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Transurance Maximizing the Value of Insurance Bruce Thomas and Ware Preston

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Title: Insurable Risks Author: James DeMichele Last modified by: bruce Thomas Created Date: 9/22/2002 1:25:17 PM Document presentation format: On-screen Show – PowerPoint PPT presentation

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Date added: 10 January 2020
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Title: Transurance Maximizing the Value of Insurance Bruce Thomas and Ware Preston


1
Transurance Maximizing the Value of
Insurance Bruce Thomas and Ware Preston
MAPI Meeting
01/26/07
2
What Executives Think About Insurance
  • Pros
  • It helps us maintain our budgets by smoothing
    losses.
  • When all else fails, its great to have
    insurance.
  • It is much cheaper than keeping capital on
    hand.
  • It helps us take risk only where there is an
    upside.
  • Our lenders and customers require us to have
    it.
  • It tells our stakeholders that we will be around
    for the long-term.
  • It makes the cost of risk measurable, and we can
    manage things that we can measure.
  • It is easier to buy insurance and allocate
    premiums than run an internal insurance
    mechanism.

3
What Executives Think About Insurance
  • Cons
  • Insurance is not keeping pace with the risks we
    face.
  • The insurance market is opaque and inefficient.
  • The supply of insurance is too volatile.
  • Cost, limit, coverage, security
  • It seems like all we have done is exchange
    uncertainty of loss for uncertainty of payment.
  • Policies are too complicated and subject to
    interpretation.
  • Proving and negotiating recoveries is slow and
    painful.
  • Recoveries are never enough to deal with the
    full economic consequences of a loss.

4
The Problem We Worked On
  • Companies have significant damages that occur in
    conjunction with covered loss events but that are
    not paid by their insurance.
  • These collateral damages are difficult to
    define, prove, or measure.
  • Executives want a means of insuring these damages
    that
  • Combines economic efficiency with payment
    certainty
  • Does not involve more hassle
  • Can increase the financial efficiency of the
    insurance they buy

5
Transurance
  • Transurance is a new form of agreed value
    insurance
  • It supplements traditional insurance to pay for
    collateral damages that are not covered.
  • The payout is a pre-agreed percentage of the
    recovery from a traditional insurance policy so
    the loss does not need to be proved.
  • The proceeds can be used as the policyholder sees
    fit.
  • The cost is the same pre-agreed percentage of the
    referenced insurance premiums.
  • Transurance can be applied to any type of
    insurance.

6
Transurance 1.0 Arch Property Transurance Program
  • Pays for Collateral Damages
  • Payout is a percentage of the insurance payment
  • Insured may choose payouts up to 20
  • Available limit is 20 million
  • Collateral Damages do not need to be proved
  • Proceeds may be used as policyholder sees fit
  • Premium is generally the same percentage of the
    insurance premium
  • Pay 10 more to get 10 more

7

100,000
Transurance
Insurance
500
8
What Are Collateral Damages?
  • Any expense or loss of revenue associated with an
    insured property loss not paid by property
    insurance
  • Collateral damages are typically between 15 -
    40 of claim recoveries
  • Business continuity expenses that are
    traditionally uninsurable
  • Difficult to define, prove or measure
  • Discretionary in nature
  • Include advertising expenditures concessions to
    vendors, distributors, and employees legal and
    consulting expenses additional administrative
    and financing cost lost revenues cost of new
    risk management programs etc.
  • Amounts claimed that are not covered by insurance
  • Deductibles and amounts in excess of limits

9
The Business Environment
External
Competitors
Community
Customers
Internal
PPE Employees Capital Other Property
Politicians
Suppliers
Regulators
J/V Partners
Debtholders Stockholders
10
Structuring Transurance
1,250MM
500K
750MM
1MM
250MM
1MM
50MM
3MM
11
Maximizing the Value of Insurance
  • Calculate the financial value of insurance
  • Calculate the cost of self-insurance i.e. the
    cost of maintaining capital to deal with
    insurable events
  • Subtract insurance premiums from the cost of
    self-insurance to determine the financial value
    of insurance.
  • Increase the value of insurance by
  • Eliminating coverage layers that have little or
    no value
  • Maximize the value of Insurance by adding
    Transurance where
  • Insurance has the greatest financial value
  • Collateral damages are the most significant

12
Calculate the Cost of Self-insurance
Cost of Self-insurance Expected Loss Capital
Charge Total Expected Loss is 55 of total
premium Capital Charge Cost of Risk Capital x
Capital Allocated to Insurable Property Risk Cost
of Risk Capital marginal cost of capital minus
1-year Treasury Bill Capital Allocated to
Insurable Property Risk 75 x Gross Capital
Required Gross Capital Required Layer Limit
minus Expected Loss
13
Calculating the Financial Value of Insurance
14
The Financial Value of Insurance
15
Increasing the Financial Value of Insurance
16
Maximizing the Value of Insurance
17
Maximizing the Value of Insurance
18
Reasons to Buy Transurance
  • Collateral damages are significant
  • 15 to 40 of property insurance recoveries
  • Transurance covers them simply and
    cost-effectively
  • No hassle buying this coverage or settling claim
  • Cost is typically the same as property insurance
  • Everyone is sensitized to coverage gaps after a
    loss
  • Why be second-guessed?
  • Transurance maximizes the value of insurance
  • More limit, broader coverage, more financial
    value, at potentially less cost

19
Obtaining a Quote
  • Transurance Services, LLC is the Program
    Administrator
  • This is a surplus lines product
  • Submission requirements
  • Property insurance underwriting submission
  • Contact Information
  • TransuranceServices.com
  • Ware Preston 203-356-1583 WP_at_transuranceservices.c
    om
  • Bruce Thomas 203-445-0830 BT_at_transuranceservices.c
    om
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