Australasian Universities Risk

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Australasian Universities Risk Insurance
Management Society Conference 2005
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How Premiums are Calculated

• Property and Business Interruption
• General Liability
• Motor Vehicle

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The role of insurance in society is to increase
financial certainty in the case of catastrophic
loss
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Market Conditions
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The 21st Century
World Trade Centre
Ray Williams - HIH
Concorde
Hurricanes
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Market Cycle

• Years Time
• 1995 1999 1 Oclock to 5 Oclock
• 2000 2004 6 Oclock to 12 Oclock
• 2005 ? 1 Oclock to ?

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Property and Business Interruption

• Portfolio premium
• Actuarial advice on
• Expected claim levels
• Administrative expenses
• Desired level of reserves
• Profit margin

• Technical rating
• Risk types
• Location
• Construction
• Protection

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Property and Business Interruption
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Property and Business Interruption

• Loadings
• Inferior construction
• Cyclone / earthquake zones
• Lack of physical protection
• Claims history

• Discounts
• High asset values
• Strong risk management protocols
• Sprinklers, hoses, etc
• Attractive risks

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Property and Business Interruption

• Rate applied to declared Property and Business
  Interruption values.
• Example
• 0.10 x 125,000,000 125,000 (plus
  GST / FSL / Stamp Duty as applicable)

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General Liability

• Public and Products Liability
• Long Tail Liability Concepts
• Rating Factors
• Impact of Tort Law Reform

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Concept of the Long Tail of Liability Claims

• Public Liability is considered a form of
  long-tail insurance.

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Concept of the Long Tail of Liability Claims

• Whilst Public Products Liability claims are not
  all that frequent, when they do happen the cost
  is substantial when compared to consumer claims
  such as private motor vehicle.

Source Suncorp
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What makes up a Liability Premium?
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What makes up a Liability Premium?

• Breakdown on Premium Components

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What makes up a Liability Premium?

• How are Public Products Liability Insurance
  Premiums calculated?

• The key influences to calculating Public
  Products Liability insurance premiums are as
  follows
• The type of organisation / industry and its
  activities
• Current or proposed Risk Management practices
• The amount of Turnover
• The number of employees / volunteers
• Past Claims history

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Impact of Tort Law Reforms
Tort Reforms are focused on three main objectives

• To clarify and define the rules of negligence,
  looking at such issues such as obvious risk,
  recreational activities and volunteers
• To reduce the number and cost of small low value
  claims through early notification and reduce
  legal costs for small claims with caps
• To maintain damages for economic loss as well as
  full compensation for large claims.

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Impact of Tort Law Reforms

• Reforms were aimed at reducing the frequency of
  small claims

Source ICA
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Impact of Tort Law Reforms

• What about those that are catastrophically
  injured?

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Motor Vehicle

• Types of Premium Rating methods
• Unit Cost basis Motor fleets
• Burning Cost basis

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Motor Vehicle

• Unit Cost Basis
• Type of vehicle
• Modifications
• Principal drivers
• Area garaged
• Previous convictions
• Claims history

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Motor Vehicle

• Unit Cost Basis
• Base rate per vehicle, say 400 per unit
• Number of vehicles in fleet, say 150 vehicles
• Annual premium calculation
• 400 x 150 60,000 (Plus GST and Stamp
  Duty as applicable)
• Claims experience discount

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Motor Vehicle

• Burning Cost basis
• Annual Premium Calculation, say 60,000
• Minimum Deposit Premium, 75 45,000
• Adjustable on claims paid and incurred
• Claims, say 40,000
• Adjustment factor 100/70
• 40,000 x 100/70 57,143
• Less Deposit of 45,000 12,143
• Maximum Premium 125

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Methods for Reducing Premiums

• Retain more risk
• Higher deductibles / excesses
• First loss sums insured
• Reduce coverage
• Fire perils instead of physical loss
• Motor vehicle third party only instead of
  comprehensive
• Retain certain classes of insurance
• Machinery breakdown
• Fidelity Guarantee

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Risk Financing Options

• Traditional expense management
• Corporate internal fund
• Discretionary mutual fund
• Captive insurance company / protected cell captive

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Insurance Decision Framework
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Allocation of Premiums and Other Costs

• Costs
• Premiums
• Administration
• Fees
• Deductibles / Excesses
• Legal
• Uninsured / Self-Insured Risks

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Allocation of Premiums and Other Costs

• Provide incentives for loss control
• Distribute risk financing costs equitably
  throughout the organisation
• Reflect loss experience
• Stability
• Maintain data and documentation

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Questions