CAS Ratemaking Seminar

Non Medical Professional Liability Pricing

Stephen Kantor, FCAS, MAAA

March 7, 2002

Fireman's Fund Interstate 2

Data IssuesData Issues

Buried within Annual Statement Often controlled by producer Difficult to look at industry data Need specific filing information Impact from surplus lines

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Typical Rating FactorsTypical Rating Factors

Step rate Area of practice Size of firm State/Territory Claims history

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Initial PricingInitial Pricing

Often Shopped By Producer Has certain price in mind Based on current carrier Limited data available

Based on Competitor Look at filings Read the market

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On Going PricingOn Going Pricing

Premium and Loss Experience Sparse Green Volatile

Can you combine with other programs?

Can you compare to industry data?

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Two Distinct Application TypesTwo Distinct Application Types

Flat Price More complicated

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Flat PricedFlat Priced One size fits all “Cash with APP” Application asks 4-5 questions which basically ask

Is this a typical risk?Any claims?

Often Association sponsored

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LawyersLawyers

State/Territory Step rate Area of practice Size of Firm – number of lawyers Claims history Deductible Defense outside limit Other factors often built in to IRM

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LawyersLawyers

Area of Practice

% of Practice Credit/DebitEntertainment 1- 10 0%

11-20 +5% Over 20 +10%

Real Estate 1- 5 10% 6-20 +5%

21-50 +10% Over 50 +20%

Fireman's Fund Interstate 10

LawyersLawyers

Area of Practice

% of Practice Credit/DebitLitigation Defense 1- 25 -5%

26-50 -15% Over 50 -33%

Litigation Plaintiff 1- 25 0% 26-50 +5%

51-60 +10% 61-75 +15%

Over 75 +20%

Fireman's Fund Interstate 11

LawyersLawyersSize of FirmSize of Firm

Number of LawyersCredit 1-5 0%

6-10 5%

11-15 10%

16-20 15%

21-25 20%

Over 25 25%

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LawyersLawyersAn ExampleAn Example

Credit/Debit

Area of Practice Litigation Defense 30% -15%Litigation Plaintiff 40% +5%Real Estate 15% +5%Other 15% 0%

Size of Firm 12 Lawyers 10%Limit $1,000,000/$1,000,000 1.85Deductible $5,000 .15Claims Experience 1.15Step Factor Step 2 1.40

(Base Rate) X (1.85 - .15) X (.95) X (1.10) X (1.15) X (1.40)

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Real Estate E&OReal Estate E&O

Based on Agency Revenue and Number of Licensed AgentsSome States Mandatory

Expect better experienceUsually good experience data availableNo IRM

The best realtors ask the right questionsLoss only deductible work against insurersClaims often occur when agent represents both Buyer and SellerMold is new claims issue – failure to discloseDiscussions occurring on mold exclusionStill competitive marketplace

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Massage TherapistMassage Therapist

Sponsored by AMTA Insurance is automatic – part of dues One size fits all Certification required for membership Few carriers

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Non Profit D&ONon Profit D&O

Based on Expense – how much $ Association takes in

If expenditures > revenue Look for positive fund balance Endowment EPLI is important

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AccountantsAccountants

Revenue based Risk management drive Accounting Malpractice.com

(Mark Cheffers - the Enron expert) Competitive market Suits for fees Shared office space Engagement and disengagement letters crucial

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AccountantsAccountants

Areas of practice have expanded over past 5 years Financial planning Management advisory Elder care ( Financial and Healthcare)

Consulting Has made underwriting more difficult Audits have greater exposure than bookkeeping

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AccountantsAccountants

How will Enron affect the industry? Opinions vary More careful underwriting

Audits used in SEC Filings

Consulting And Auditing

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Public Officials/Public EntitiesPublic Officials/Public Entities

Population of city Tax revenues/Tax base Proximity to large cities Balance between revenue and expenses Power plants/libraries/school districts Lots of EPLI Competitive market

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TeachersTeachers

Rate is on Per Head Basis Completely Association driven Can cover “Failure to Educate”

Will this be the next claims black hole?

Covers extra curricular activities

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Title AgentsTitle Agents

Billings/Revenue Several large Title Companies Mis-handling of Escrow Accounts - drives

many claims

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Cash with AppCash with App

Shorthand Reporters Association of Court Reporters

Interior Designers Most claims either wrong fabric or the couch

doesn’t fit

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Convention CancellationsConvention Cancellations

Rated on revenues expected to be raised Insurance covers the shortfall on revenues Became a big issue after 9/11