicians (1200 BC)

Earliest known insurance contract Earliest known insurance contract Genoa, Italy (1347)Genoa, Italy (1347)

Marine InsuranceMarine Insurance

HistoryHistory

Foundation of modern insuranceFoundation of modern insurance Lloyd’s of London (1688)Lloyd’s of London (1688)

Edward Lloyd’s CoffeehouseEdward Lloyd’s Coffeehouse

HistoryHistory

Insurance Process at Lloyd’sInsurance Process at Lloyd’s Ship owner would write the particulars of a Ship owner would write the particulars of a

proposed voyage on a sheet of paperproposed voyage on a sheet of paperName of VesselName of Vessel

RouteRoute

Ports of CallPorts of Call

Value of Hull and CargoValue of Hull and Cargo

Amount willing to pay for “insurance”Amount willing to pay for “insurance”

HistoryHistory

Fellow coffee drinkers would decide how Fellow coffee drinkers would decide how much, if any, of the risk they were willing to much, if any, of the risk they were willing to accept in exchange for the premiumaccept in exchange for the premium

The “insurer” would write his name on the ship The “insurer” would write his name on the ship owner’s slip owner’s slip underunder the shipping information the shipping information

Hence the term “underwriter”Hence the term “underwriter”

HistoryHistory

American Property Insurance CompaniesAmerican Property Insurance Companies Charleston, SC (1735)Charleston, SC (1735)

Fire InsuranceFire Insurance

HistoryHistory

American Life Insurance CompaniesAmerican Life Insurance Companies Presbyterian Synod of Philadelphia (1759)Presbyterian Synod of Philadelphia (1759)

1919thth Century Life Insurance Boom Century Life Insurance Boom Fraternal OrdersFraternal Orders

Low-cost, members-only insuranceLow-cost, members-only insurance

Many still provide coverage todayMany still provide coverage today

Industry at a GlanceIndustry at a Glance

Total World Insurance Premiums, 2004*Total World Insurance Premiums, 2004*

A.A. $3.2 Million$3.2 Million

B.B. $3.2 Billion$3.2 Billion

C.C. $3.2 Trillion$3.2 Trillion

D.D. $3.2 Quadrillion$3.2 Quadrillion

**The I.I.I. Insurance Fact Book 2006The I.I.I. Insurance Fact Book 2006

Industry at a GlanceIndustry at a Glance

Total U.S. Insurance Premiums, 2004*Total U.S. Insurance Premiums, 2004*

A.A. $960.3 Million$960.3 Million

B.B. $960.3 Billion$960.3 Billion

C.C. $960.3 Trillion$960.3 Trillion

D.D. $960.3 Quadrillion$960.3 Quadrillion

**The I.I.I. Insurance Fact Book 2006The I.I.I. Insurance Fact Book 2006

Industry at a GlanceIndustry at a Glance

Largest Insurance Country, 2004* Largest Insurance Country, 2004* (Ranked by Direct Premiums Written)(Ranked by Direct Premiums Written)

A.A. United StatesUnited StatesB.B. JapanJapanC.C. United KingdomUnited KingdomD.D. FranceFrance

**The I.I.I. Insurance Fact Book 2006The I.I.I. Insurance Fact Book 2006

Industry at a GlanceIndustry at a Glance

Largest Insurance Company, 2004* Largest Insurance Company, 2004* (Ranked by Total Revenue)(Ranked by Total Revenue)

AXA (France)AXA (France)Allianz (Germany)Allianz (Germany)ING (Netherlands)ING (Netherlands)AIG (US)AIG (US)

**The I.I.I. Insurance Fact Book 2006The I.I.I. Insurance Fact Book 2006

Industry at a GlanceIndustry at a Glance

World Insurance Premium Breakdown, World Insurance Premium Breakdown, 2004*2004*

Life

Non-Life

*The I.I.I. Insurance Fact Book 2006*The I.I.I. Insurance Fact Book 2006

A.A. B.B.

How Insurance Works?How Insurance Works?

How Insurance WorksHow Insurance Works

Requirements of an Insurable RiskRequirements of an Insurable Risk Large number of Homogenous Exposure Large number of Homogenous Exposure

UnitsUnits AccidentalAccidental Determinable and MeasurableDeterminable and Measurable No Simultaneous DestructionNo Simultaneous Destruction Probability Calculable and Not too HighProbability Calculable and Not too High

How Insurance WorksHow Insurance Works

UnderwritingUnderwriting Process of reviewing applications for Process of reviewing applications for

coverage and the information contained coverage and the information contained therein therein

Accepted applications must then be classified Accepted applications must then be classified according to the type and degree of riskaccording to the type and degree of risk

Appropriate rates assigned for the exposureAppropriate rates assigned for the exposure

Underwriting-What’s Fair and Why?Underwriting-What’s Fair and Why?

Health Insurance Underwriting Factors:Health Insurance Underwriting Factors: Cigarette SmokingCigarette Smoking ObesityObesity AgeAge Prior history of heart diseasePrior history of heart disease Genetic predisposition to cancerGenetic predisposition to cancer GenderGender RaceRace

Underwriting-What’s Fair and Why?Underwriting-What’s Fair and Why?

Auto Insurance Underwriting Factors:Auto Insurance Underwriting Factors: LocationLocation GenderGender AgeAge IncomeIncome RaceRace Driving RecordDriving Record Credit ScoreCredit Score

Underwriting ConsiderationsUnderwriting Considerations

Adverse SelectionAdverse Selection

MisclassificationMisclassification

ControlControl

Civil RightsCivil Rights

Costs of ClassificationsCosts of Classifications

Social PolicySocial Policy

Guaranteed Cost InsuranceGuaranteed Cost Insurance

UnderwritingUnderwritingPremium Depends on Classification GroupPremium Depends on Classification GroupPremium = (A) x (Pure Premium) + BPremium = (A) x (Pure Premium) + B

A = Administrative Costs proportionate to lossA = Administrative Costs proportionate to loss B = Administrative Loading FeeB = Administrative Loading Fee Pure Premium = Amount insurer needs to Pure Premium = Amount insurer needs to

cover loss cover loss = Frequency x Severity= Frequency x Severity

Guaranteed Cost Insurance Guaranteed Cost Insurance ExamplesExamples

VS.VS.

Lets Get Ready to Rumble!!Lets Get Ready to Rumble!!

Guaranteed Cost Insurance Guaranteed Cost Insurance ExamplesExamples

A = 1.4 A = 1.4

B = $150B = $150

Premium = 1.4 x (Pure Premium) + $150Premium = 1.4 x (Pure Premium) + $150

Adult Female DriverAdult Female Driver# of cars = 10,000# of cars = 10,000

# of losses = 250# of losses = 250

$ losses = $3.5 Million$ losses = $3.5 Million

Pure Premium = Frequency x SeverityPure Premium = Frequency x Severity Frequency = 250 / 10,000 = .025Frequency = 250 / 10,000 = .025 Severity = $3.5 Million / 250 = $14,000Severity = $3.5 Million / 250 = $14,000 Pure Premium = .025 (14,000) = $350Pure Premium = .025 (14,000) = $350

Premium = 1.4 ($350) + $150 = Premium = 1.4 ($350) + $150 = $640$640

Male Teen DriverMale Teen Driver# of cars = 10,000# of cars = 10,000

# of losses = 500# of losses = 500

$ losses = $5 Million$ losses = $5 Million

Pure Premium = Frequency x SeverityPure Premium = Frequency x Severity Frequency = 500 / 10,000 = .05Frequency = 500 / 10,000 = .05 Severity = $5 Million / 500 = $10,000Severity = $5 Million / 500 = $10,000 Pure Premium = .05 (10,000) = $500Pure Premium = .05 (10,000) = $500

Premium = 1.4 ($500) + $150 = Premium = 1.4 ($500) + $150 = $850$850

Premium Rate SettingPremium Rate Setting

Goals of Insurers (Goals of Regulators)Goals of Insurers (Goals of Regulators) AdequateAdequate FairFair ReasonableReasonable

Social and Economic Value of Social and Economic Value of InsuranceInsurance

StabilityStability

Reduction in Reserve FundsReduction in Reserve Funds

Insurers’ InvestmentsInsurers’ Investments

Satisfies Financial RequirementsSatisfies Financial Requirements

Specialization in Loss Prevention Specialization in Loss Prevention

Social Costs of InsuranceSocial Costs of Insurance

Operating CostsOperating Costs

Moral HazardMoral Hazard

Exaggeration of LossesExaggeration of Losses

Final ThoughtsFinal Thoughts

Insurance is Insurance is notnot too complicated for you to too complicated for you to understandunderstand

Insurance is justInsurance is just one of many risk one of many risk management techniques availablemanagement techniques available

Thank you!Thank you!

For more insurance information:For more insurance information: Insurance Programs for Texas State AgenciesInsurance Programs for Texas State Agencies

www.sorm.state.tx.uswww.sorm.state.tx.us (Risk Management) (Risk Management) Insurance 101 CourseInsurance 101 Course

www.sorm.state.tx.uswww.sorm.state.tx.us (Outreach and Training) (Outreach and Training)

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