Teaching Risk Management
and Insurance
Mike Hubbel
Professor Emeritus
Olivet College
Did you know?
Travelers are more likely to die from taking selfies
than from shark attacks!
 12 died in falls or hit by vehicles while taking selfies
 8 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
The fields of risk
management and insurance
(RMI) offer a variety of
challenging and rewarding
career opportunities for your
students
Why?
The process of risk
management and the use of
insurance is an important,
integral part of our business
and personal lives
Why?
An education in risk
management and insurance
gives job-seekers a significant
advantage
The RMI industry offers
many college scholarships
and internships
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
The Insurance Mechanism
$
$
The Insurance
Consumer
$
Insurance
Company
Premium
& Risk
$
Pools
Exposures
and
$
Promise
$
$
$
$
LOSS
U.S. Insurance Employment
Other*
227,600
9%
L&H Insurers
870,200
35%
Agents & Brokers
732,200
30%
Reinsurers
25,300
1%
P&C Insurers
605,400
25%
*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
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
The Insurance Market
Insurance
Customer
Risk
Manager
Coverage
readily
available?
Go
Admitted
Retail
Agent or
Broker
Can’t buy
coverage
from
admitted
insurer?
Go
Nonadmitted
Admitted
Primary
Insurer
Wholesale
broker,
Surplus
Lines
Broker, or
Managing
General
Agent
Reinsurance
Intermediary
(optional)
Nonadmitted
Primary
Insurer*
Reinsurer
Retrocessionaire
Reinsurer
Retrocessionaire
Other Insurer
Retrocessionaire
Other Insurer
Retrocessionaire
*Nonadmitted insurers are also called Excess & Surplus Lines insurers
Non-traditional Insurance Players
Capital markets
competing through the
catastrophe bond
market
1Source:
Google!1
– Beginning with personal and
small commercial insurance
comparisons
– Eventually using their data
and analytics to underwrite
risks in innovative ways?
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.
Life Cycle of an Insurance Policy
Marketing & Product
Development
designs new policy
Actuaries calculate
rates for new policy
Marketing promotes
new policy to
agents
Agents quotes &
sells policy
Compliance obtains
approvals
Underwriter reviews
policy for renewal
Claims adjuster
inspects damage;
pays claim
Premium auditor
audits auditable
policies
Reinsurer may be
responsible for
portion of claim
Claims Department
may receive claim
ABC
INSURANCE
We hereby
agree to insure
you against…
~~~~~~~~~~
~~~~~~~~~~
~~~~~~~~~~
Underwriter
approves issuance
& prices policy
Risk Control may
inspect applicant’s
exposure
Finance invests the
premium
Underwriter may
reinsure policy
Reinsurer assumes
portion of risk
Entry-level Salaries
Entry-level
Positions
Requires
Median
Median
Bachelor’s
Annual Salary Annual Salary
degree or
National
Lansing
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, 2015
Greater Lansing Insurance & Financial Services Council, Economic Modeling Specialists, Inc., www.economicmodeling.com
2 Industry Report Prepared for
After at least seven years…
Top RMI
Positions
Median
Annual Salary
National
Median
Annual 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…
Solving puzzles,
decision making?
Helping others,
investigating?
Running your own
business?
Math?
• Be an underwriter!
• A decision scientist: decide who & who not to insure
• Be a claims adjuster!
• Investigate losses, help clients recover from losses
• Be an agent!
• Sell insurance, help clients recover from losses
• Be an actuary!
• Study catastrophes, gather statistics, create formulas
Disciplines Needed in Insurance
Math,
Probability
& Statistics
Psychology
Management
& Marketing
Communication
& Negotiation
Finance &
Accounting
Engineering
Law
Computer
Technology
&
Applications
RMI Curriculum Content
The risk management
process
The insurance
mechanism
Insurance policies
The business of
insurance
Career entry points
• Process
• Risk management tools
• Risk transfer
• Pooling and the Law of Large Numbers
• Spreading the unbearable losses of a few over many
• Legal nature and structure
• Auto, home, life, health
• Market – structure, regulation, cycles
• Providers – private sector, government
• Agents/brokers
• Actuaries, claims investigators/adjusters, underwriters
• Risk management analysts
Insurance Curriculum approved for
High Schools*
Principles
Personal Insurance
Commercial
Insurance
• Concepts, terminology
• Insurance market, regulation, financial aspects, operations
• Nature of property and liability insurance exposures and provisions
• Risk management
• Automobile
• Home
• Life and retirement
• Disability and health
• Property, business interruption, crime, large equipment breakdown
• Inland and ocean marine
• General liability, business automobile, workers compensation
• Businessowners package, specialty and emerging coverages
*Approved in 2013 by the Michigan Department of Education in the Finance Cluster, Insurance Pathway
Risk Management Exercise
What loss exposures do you face each day?
•
•
•
•
•
•
•
•
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 do Americans worry about?
“How much do you worry about these things affecting you or
someone in your immediate family?”
Worry a great deal
Worry somewhat
Financial Concerns & Risks
Personal Privacy Loss & Identity Theft
Cyber, Computer Technology, Data Breaches &…
66%
30%
60%
25%
57%
21%
51%
Personal Safety Concerns & Risks
14%
Extreme Weather & Natural Disasters
13%
Transportation & Travel Risks
11%
42%
Food Safety Concerns & Risks
13%
41%
43%
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/prepareprevent/risk-index/consumer/2015/consumer-risk-index-report.pdf, accessed October 6, 2015.
Risk Management Project
Personal Risk Management Plan
 Property – auto, apartment, personal belongings
 Liability – auto, other liability
 Life – needs following death, e.g. medical bills, burial,
dependents?
 Health – major medical expenses
 Retirement – future financial security
– Farm Bureau Insurance Company of Michigan financial
calculators at https://www.farmbureauinsurancemi.com/insurance_101/calculators/
Insurance Policy “Puzzles”
Given:
An automobile crash loss or homeowner loss scenario
A list of questions to analyze a policy for loss coverage
Parent’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/Defaul
t.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/
Enhancing RMI Curriculum Delivery
• 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
RMI Curriculum Resources
Griffith Insurance Education Foundation
• Lesson plans
http://www.griffithfoundation.org/k12/curriculum-online/lesson-plans/
Insurance
Information
Institute
• Glossary
• Videos
• Hot topics
www.iii.org
PBS
• Videos
• Games
www.pbs.org
and
www.pbslearning
media.org
Insurance Institute
of Michigan
• Local issues
• Speakers
www.iiminfo.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
RMI Career Resources
Brochure on careers in the
insurance business
http://www.mifuture.org/doc
s/resources_docs/CPCU_Insur
ance_Careers_Brochure.pdf
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 reach
25% 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, 2010
http://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 macropolicy 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
Freightliner’s Driverless Truck
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
Source: Cheboygan Daily Tribune, May 16, 2015
Source:
http://www.ft.com/cms/s/0/4a4dc50af46311e499de00144feab7d
e.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!