The Role of the Broker as the advocate

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

Marsh & Mc. Lennan 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 MARSH 3/19/2018 1

Marsh Global Energy - Locations Oslo Calgary San Francisco London New York Madrid Houston Dubai Energy Teams in: • Tulsa • Dallas • New Orleans Singapore 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. • • MARSH 3/19/2018 Integrated Global Practice, headquartered in Houston, Texas Energy practitioners in many more locations around the world 2

Large Commercial Insurance Involves 3 Key Parties…. • The Client • The Broker • The Insurer MARSH 3/19/2018 3

In a world with no brokers…. . MARSH 3/19/2018 4

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 MARSH 3/19/2018 5

What other important roles do brokers play? • Development of new products • Market analysis • Distribution network for underwriters MARSH 3/19/2018 6

The competitive landscape in Houston • GLOBAL BROKERS • DOMESTIC BROKERS – Marsh – Aon – Willis MARSH – – – 3/19/2018 Alliant Gallagher Lockton Mc. Griff Seibels John L. Wortham USI 7

Being appointed by a Client…. “There are worse things in life than death. Have you ever spent an evening with an Insurance salesman? ” Woody Allen MARSH 3/19/2018

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 MARSH 3/19/2018 9

The decision whom to appoint is usually both subjective and objective…. . MARSH 3/19/2018 10

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 • Benchmarking limits and retentions with similar clients • Reviewing insurance policies currently • Assessing proposed premium levels in place to ensure the coverage against present market trends provided is adequate • Identification of key Insurers • Gaining an understanding of prior • Developing a marketing plan year losses and past experience MARSH 3/19/2018 11

The Marsh 3 D Model MARSH 3/19/2018 12

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! MARSH 3/19/2018 13

Example Benchmarking Account Exp Total Insured Date PD Deductible BI Deductible Net Rate on Values & Full Indemnity Period Values Policy Limit Company A May-10 $27, 292, 797, 418 $5, 000 30 Days 0. 0307 $750, 000 Company B Jul-10 $1, 649, 869, 000 $1, 000 30 Days 0. 0737 $400, 000 Oct-10 $332, 732, 460 $1, 000 30 Days 0. 0553 $50, 000 Oct-10 $1, 891, 739, 309 $10, 000 21 Days 0. 0375 $100, 000 Oct-10 $1, 593, 073, 036 $5, 000 - 0. 0303 $60, 000 Jun-10 $1, 147, 873, 615 $750, 000 15 Days/ 45 Days 0. 0631 $50, 000 May-10 $10, 424, 635, 829 $1, 000 30 Days 0. 0884 $405, 000 May-10 $2, 223, 964, 977 $1, 000 45 Days 0. 0788 $300, 000 Sep-10 $34, 530, 620, 982 $2, 000 30 Days 0. 0270 $750, 000 Sep-10 $4, 033, 338, 340 $2, 000 45 Days 0. 0669 Not Known May-10 $1, 030, 685, 100 $1, 000 30 Days 0. 2373 $230, 000 MARSH 3/19/2018 14

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 MARSH 3/19/2018 15

Major Markets for Energy Business • Domestic – ACE – Chartis – Chubb – Liberty – Starr – St Paul / Travelers – WR Berkley – Zurich MARSH • Overseas – Lloyd’s – Munich Re – Swiss Re – GARD – AXA – Bermuda (XL, Torus, OCIL) – OIL 3/19/2018 16

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 MARSH 3/19/2018 17

Setting Expectations An Example of a marketing timeline 22 nd Strategy meeting with Rowan& Marsh teams Client & Marsh teams to discuss goals & any issues 22 nd - 31 st Rowanto provide Client to provide renewal information Risk Information & Marsh to develop submission 1 ST Marsh to send submission to Market March Ongoing marketing & information exchange 4 TH – 8 th Underwriter visits & presentations, as required 10 th – 12 th Marsh to present renewal proposal to Rowan to Client February Ongoing marketing & information exchange April – May Policies received, reviewed & sent to Rowan to Client 13 th – 20 th Rowanto provide Client to provide Binding instructions Monitor program & provide superb day-to -day service APRIL 1 st EFFECTIVE DATE JANUARY MARSH FEBRUARY MARCH 3/19/2018 APRIL ONGOING 18

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 MARSH 3/19/2018 19

And most importantly…. NO SURPRISES! MARSH 3/19/2018 20

Thank you for your attention I’m sure you must have some questions! …. . MARSH 3/19/2018 21

3/19/2018 22