teaching risk management and insurance mike hubbel professor emeritus olivet college
TRANSCRIPT
Teaching Risk Management and Insurance
Mike HubbelProfessor Emeritus
Olivet College
Did you know?
Travelers are more likely to die from taking selfiesthan from shark attacks!
12 died in falls or hit by vehicles while taking selfies8 have died from shark attacks
…and earlier this year, Waterton Canyon recreation area in Denver was closed to the public after too
many visitors were trying to take selfies with bears.
Source: “Taking Selfies Now More Deadly Than Shark Attacks,” Business Insurance, September 28, 2015
Why?The process of risk management and the use of insurance is an important,
integral part of our business and personal lives
The fields of risk management and insurance
(RMI) offer a variety of challenging and rewarding
career opportunities for your students
An education in risk management and insurance
gives job-seekers a significant advantage
The RMI industry offers many college scholarships
and internships
Why?The Michigan Department of
Education has approved
“Insurance” in the Finance
Cluster, Insurance Pathway
for Career and Technical
Education
- Tom Knight
CTE Curriculum
Consultant
Because insurance exists…
Costs to Society• Insurer overhead• Inflated claims• Fraudulent claims• Increased tendency to sue
(knowing that insurance coverage exists)
Benefits to Society• Payment of losses• Less worry & fear• Source of investment funds• Loss prevention & reduction• Support for system of credit• Meeting legal requirements
Promise
$
The Insurance Mechanism
Premium & Risk
LOSS
$
$
$
$
$
$
The Insurance Consumer Insurance
Company
Pools Exposures
and$
$
U.S. Insurance Employment
L&H Insurers870,200
35%
P&C Insurers605,400
25%
Reinsurers25,300
1%
Agents & Brokers732,200
30%
Other*227,600
9%
*Other includes independent claims adjusters, third party administrators, other service personnel
April 2015 preliminary data; seasonally adjusted
Source: U.S. Bureau of Labor Statistics; Insurance Information Institute
17,390 agencies
1,607 insurers
Insurance Employers in Michigan
Source: Michigan Department of Insurance and Financial Services 2013 Annual Report, http://www.michigan.gov/documents/difs/DIFS_Annual_Report_2013_463315_7.pdf
Reinsurance Intermediary
(optional)
Reinsurer Retrocessionaire
Reinsurer Retrocessionaire
Other Insurer Retrocessionaire
Other Insurer Retrocessionaire
The Insurance Market
*Nonadmitted insurers are also called Excess & Surplus Lines insurers
Insurance Customer
Risk Manager
Retail Agent or Broker
Coverage readily
available? Go
Admitted
Can’t buy coverage
from admitted insurer?
Go Nonadmitted
Admitted Primary Insurer
Wholesale broker, Surplus Lines
Broker, or Managing General Agent
Nonadmitted Primary Insurer*
Non-traditional Insurance Players
Google!1
– Beginning with personal and small commercial insurance comparisons
– Eventually using their data and analytics to underwrite risks in innovative ways?
1Source: Banham, Russ, “Googlezilla – Replete with capital and data, Internet giants prepare to devour the insurance industry,” Leader’s Edge, Council of Insurance Agents and Brokers, January/February 2015.
Capital markets competing through the
catastrophe bond market
Life Cycle of an Insurance Policy
Compliance obtains approvals
Marketing & Product Development designs new policy
Actuaries calculate rates for new policy Marketing promotes
new policy to agents
Agents quotes & sells policy
Finance invests the premium
Underwriter approves issuance & prices policy
Risk Control may inspect applicant’s exposure
Underwriter may reinsure policy
Reinsurer assumes portion of risk
Claims Department may receive claim
Reinsurer may be responsible for portion of claim
Claims adjuster inspects damage; pays claim
Underwriter reviews policy for renewal
Premium auditor audits auditable policies ABC
INSURANCE
We hereby agree to insure you against…
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Entry-levelPositions
MedianAnnual Salary
National
MedianAnnual Salary
Lansing
Requires Bachelor’s degree or
higher
Projected Annual Job
Growth 2011-2016 Michigan2
Agent – Sales $46,728 $44,205 46%1 9%
PC Claims Adjuster I $41,713 $39,460 78% 4%
Risk Analyst I $50,492 $47,766 90% Not available
PC Underwriter I $50,662 $47,926 80% 8%
Actuary I $65,919 $62,360 87% Not available
Source: www.salary.com October 1, 2015 (data above does not include bonuses or other benefits) (Detroit & Grand Rapids > Lansing)
1O-Net OnLine, CareerOneStop, U.S. Department of Labor, http://www.onetonline.org/find/industry?i=52&g=Go, accessed October 1, 20152 Industry Report Prepared for Greater Lansing Insurance & Financial Services Council, Economic Modeling Specialists, Inc., www.economicmodeling.com
Entry-level Salaries
After at least seven years…
Top RMIPositions
MedianAnnual Salary
National
MedianAnnual Salary
Lansing
Requires Bachelor’s degree or
higher
Agency Executive $198,424 $187,709 75%
PC Claims $223,397 $211,334 87%
Risk Management $184,268 $174,318 94%
PC Underwriting $221,938 $209,953 87%
Actuarial $287,676 $272,142 100%
Source: www.salary.com October 1, 2015(data above does not include bonuses or other benefits)
If you have an interest in…
• Be an underwriter!• A decision scientist: decide who & who not to insure
Solving puzzles, decision making?
• Be a claims adjuster!• Investigate losses, help clients recover from losses
Helping others, investigating?
• Be an agent!• Sell insurance, help clients recover from losses
Running your own business?
• Be an actuary!• Study catastrophes, gather statistics, create formulasMath?
Disciplines Needed in Insurance
Math, Probability & Statistics
Psychology
Management & Marketing
Communication & Negotiation
Finance & AccountingEngineering
Law
Computer Technology
& Applications
RMI Curriculum Content• Process• Risk management tools
The risk management process
• Risk transfer• Pooling and the Law of Large Numbers• Spreading the unbearable losses of a few over many
The insurance mechanism
• Legal nature and structure• Auto, home, life, healthInsurance policies
• Market – structure, regulation, cycles• Providers – private sector, government
The business of insurance
• Agents/brokers• Actuaries, claims investigators/adjusters, underwriters• Risk management analysts
Career entry points
Insurance Curriculum approved for High Schools*
• Concepts, terminology• Insurance market, regulation, financial aspects, operations• Nature of property and liability insurance exposures and provisions• Risk management
Principles
• Automobile• Home• Life and retirement• Disability and health
Personal Insurance
• Property, business interruption, crime, large equipment breakdown• Inland and ocean marine• General liability, business automobile, workers compensation• Businessowners package, specialty and emerging coverages
Commercial Insurance
*Approved in 2013 by the Michigan Department of Education in the Finance Cluster, Insurance Pathway
Risk Management Exercise
• Car accident• Speeding ticket• Bad grades• Hit a deer with car• House fire• Loose books• “Total” car• Serious injury
• Hurricane• Flood• Car stolen• iPhone stolen• Loss of car = loss of dates• Death• Illness
Discuss the risk management of these exposures…Avoid? Control? Insure? Retain?
…not everything is insurable!
What loss exposures do you face each day?
What do Americans worry about?
Food Safety Concerns & Risks
Transportation & Travel Risks
Extreme Weather & Natural Disasters
Personal Safety Concerns & Risks
Cyber, Computer Technology, Data Breaches & Risks
Personal Privacy Loss & Identity Theft
Financial Concerns & Risks
13%
11%
13%
14%
21%
25%
30%
41%
42%
43%
51%
57%
60%
66%
“How much do you worry about these things affecting you or someone in your immediate family?”
Worry a great deal Worry somewhat
Independent survey of 1,029 Americans ages 18 to 69, by telephone and online
Source: Consumer Risk Index, Travelers Insurance, October 2015, https://www.travelers.com/prepare-prevent/risk-index/consumer/2015/consumer-risk-index-report.pdf, accessed October 6, 2015.
Risk Management Project
Personal Risk Management PlanProperty – auto, apartment, personal belongings Liability – auto, other liability Life – needs following death, e.g. medical bills, burial,
dependents?Health – major medical expensesRetirement – future financial security
– Farm Bureau Insurance Company of Michigan financial calculators at https://www.farmbureauinsurance-mi.com/insurance_101/calculators/
Insurance Policy “Puzzles”
Given:An automobile crash loss or homeowner loss scenarioA list of questions to analyze a policy for loss coverageParent’s auto or homeowner policy
Determine:? Covered losses? The amount of coverage? Options to reduce the “out-of-pocket” loss
RMI Curriculum Delivery• RMI content fits well in the following high school courses:
– Introduction to Business or Management– Careers– Consumer– Economics– Family
• Guest speakers– Insurance Institute of Michigan http://
www.iiminfo.org/FORTHECLASSROOM/tabid/1688/Default.aspx – Michigan Association of Insurance Agents http://
www.mifuture.org/behindthescenes/request_speaker.asp – Gamma Iota Sigma – professional society of college students &
faculty; chapters at Central Michigan University, Ferris State University, Northern Michigan University, Olivet College http://www.gammaiotasigma.org/
• High School & College Partnering– Eaton ISD with Olivet College, Ingham ISD with Ferris State– Students can take 3 insurance courses and earn 9 transferrable college
credits in RMI– Delivered in a blend of live meetings at Farm Bureau Insurance or
Accident Fund Insurance Companies in Lansing, online coursework, field trips, job shadows, internships
– May take national exams simultaneously and an ethics module to earn a professional designation
– Qualifications: high reading level, average writing level, Algebra II– Other universities are interested!
• RMI Tours– Agencies are located in most communities– Insurers are located in the Greater Detroit, Dowagiac, Flint, Fremont,
Grand Rapids, Hastings, Howell, Lansing, Traverse City– Large corporation risk management tours almost anywhere
Enhancing RMI Curriculum Delivery
Insurance Information Institute• Glossary• Videos• Hot topicswww.iii.org
RMI Curriculum Resources
Griffith Insurance Education Foundation• Lesson planshttp://www.griffithfoundation.org/k-12/curriculum-online/lesson-plans/
Insurance Institute of Michigan• Local issues• Speakerswww.iiminfo.org
PBS• Videos• Gameswww.pbs.org
andwww.pbslearningmedia.org
Project InVEST• Provides insurance agent
oriented lesson plans, games and presentations
• Students form and operate model insurance agencies and insurance company offices
www.investprogram.org
Brochure on careers in the insurance business http://www.mifuture.org/docs/resources_docs/CPCU_Insurance_Careers_Brochure.pdf
RMI Career Resources
Video (5 ½ minutes)
about careers in
“surplus lines”
insurance market
for large, complex
business exposures
http://www.youtub
e.com/watch?
v=LWpq3e6Pn0s Video (7 minutes) about insurance agent careers
http://www.youtube.com/wa
tch?v=NsIcNsi9boc
Michigan Collegiate Programs
RMI Programs
• Cooley Law School• Master of Laws – Insurance Law
• Davenport University• Grand Rapids, Lansing, Livonia, & online
• Ferris State University• Michigan State University
• (new program in development)• Northern Michigan
University• Olivet College
Actuarial Programs
• Central Michigan University• Ferris State University• Michigan Technological
University• Michigan State University• Northern Michigan
University• Olivet College• University of Michigan
Why do we need young people in the insurance business?
Insurance industry retirements are projected to reach25% of the workforce by 20181
New, young professionals are needed to take their places!
and
We need fresh ideas and approaches for the new risks that we’ll face in the years to come…
1Source: Building a Talent Magnet: How the Property and Casualty Industry Can Solve Its People Needs, McKinsey & Company, 2010http://www.mckinsey.com/clientservice/Financial_Services/~/media/Reports/Financial_Services/Talent_in_PandC.ashx
Emerging Risks for the Insurance Business
High Impact
• Cloud computing security• Contagious emerging
financial market crisis• Short-termism of macro-
policy measures• Air pollution as mortality
& litigation driver• Super natural
catastrophes• Challenges of the Internet
of Things
Medium Impact
• Concussion crisis in sports
• Widespread genetic testing – false results
• Digital slander• E-cigarettes & liquids
used• Food and water safety
trade-offs with growth• Aluminum health risks• Smart cities –
vulnerabilities, privacy• Urban farming
Low Impact
• Action cam liability – use in “extreme” activities
• Epigenectics: genome modification as a liability loss driver
• 4D printing – adding the dimension of time (materials that change over time, implantable material, nanobots)
• Missing aircraft triggers technological change
• Methane hydrate – new energy source?
• Traffic jam in the skies
Source: Swiss Re SONAR, Emerging risk insights, Swiss Re, 2014 and 2015
Driverless Vehicles
Google’s Driverless Car
After 6 years of testing in Mountain View, CA, the driverless car was involved in 11 accidents:• 10 caused by other drivers• The accident caused by the Google car was
actually caused by the staffer driving in manual mode
Freightliner’s Driverless Truck
Source: Cheboygan Daily Tribune, May 16, 2015 Source: http://www.ft.com/cms/s/0/4a4dc50af46311e499de00144feab7de.html#axzz3ZhUjMp7x
Drones
• Issues– Lack of operator training and
safety– Invasion of privacy
• Two insurers provide coverage similar to aircraft hull liability
• Several insurers now have FAA approval to use drones– Underwriting risk assessment– Claims settlement
Source: http://www.rmmagazine.com/2015/04/01/dronestakeflight/
Solar Storms• Impact
– Power grid– Communications– Air travel– Satellite navigation systems
• Further research needed– how widespread could the impact be?
• Monitoring and forecasting• Mitigation
– Alternative procedures/processes, business continuity plans– Back up generators, solar panels– Insurance for physical damage and business interruption
• Too catastrophe for private sector?• Too catastrophe for government sector?
Source: Space Weather Public Dialogue Final Report, 3KQ & Collingwood Environmental Planning, February 11, 2015 http://www.stfc.ac.uk/3508.aspx
Now…go out and take some risks today…
…but not too many!