CAS Seminar on Ratemaking Whose Line Is It Anyway? Session COM-7 Boiler and Machinery

1. CAS Seminar on RatemakingWhose Line Is It Anyway?Session COM-7Boiler and Machinery Presented By: Christine L. Steben, CPCU, ARe Assistant Vice President Travelers Property and Casualty

2. Overview • Market Evolution • Exposure Review • Distribution Systems • Impact of Advances in Technology • Emerging Insurance Issues • International vs. Domestic

3. Market Evolution • Large Industrial • Gas / Steam Turbines • Process Boiler • Manufacturing • Extruders • Corrugating Machines • Non-Manufacturing • Air Conditioning Equipment • Refrigeration Equipment

4. Exposure Rating Base • Machinery & Equipment (M&E) Value • Schedule of Objects • Building & Contents (B&C) Value • Schedule of Locations

5. Typical Coverage Options • Trigger: Breakdown to Covered Equipment • Property Damage • Business Income / Extra Expense • Utility Interruption • Spoilage • Hazardous Substances • Ordinance or Law • Data and Media • Expediting Expense

6. Accounting For Risk Quality • Equipment operator qualification • Availability of spare parts • Existence of maintenance agreement • Accessibility of equipment

7. Direct Distribution System • Direct • Expenses • Losses • Premium Collection

8. Reinsured Distribution Systems • Reinsured • Expenses • Losses • Premium Collection

9. Ratemaking Considerations • Jurisdictional Inspection • Loss Adjustment Expense • Delays in remittance of premium • Loss Development • Loss Trend

10. Loss Frequency / Loss Severity • Frequency • Equipment: Miscellaneous Electrical Apparatus • Cause of Loss: Arcing • Impact: Most often low cost. • Severity • Equipment: Turbines • Cause of Loss: Internal Cause • Impact: Most often high cost.

11. Impact of Advances in Technology • Replacement Cost of Equipment Increases Comparatively • Medical Equipment (ie MRI) • Repair Cost of Equipment Increases • Level of expertise required may not be readily available • Increased Business Interruption Exposure • Dependencies of insured on equipment • Equipment May Become Obsolete • Cost to repair may be prohibitive

12. Emerging Insurance Issues: Classification • Aggregating Distributed Power Generation for Demand Response • Renewable Energy • Waste to Energy • High severity potential.

13. Emerging Insurance Issues: Coverage • Ammonia Contamination • Spoilage • Contingent Business Income • High severity potential.

14. International vs. Domestic Considerations • Cost of Equipment will vary • Supply and demand of certain equipment • Supply and demand of a particular service • Cost of Inspection will vary • Availability of qualified / responsive personnel • Existence of jurisdictional inspection requirements • Cost of Loss Adjustment will vary • Availability of qualified / responsive personnel • US Dollar conversion

15. Boiler & Machinery Ratemaking In Review • Coverage provided can be “off the shelf” or tailored to meet needs of exposure • Product delivery / distribution impacts: Expenses, Losses and Premium • Unique characteristics of Boiler & Machinery: LAE, Inspection Expense, Cost to Repair / Replace • Emerging insurance issues should be identified • International and Domestic exposures should be evaluated