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Aon’s 8th Annual Seminar
September 23, 2015
Top Global Risks
Warren Mula, CEO, Aon Broking
Recent loss activity insufficient to turn the market cycle
10-year Industry Loss Experiences
140
Tropical Cyclone
Severe Weather
Flooding
Earthquake
Winter Weather
Wildfire
EU Windstorm
Drought
Other
100
80
60
 Underwriting performance
remains strong, given low
global catastrophe losses
40
20
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20042013
Avg.
Long-term Property Cat. Price Index
 Through the first quarter,
the industry has
preliminarily sustained
losses of USD3.25 billion;
This is 76 percent below
the ten-year average of
USD13.1 billion in Q1
 The attritional loss and
expense ratios were
impacted by weakening
pricing and increased
volumes of longer tail
proportional business
3.5
3.0
2.5
2.0
1.5
1.0
0.5
2012
2008
2004
2000
1996
1992
1988
0.0
1984
USD Bn (2014)
120
1
 Even with recent price
reductions, we are still
above historic levels
Resulting in reinsurer and insurer capital at all time highs
Cyclic Market Trends:
 Traditional R/I grew 4%,
Alternative R/I grew 28%
 Insurer captial up 6% vs.
prior year
 31-company AB Aggregate
dividends and share
buybacks rose by 18% to
USD18.3 billion in 2014.
Change in global insurer capital
Change in global reinsurer capital
2
Allowing a structural shift in the way capital is raised and deployed and
compounding on the cyclical changes
Structural Industry Changes:
 Potential investor pool is broadening to
pension funds, sovereign wealth funds, and
high net worth individuals
 New investments in innovative
structures offering access to quality
business at a relatively low cost
 Re/Insurers shifting away from ‘cost savings
lever’ to using alternative capital as
‘strategic growth enabler’; earning fees for
their underwriting
 Some questions remain, but most expect
the new capital to stick around even if
markets rebound and losses develop
 Alternative capital now moving into
primary sector… continuing to focus
mostly on Cat-related risks (short tail,
quantifiable)
3
Examples:
• Funds
– Acapella
– Stoneridge
• Sidecars
• Unique structures:
– Ace Blackrock
– Watford Re
Alternative capital is on track to reach $150B by end of 2018, ~20% of market
Alternative capital trends
 Growth in traditional
reinsurance capital was
4% in 2014, compared to
28% in alternative capital
 Collateralized reinsurance
growth rates increasing
pace
 Catastrophe bond
issuance in the first quarter
of 2015 was USD1.7
billion—the most of any
first quarter in history
 On track for USD150
billion by the end of 2018
4
Global Risk Management Survey Risk Ranking
5
Top ten risks
Aon Risk Solutions | Global Risk Consulting
Proprietary & Confidential
6
Risks increasing in prominence
7
Difference in Risk Perception
8
Top 10 risks in the next three years
9
What does this all mean?
10
Conclusions
Strategically, the ability to meet client needs, innovate, and create the entrepreneurial
environment bodes well for the business if we rise up to the challenges facing the
industry
Structural Changes
in market create
opportunity
 Structural changes hitting at same time as cyclical pressures
 Very excited by the structural changes and the opportunities
it brings
 Low cost and abundant capital can fuel strategies
Content knowledge
and capability key
differentiators
 Content is the battle-ground between manufacturing and
distribution and links capacity with demand
 Dynamics are set up well for innovation and growth in 3 key
areas
 Will the insurance and reinsurance market grab the
opportunity?
Abundance of capital  Insurers, reinsurers, brokers all trying to accentuate the value
they bring to the market
upsets traditional
 Everyone is trying to get closer to the clients, gain efficiency
market order
and make sure they stay relevant in the shifting market
11
September 23, 2015
Damage to Reputation & Brand
Melissa Lackey, President & CEO, Standing Partnership
Chip Lerwick, Business Development Aon Risk Solutions
12
Welcome to the New World of Reputation Risk Management
“The top priority – trumping everything else, including profits
– is that all of us continue to zealously guard Berkshire’s
reputation……We can afford to lose money – even a lot of
money. But we can’t afford to lose reputation – even a shred
of reputation.”
- Warren Buffett
Memo to Berkshire Hathaway’s
Managers and Directors
December 19, 2014
13
A “Brand Event” causing a 20% Drop in Value
is likely Once every Five Years
80% of firms will
suffer a 20%
reduction in the value
of their brand once
every 5 years
Source: Risk That Matters, Oxford Metrica
14
Top 10 Reputational Events 2011
Date
Company
Event
Value %
Reaction 1
$m
March 11
TEPCO
Japanese Earthquake
-89.6
-37,368
August 18
Dexia
Exposure to Greek Debt
-87.3
-3,990
September 27
Diamond Foods
Accounting Irregularities
-77.8
-1.406
October 14
Olympus`
Accounting Irregularities
-57.8
-5,062
October 10
Research in Motion
Service Disruption
-49.7
-6,097
January 3
Renault
Industrial Espionage
-35.9
-6,266
April 16
Sony
Computer Hacking
-35.9
-10,679
July 29
Qantas
Industrial Dispute
-17.0
-795
September 15
UBS
Rogue Trader
-13.2
-6,294
July 4
News Corp
Phone Hacking Scandal
3.2
1,529
1
Value Reaction is a proprietary metric of Oxford Metrica which measures the impact on share price performance of an event or portfolio of
events. It captures the firm-specific impact of the event, with all market-wide factors stripped out and returns risk-adjusted. Value reaction is
provided in both percentage and dollar terms.
15
Winners and Losers of a Reputation Event
16
Case Study #1 Melamine Tainted Pet Food – Menu Foods
Loss of Value
($Canadian)
Menu Foods Income Fund unit prices, in Canadian dollars, October 2006 to October 2007. The prices dropped sharply after
the first recall on March 16 and again after June 11 and August 15, when Procter & Gamble withdrew its contracts. Mars
Petcare also withdrew contracts in August. Source: Stockhouse company snapshots
17
Case Study #2 Research In Motion – Service Problems
Research In Motion: Graph depicts the underlying raw data where the downward spikes in performance are visible clearly.
The accumulation of this continuing succession of sudden drops in value has resulted in the company now losing 87% of its
value in the eighteen months since the start of 2011. Source: Oxford Metrica 2012 Reputation Review
18
Case Study #3 - Coca Cola Enterprises Contamination Scare
Belgians reeling MCD & Dioxin
100 sick and deaths 0
$200 million
01/1999
Value Reaction is a proprietary metric of Oxford Metrica which measures the impact on share price performance of an
event or portfolio of events. It captures the firm-specific impact of the event, with all market-wide factors stripped out and
returns risk-adjusted. Value reaction is provided in both percentage and dollar terms.
19
Case Study #4 - Entire Industry Can be Affected
20
What is Reputation?
Reputation rests at the intersection of three key areas of business
strategy and governance that build trust when aligned.
Financial
Stability
Business
Operations
Social
Impact
21
What is Reputation?
Reputation is driven by the judgments and perceptions of
your key stakeholders.
How
organization
perceives
itself
How
stakeholders
perceive
organization
22
Challenges to Managing Reputation Risk
 Reputation is “owned” by stakeholders; brand is “owned” by the
company
 Reputation is the accumulation of daily decisions made across the
organization
 Organizations are often not well-equipped to manage reputation risk
Reputation is
not on the
RISK agenda
Risk is not on the
REPUTATION
agenda
23
Reputation Resiliency
Manage consequences of
events (crisis management)
Prevent conditions of risk
(enterprise risk management)
24
Organizations with poor reputation resiliency struggle to
prevent and manage the consequences of reputation risk.
25
However, resilient organizations can restore trust and
reputation after an event, effectively managing the
consequences of reputation risk.
26
Reputation Risk Analysis
What if we are perceived to have
poor…
Likelihood of
happening
Impact if it
does
Working conditions
Fraud and corruption
Quality issues
Lack of innovation
Governance failures
Supply chain issues
Stakeholder scrutiny
Privacy/data breach
Product recall
Employment discrimination
Executive compensation
Negative impact on society
Environmental degradation
Workplace safety
Tax evasion
Compliance failures
27
Speed of
onset
Our
preparedness
Reputation Risk Analysis: Likelihood vs. Impact
28
Link Business Strategies to KRRIs
KRRI = Key Reputation Risk Indicators
29
Sources of Reputation and Threats
Sources of Reputation
Threats that Trigger Reputation Damage Events
• Strategic Initiatives
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
• New Product Launches
and developments
• Advertising or other
Promotional Campaigns
• Changes in Leadership
• Catastrophic Events
Leadership
• Developments in Investor
Relations
Data Breach/IT Security
Service Disruption
Leadership and Governance Issues
Major Litigation, Criminal Proceedings and Regulatory Actions
Allegations over Business Practices
Spokesperson Crisis
Environmental or Climate Change Impairment
Industrial Espionage/Counterfeit Goods
Loss of Key Executive
Major Litigation/Mass Tort
Accidental or Malicious Product Recall/Contamination
Workplace Violence
Blackmail & Extortion
Personal Endorser
Product or Service Boycott
Detention or Kidnapping
Restatement of Financial Information
30
Aon Global Risk Consulting, how we help clients
Aon Global Risk Consulting (AGRC) helps clients understand and improve their risk profile.
We do this by identifying and quantifying the risks they face; by assisting them with the
selection and implementation of the appropriate risk transfer, risk retention, and risk
mitigation solutions; and by ensuring the continuity of their operations through claims
consulting.
31
Enterprise Risk Management
32
Business Continuity Planning
Site Crisis Mgt.
Team/Plan
Emergency
Management
Team / Plan
Operational
Recovery
Team / Plan
Communication – Reporting Protocol & Hierarchy
Life Safety,
Event Stabilization
& Assessment
Leadership, Control,
Decision Making &
Communication
33
Restore &
Recover
WorldAware
34
Current Risk Transfer Offerings
Nature of Coverage
Crisis Management
Consulting Services.
No Financial Loss
Financial Loss
Financial Loss and other
consequential losses
related to crisis
Crisis Management
Firms
Porter Novelli or Burson
Marsteller (WPP
Companies)
N/A
N/A
Covered Perils
All Risk
All Risk or Specified Perils
All Risk
Target Market
Middle Market and Larger
B2C Firms – Large and
Midsize
Publicly traded firms
Available Limit
$25M aggregate
€50M - € 180M in the
aggregate
$100M aggregate
Minimum Retention
$10,000
Negotiable
Time based retention
Co-Insurance
Requirement
Yes – Consistent
throughout coverage
Yes – Negotiable
10% Estimated
Negotiable
Maximum Length of
Coverage
One Year after Crisis Event
One Year
One Year
35
September 23, 2015
The Affordable Care Act & Healthcare Strategy
Marc Skale, VP – Health & Benefits, Aon Hewitt
36
Agenda
 Overview
 ACA Topics
– Excise Tax
– Exchange Strategy
– ACA Reporting
 Summary of Current US Healthcare Outlook
37
Overview
Disruptive Change is Here to Stay
Market Response
Key Catalysts
New Models
Provider
Reorganization
 Mergers and consolidation
 Movement from Fee-for-Service (FFS)
to Fee-for-Value (FFV)
 Access pressure
 Shift to employed physicians
Health Plan
Transformation




Mergers and consolidation
New roles and expanded markets
Narrow and tiered networks
Local focus
Workforce
Expectations




Generational shift
Greater incentives to shop for providers and drugs
Demand for transparency
Make it personally relevant




Defined contribution
Opportunity to outsource or exit
Local strategies
Shift from focus on health benefits to overall
experience
 ACOs
 Narrow networks
New Markets
 Exchanges
 Federal subsidies
 Medicaid expansion
New Costs
• Cadillac tax
• Shared responsibility
payment
• Cost-shifting
Employer
Evolution
38
Excise Tax Basics
 The Health Care Reform Excise Tax (“Cadillac Tax”) is 40% of any dollar amount
beyond the pre-set caps beginning in 2018 ($10,200 for individuals and $27,500 for
families)
 The tax is applied per enrolled employee depending on the total cost of the enrolled plan
 Liability is based on estimated Total cost
– Neither plan design nor employee premium amounts directly influence the calculation
(other than how they impact total cost)
• An increase to employee premiums does not reduce liability
• A rich plan with healthy participants may have minimal liability, and
• A low value plan with unhealthy participants could have a very large liability
 Final regulations have not been released and clear guidance will likely not be available
until sometime in 2017
– So companies have to plan with the best interpretation of currently available
information
39
Excise Tax
Sample Liability Estimate
Excise Tax (Not Tax
Deductible)
2018 Estimated Coverage Cost
Option Name
Status
Active Plan 1
Active
Active Plan 2
Active
Active Plan 3
Active
Bargained Plan
Active
Pre-65 Retiree Plan
Retiree
TOTAL
Tier
Estimated
Enrollment
Single
Family
Single
Family
Single
Family
Single
Family
Single
Family
160
275
44
128
138
337
26
81
75
59
1,323
Cost Per
Enrolled
Member
$ 7,250
$ 17,535
$ 7,910
$ 18,478
$ 8,415
$ 20,144
$ 8,704
$ 20,455
$ 12,597
$ 26,899
Aggregate
Premium
$5,980,000
$2,710,000
$7,950,000
$1,880,000
$2,530,000
$21,050,000
Excise Tax (Pre-Tax
Equivalent)
Year
Estimated 10 Year PV of
Estimated 10 Year PV of
Crossing Excise Tax in
Estimated Excise Tax in
Estimated
Threshold
2018
Excise Tax
2018
Excise Tax
2029
$
0
$
0
$
0
$
0
2033
2026
$
0
$ 5,240
$
0
$ 8,060
2031
2024
$
0
$ 85,900
$
0
$132,000
2028
2023
$
0
$ 27,800
$
0
$ 42,800
2028
2018
$ 22,400
$898,000
$ 34,500
$1,380,000
2023
$ 22,400
$1,016,940
$ 34,500
$1,562,860
Excise Thresholds:
For active employees, the thresholds used for this calculation were $10,200 for individual coverage and $27,500 for family coverage
For Pre-65 retirees, the thresholds used for this calculation were $11,850 for individual coverage and $30,950 for family coverage
Assumptions
Non-single coverage combined and underwritten as family ("other than self-only coverage")
Pre-Tax equivalent assumes that the medical vendors will be assess a 35% tax liability on the penalty which may be passed on to the plan sponsor
Present value calculation of the Excise Tax assumes 5.00% discount rate, and reflects the present value of the excise tax from 2018 - 2027 as of 1/1/2015
Estimated costs include the following expenses: medical, prescription drugs, HRA (if any), and HSA employer seedings (if any)
Plan costs are estimated by trending 2015 premium equivalent rates
Assumed no plan design, network, or other changes affecting expected costs (besides trend) between 2015 and 2018
Calculations are for illustrative purposes only. Excise tax estimates are subject to change, pending guidance and regulations
40
Excise Tax
Preparing Employees
41
Excise Tax
Preparing Employees (Cont’d)
 Enrollment in higher deductible plans has increased significantly in the past several
years (Somewhat attributable to planning ahead for 2018)
 Will the ACA “Silver Plan” (70% actuarial value) become the new norm?
– Sample Plan Provisions: $3,000 deductible, 80% coinsurance, $6,000 OOP Max
42
Exchange Strategy
Creating a Roadmap
Current State:
Annual Plan
Management and
Trend Mitigation
Manage Risk:
House Money, House Rules
Future State:
Continual Health and
Performance Focus
Transfer Risk:
Defined Contribution and
Exchanges
Employer strategies over the next 3-5 years:




37% plan to shift to a defined contribution (DC) strategy
33% anticipate moving to a private exchange (overlaps with DC
approach)
57% plan to stay the course (or evolve current strategies)
5% would consider exiting
Mission Critical: Attracting and Retaining a Healthy and High Performing
Workforce Within the Desired Financial Parameters
43
Exchange Strategy
Possible Glidepaths
Start
2015
2016
2017
2018 and Beyond
Health and Wellness - Our commitment to better health and productivity
Incent healthy
behaviors
Increase skin in the game
Continue shift from participation to results/outcomes. . .
COMPANY POSSIBLE GLIDEPATHS
STAY THE COURSE
Internal Management: Company controls design and delivery
 Aggressive health plan management
 Maintain structure of current health care
program
 Focus on consumer engagement
 Continue movement towards desired
financial targets
SHIFT TO HIGH DEDUCTIBLE PLANS
Internal Management: Company controls design and delivery
 Increase employee accountability
 Encourage more employee involvement in
health care decisions
 Consolidate PPOs and introduce High
Deductible Health Plan
 Continue movement towards desired
financial targets
PRIVATE CORPORATE EXCHANGES
Private Corporate Exchanges: Company outsources responsibility
 Transfer responsibility of health plan
management
 Contribute to subsidized premiums
 Offer employees enhanced choices and
flexibility
 Company provides subsidy for
employees to purchase group plans
 Potential to reduce financial volatility
and overall cost
 Defined contribution approach shifts
risk to employees
PUBLIC INSURANCE MARKETPLACE
Public Insurance Marketplace: Company no longer offers healthcare program
 Support employees in navigating and
purchasing insurance through Public
Insurance Marketplace
 Not available without penalty until 2017
 Company no longer provides a health
care program (only financial support)
 Company responsible for ACA Pay-orPlay penalty ($2,000 per
full-time employee)
 Consider elimination of richer plan
options
 Expand consumer tools and access
 Consider elimination of remaining PPO
option
 Expand consumer tools and access
 Company manages subsidy but has
limited control over
plan design/vendors
 Success/Cost tied to employee health
but also overall success
of marketplace
 Manage company subsidy
 2017 Public Marketplace opens to
group plans
44
 Continue to increase employee
accountability through plan design and
wellness programs
 Avoid Excise Tax
 Only offer High Deductible Plan
 Avoid Excise Tax
 Markets continue to evolve
 Markets continue to evolve
ACA Reporting
 6055 / 6056 Reporting
– All employers with 50 or more full time employees have reporting requirements
• 6055 reports the Minimum Essential Coverage portion of the requirement
• 6056 reports the Affordability portion of the requirement
– These reports allow the IRS to determine if an employer owes any penalties under
the shared responsibility provision of Health Care Reform and also confirms to
employees if their employer sponsored health plan meets the minimum value
coverage and affordability requirements
– For calendar year 2015, forms are required to:
• Be filed with the IRS by February 29, 2016 (March 31, 2016, if filing
electronically)
• Sent to individuals by February 1, 2016
 Who will own this responsibility
– HR, Finance, IT, Insurance Company, Broker/Consultant, other?
– For some organizations, this is still not clearly defined
45
Summary of Current US Healthcare Outlook
 Costs will continue to rise at 6% - 8% annually
 Health Care Reform will continue to drive market changes
– As the law evolves (through clarifications and/or revisions)
– As we get closer to the adoption of the Excise Tax
 Employers will respond/react and finds ways to mitigate cost increases through
– Plan design changes
– Tighter network controls
– More aggressive health management
 The health care delivery system (insurance contracts, physician and hospital
reimbursement, etc.) will evolve through payment reforms and financial models built on
greater overall accountability
– Likely cost neutral to slightly higher costs in the short-term
 Exchanges (both public and private) will become an increasingly larger part of the
equation and could eventually form the platform for employers to exit their health care
offerings overall. . . but we are likely still several years away from that becoming reality
46
September 23, 2015
Business Interruption and Property Damage
Chris Dineen, Director – Claims Preparation Practice, Aon Risk Solutions
47
What Risk Managers Want
 Collaborative adjustment process
 Minimal involvement of key executives
 Expectations to be managed throughout
 Accurate loss quantification - no surprises
 Good faith negotiation
 Significant and timely advance payment(s)
 Reasonable settlement in reasonable time
 Strong foundation for future market relationship(s)
48
Typical Players in a Complex Property Damage and
Business Interruption Loss
INSURER(S) TEAM
POLICYHOLDER TEAM
Risk
Management
Operations
Facilities &
Maintenance
Legal &
Compliance
Accounting &
Procurement
Engineers
Cause & Origin
Building, M&E
Process
Claim
Documentation
Coordinate
Contractors
& Vendors
Project
Manager
Loss
Adjuster
Support
Compliance
& Legal
Other Experts
Salvage Companies
Dispute
Compliance
& Legal
Forensic
Auditors
Forensic
Accounting
49
Underwriters
Claims
Management
Legal &
Compliance
Accounts
Payable
Claims
Committee
Sales &
Marketing
Reinsurers / Shareholders
Stakeholders / Investors
Finance &
Treasury
Everyone Has a Different Perspective
What Property
Insurers Need
• Loss Data for Reserves
• Information so they can
advise Policyholder
• Documentation
• Loss Mitigation
• Information for
Reinsurers
Understand
Needs
Useful Data
Claim’s Team (adjusters,
Insurers experts, claim
preparation team)
Confirm Facts
What Risk Managers
and Operations Need
• Return to Operations
• Quick Decisions
• P&L Relief - $$$
• Put the Loss Behind
• Normalcy
• Finality
Document
50
Bricks and Mortar – The “Obvious” Losses
 Building
 Equipment
 Supplies
 Inventory
− Finished Goods
− Work-in-Process
− Raw Materials
 Extra Expense
51
Not All Areas of Loss are as Obvious
Interdependent
Facilities
Cost Inefficiencies
Unfavorable Product
Mix
Fixed Supplier Costs
Lost Customer
Contracts
Payroll Impact
Lost Market Share
Inventory
Replenishment
Off-quality production
BUSINESS
INTERRUPTION
52
Early Decisions
 Rebuild “As Was”? Improve? Move?
 Repair or replace machinery?
 Repair now or later?
 Alternate source of product?
 Utilize competitor’s capacity?
 Temporary or alternate facilities?
 What is the cost/benefit of the above?
 Strategy and planning!!
53
Strategies and Planning
“Everyone has a plan ‘till they get punched in the mouth”
-Mike Tyson
54
Property Damage
 Repair or replace?
− A 20 year old piece of equipment can be repaired, but it will still be
a 20 year old piece of equipment with some new components
− If like kind and quality takes 2 months but an upgraded model is
available in 2 weeks, insurers may want to reduce the BI loss
− Replace means new
55
Business Interruption
 The purpose of BI coverage is to do for the insured what it would have
done for itself had there been no loss.
 Coverage triggered by physical damage
 Net profits, continuing expenses and expenses incurred to reduce
loss
 Extra expense to stay in business
 Period of Interruption
 Period of Indemnity
 Extended Period of Indemnity
56
5
BI: Typical Quantum and Coverage Issues
 Quantum
– Did lost production result in lost sales?
– Should wider effects be taken into account?
– CBI: was loss caused by direct supplier?
 Coverage
– Was loss caused by covered peril (e.g., wind vs. flood; EQ vs. flood;
EQ vs. fire-following; flood vs. storm surge)
– Ensuring loss arising from non-covered cause, e.g., corrosion
– Was loss “caused” by physical damage?
– Does the entire loss fall within the Period of Indemnity?
57
Coverage for Indirect Exposures
 Contingent Business Interruption
 Contingent Extra Expense
 Interdependent Properties
 Law and Ordinance/Civil Authorities
 Ingress/Egress
 Attraction Properties
58
What to Expect During the Adjustment Process
1.
This is your company. You are responsible for the safety and security
and the control of the premises. Insurers and its consultants can request
and recommend but they can not dictate what you do. However, there
may be financial consequences associated when you do not cover your
bases. In the end, you catch more flies with honey than with vinegar.
2.
An insurance policy is a transfer of some, but not all, risks to a third
party. While you would hope that most if not all of the financial costs are
within the policy, expectations should be managed.
3.
Be a leader for the insurance company and not a follower!
4.
If at all possible, bring the adjuster and the insurer in on key or
controversial decisions up front. Otherwise, hindsight can and will be
used against you. The Risk/Reward Pendulum.
5.
There should be strategy involved in your restoration as well as in your
claim handling. Know what you want and don’t be afraid to ask.
59
What to Expect During the Adjustment Process
6.
Document as you go along. Otherwise, you will have to rely on
memories 3 months, 6 months, 9 months or a year down the line.
7.
Create a single source of information flow to insurers. Electronic
databases and files will eliminate the need to re-find everything if the
engineers get something, and then the accountants request the same
thing, and then the adjuster wants a copy, and then the subrogation
attorney needs something, etc.
8.
Avoid the “Box of Donuts in the break room” pitfall. One claim team
individual should be aware of insurers or their representatives meeting
with individuals outside the claim team. Unfettered access to multiple
individuals at anytime is not recommended. Human nature is to stop
asking questions when you hear the answer you expect!
9.
Resolve factual issues based on the facts. Get the facts straight.
10. It ain’t over ‘till it’s over.
60
When to Expect Pushback – Insured Version
1.
You are telling me you know my business better than I do?
2.
A little dusting, some duct tape and a paint job and that machine will be
good as new.
3.
You want to talk to my customer or supplier because you want to know
why they didn’t order from me after my plant blew-up?
4.
So because I show lots of inventory, you think I couldn’t have lost sales?
5.
Your consultant who surfs the net knows more than the 3 contractors
who submitted proposals for the replacement structure.
6.
I keep sending you documents, but you say it is not enough, but you
never say what you are trying to achieve. I am not a mind reader.
7.
After working on this loss for 6 months, now you bring up that this may
not be covered?
61
When to Expect Pushback – Insurer Version
1.
We need to replace something because the salesperson for the OEM
says we need a new one.
2.
This loss could not have come at a worse time, my business was just
about to take-off.
3.
That needs be replaced because after you fix my 25 year old piece of
equipment, it will not be warrantied.
4.
It was projected to take 6 months to repair the plant, but it took 12
months by the time all was said and done.
5.
The maintenance guy said one thing, the engineer said another and the
risk manager told me something different.
6.
You don’t need those documents because I have an Excel spreadsheet
that shows everything you need.
7.
Do you know who we are? We don’t need to provide documentation. I
will call the head of Big Insurance Company on this $10,000 issue.
62
I Would Bet They Have a Problem - Tunica, MS
63
Large Losses Have Lasting Implications
64
It’s Not Just You and Your Neighbor
65
What Can Happen, Has Happened
66
Retaining wall collapsed
67
This is Horrible, My Bridge Collapsed. How Can It Get Any Worse?
68
It Got Worse
69
Flooded Sanitary District
70
Flooded Administration Building
71
Analog vs. Digital
72
Juarez, Mexico – Is this a supplier location?
73
What Did We Lose? Fixed Asset Register?
74
Where to start? Journey of a thousand miles…
75
Repair vs. Replace
76
Repair vs. Replace
77
Our Official Advice
 Take the lead in negotiating settlement
 Understand strengths, weaknesses, and trade-offs
 Remember that “reasonable” is subjective
 Resolve differences item-by-item
 Seek win-win compromises
 Resist time pressures
78
Our Unofficial Advice
 Never divulge your flight time
 Withhold all food and water
 Never give them your “number”
 Know when to hold ‘em
 Know when to fold ‘em
 No deal is better than a bad deal
79
Questions?
Chris Dineen, PE, CPCU, Director
Aon Global Risk Consulting
Chicago, IL
chris.dineen@aon.com
312-381-3266 office
630-215-6571 cell
80
September 23, 2015
Attracting & Retaining Talent – Communication
of Total Rewards
Andy Rix, Midwest Market Leader – Communications Practice
Aon Hewitt
81
Objectives and Agenda
Objectives
 Understand What Is Driving People Risk Inside The Organization
 Highlight The Disconnect Between What Employers Are Doing And What
Employees Want
 Explain the Need for a Powerful Employment Value (EVP) Proposition
 Discuss the Concept of Marketing Rewards as Part of the EVP
Agenda
 People and Risk
 Engagement Trends
 Perception of the Employment Experience
 Attracting and Retaining Talent—The Employment Value Proposition
 Marketing the Employment Experience—Total Reward Statements
82
People and Risk
83
Global Risk Management Survey—People and Risk
Employee/People-Orientated Risk – Direct Impact
Employee/People-Oriented Risk – Indirect Impact
84
Engagement Trends
85
2015 Global Employee Engagement Trends
Global
GLOBAL EMPLOYEE
ENGAGEMENT
IS ON THE RISE
AND STEADYING FOLLOWING
GLOBAL ECONOMIC
STABILIZATION
North
America
North America
Europe
Asia
Pacific
Africa/
Middle East
Latin
America
Source: Aon Hewitt Database
86
NA Employee Engagement Continues To Rise Gradually
Trends in NA Employee Engagement (2010-2014)
87
Changes In The Overall Work Experience
Largest changes in the Global Work Experience 2013 to 2014
People/HR Practices (-5)
People Focus (-6)
Resources (-7)
Despite some steady
increases in employee
engagement, these trends
point to a general work
experience of frustrated
engagement
Senior Leadership
(+5)
EVP (+3)
Manager (+2)
Largest changes in the USA Work Experience 2013 to 2014
Senior Leadership
(+10)
Communication (+7)
Valuing People/People
Focus (+5)
88
Career Opportunities (-7)
Autonomy/Choice (-6)
Resources (-6)
Sense of Accomplishment (-5)
Companies Continue To Struggle With Providing Growth
Opportunities For Employees
Engagement Score 2014
62%
66%
57%
64%
71%
67%
Engagement Change from 2013
1%
1%
0%
3%
1%
6%
Drivers
Positive
Perception
Perception
Change
(2013 Rank)
2014
Global
Rank
(2013
Rank)
North
America
Europe
Asia
Pacific
Latin
America
Africa
Middle
East
USA
2014 Engagement: 63% (=)
Career
Opportunities
-7pts
Innovation
+2pt
Org Reputation
Career
opportunities
44%
-3%
1(1)
1
1
1
Organization
Reputation
59%
0%
2(3)
3
2
4
Pay
46%
0%
3(4)
3
5
3
5
Brand
Alignment
56%
3%
4
5
2
4
2
Innovation
53%
1%
5
Managing
Performance
57%
0%
(2)
Communication
47%
0%
(5)
Valuing
People/People
Focus
59%
-6%
People/HR
Practices
51%
-5%
Recognition
51%
1%
Work
Processes
55%
0%
Senior
Leadership
60%
5%
4
4
1
1
=
Managing
Performance
-1pts
Brand
Alignment
+3pts
5
2
5
4
3
89
2
3
The Importance of Segmentation
90
What Can We Learn From Best Employers?
Aon Hewitt Best Employers measures four
factors that contribute to an organization
being a best employer and achieving
sustainable business results.
Engagement
Index
Employees
speak positively
about the
company, are
emotionally
attached and
motivated
Leadership
Index
Performance
Index
Employer
Brand Index
Leaders and
managers
engage
employees in
the vision and
lead the
company to
success
Employees are
aware of
company goals
and their
personal
contribution to
achieve high
performance
The company
enjoys a
continuous
supply of
qualified talent
needed to
achieve
business goals
91
Perceptions of the Employee Experience
92
What Differentiates the Employment Experience
Differentiators
Differentiators
Fun place to work
• Fun place to work
• Flexible work
environment
• Innovation
Flexible work environment
Innovative
Good fit with my values
Provides stimulating work
Financially successful/market leader
Great employees
Expectations
• Communicates
completely and
honestly
• Recognizes strong
achievements or
performance
• Collaborative and
encourages teamwork
Provides meaningful work
Provides good pay and benefits
Empowers employees
Good corporate citizen (environmentally/socially responsible)
Great internal and external reputation
Provides good career and/or development opportunities
Provides valuable work tools/resources, including technology
Strong management and leadership team
Collaborative and encourages teamwork
Recognizes strong achievement or performance
Communicates completely and honestly
Expectations
93
What First Attracts Employees
When recruiting employees, pay, benefits, and flexibility top the charts.
Characteristics that first attracted me to my employer
52%
Has a flexible work environment
35%
Is financially successful or a market leader in areas in which it competes
31%
Provides meaningful work
29%
Provides good career and/or development opportunities
29%
Has great employees
27%
Has a great reputation with customers/clients
26%
Is a fun place to work
24%
Is a good fit with my values
23%
Provides stimulating work
21%
Encourages collaboration and teamwork
17%
Recognizes strong achievement or performance
16%
Has a strong management and leadership team
15%
Is a good corporate citizen (environmentally and socially responsible)
14%
Provides valuable work tools and resources, including technology
14%
Is an innovative organization
12%
Is an organization that empowers employees
11%
Communicates completely and honestly
10%
0%
94
10%
20%
30%
40%
50%
60%
Where Improvements are Needed
Employees see room for improvement in pay
and benefits, recognition, and communication.
Qualities that I would most like to see improved
to increase overall engagement or satisfaction
24%
42%
Recognizes strong achievement or
performance
8%
27%
Communicates completely and
honestly
10%
24%
Provides good career and/or
development opportunities
7%
Has a flexible work environment
7%
Has a strong management and
leadership team
7%
23%
22%
19%
0%
Ranked 1
10%
20%
30%
40%
Ranked 1, 2, 3
95
50%
How Employees Describe their Experiences
Employees view employers as focused on the bottom-line and
would like focus on recognition, respect, and loyalty.
Words I use to describe my
current employer
Words I would like to use to
describe my current employer
Rank
Teamwork
Customer satisfaction
Profit
Quality
Brand image
Productivity
Accountability
Cost reduction
Financial stability
Community involvement
Making a difference
Employee recognition
Bureaucracy
Diversity
Responsibility
Rank
Employee recognition
Respect
Loyalty
Balance (home/work)
Teamwork
Open communication
Fairness
Honesty
Accountability
Trust
Positive attitude
Employee health
Employee engagement
Professional growth
Financial stability
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
96
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
The Biggest Gaps
Employees are looking for a more “human” workplace.
97
How Employees Value their Total Rewards
98
How Well Employees Understand Their Total Rewards
Some of the most valued total rewards are also the least understood.
At my place of employment, I have a good understanding of…
Total rewards overall
77%
14%
4%4% 1%
Vacation and holidays
84%
8% 2%4%2%
Base pay
83%
9% 3%4%
1%
Medical coverage/insurance
80%
11% 3%4%2%
Dental coverage/insurance
78%
11% 4% 5%2%
Company match and/or basic contributions to 401(k)-type plans
77%
11% 4% 6%2%
Life and disability insurance
70%
Pension plan
67%
Bonus (incentives and commissions)
64%
Career development/training programs
61%
Work/Life balance programs
60%
Strongly Agree/Agree
Slightly Agree
99
Slightly Disagree
17%
14%
15%
20%
19%
5% 6%2%
6% 10% 3%
7%
8%
7%
Disagree/Strongly Disagree
11% 3%
8% 3%
8% 6%
Not Aware
How Employees View Their Total Rewards
Pay and bonus programs are perceived as least competitive.
Compared to what other employers are offering, this reward is…
40%
42%
Pension plan
41%
38%
Base pay
37%
Company match and/or basic contributions
to 401(k) savings plans
37%
Bonus (incentives and commissions)
36%
36%
Career development/training programs
34%
33%
44%
44%
14%
41%
18%
47%
36%
15%
27%
49%
34%
14%
30%
44%
44%
53%
30%
16%
20%
22%
14%
59%
Well Above/Above
100
About the Same
11%
Below/Well Below
How Perceptions of Total Rewards Differ by Engagement
Engaged employees view their
total rewards more competitively
Compared to what other employers are offering,
this reward is competitive….
24%
32%
29%
Bonus (incentives and comissions)
Career development/training
programs
Disengaged
101
54%
41%
29%
401(k)-type savings plan: company
match and/or basic contributions
55%
42%
Pension plan
Base pay
60%
40%
38%
50%
24%
37%
24%
37%
22%
36%
20%
36%
19%
33%
19%
30%
Engaged
All
52%
52%
52%
51%
34%
24%
52%
44%
42%
How Communication Perspectives Differ by Engagement
102
Where Employees Want More Communication
Employees want more communication about recognition and career
development.
The value and amount of communication received about…
Too Little
Valuable
Recognition of your efforts and achievements
46%
Career and development opportunities
72%
42%
Work/life balance and/or stress management
40%
Incentive/Bonus pay
40%
Base pay
38%
Personal finances/financial planning
38%
Changes in the organization
70%
67%
61%
75%
66%
35%
Feedback on your job performance
71%
33%
What's happening in your organization
30%
Financial performance of the organization
30%
Personal health and wellness
76%
71%
70%
26%
The organization's goals and priorities
73%
25%
Company-provided benefits
73%
23%
Your job
82%
22%
0%
20%
103
79%
40%
60%
80%
100%
How Employees View Effectiveness of Communication
Employees view communication along a spectrum.
Characteristics of communication at current employer
Fragmented
21%
Full of spin/concealing something
20%
Unclear
16%
Not helpful
15%
16%
Dated
Discourages participation and dialogue
19%
Uninspiring
21%
14%
0%
24%
21%
26%
20%
27%
21%
23%
22%
22%
Traditional
24%
20%
25%
Reactive
Irrelevant/untimely
22%
30%
24%
24%
23%
25%
23%
26%
20%
20%
29%
40%
104
33%
36%
Authentic/Straightforward
37%
Clear
38%
Helpful
31%
Proactive
32%
Contemporary
30%
Innovative
33%
30%
37%
60%
Complete
80%
Invites participation and dialogue
Inspiring
Relevant/Timely
100%
Attracting and Retaining Talent—
The Employment Value Proposition
105
An EVP Framework Aligns Employer and Employee Expectations
Four Steps to Delivering on the Employee
Organizational
Experience
Employee Aspirations,
Aspirations, Goals,
Goals, and Needs
and Needs
Desired Employee Experience
“The Deal”
Leadership & Talent
Management Strategy
Health
Strategy
Total Rewards
Philosophy
Content
Communication
Delivery
106
How Does an EVP Have Real Impact on an Organization?
An EVP must cut across all aspects of people and
talent management to be effective:
Employee Value
Proposition
Supporting Strategies
“The Products”
Total Reward
Strategy
Sets the direction
for all reward
programs,
including
objectives,
prominence,
competitiveness,
performance link,
choice and
flexibility, and
degree of sharing
of risk, cost, and
responsibility
Talent
Management
Strategy
Defines the
approach for
sourcing and
developing talent
and aligning their
performance and
behavior with
business objectives
Supporting Strategies
“The Experience”
Wellness
Strategy
Communication
and Branding
Strategy
Defines how the
organization
supports the
physical, mental,
and social
wellbeing of
employees to
ensure safety,
reduce absences
and increase the
energy,
productivity, and
engagement of
employees
Defines how the
organization
communicates with
employees to
ensure tone and
messages are
consistent with the
EVP and employees
feel informed and
empowered
107
Service Delivery
Strategy
Looks at how
employees engage
with the programs
offered by the
organization to
ensure that the
service experience
is cohesive,
efficient, and
satisfying.
Leadership
Effectiveness
Strategy
Ensures that
leaders and people
managers have the
skills and support
they need to
effectively interact
with employees
and do so in a way
that demonstrates
the desired culture
and reinforces the
EVP
Marketing the Employment Experience —Total
Reward Statements
108
Goals for Communicating Total Rewards
Here are five things a personalized total rewards statement can
accomplish:
1. Help employees recognize the full array of rewards you provide;
2. Raise awareness so employees see the value of their employment
experience;
3. Customize information for specific employee groups or locations;
4. Target specialized compensation and benefits information for
executives; and
5. Provide flexible communication methods—in print, online, or as
pdf snapshots.
More than 90% of employees surveyed said our personalized
total rewards statements were “important” or “the most
important” communication they receive from their employer.
- Aon Hewitt ROI Survey, Employee Feedback
109
Understanding Your Employees Opinion of Your
Total Rewards
It’s crucial to understand how employees feel about their total rewards.
110
Samples of Total Rewards Statements―Hidden Paycheck
A very common theme in total rewards statements is showing the
employees that full value of the company contribution to the employees
pay and benefits package—the hidden paycheck!
111
Total Reward Statements—Options for SMEs
112
An Online Approach to Total Rewards
Your Total Rewards (YTR) delivers personalized and targeted total
compensation information to employees at work, at home—wherever
they have Internet access:
Your Total Rewards:
 Detailed breakout of pay and benefit
programs
 Internet-based—accessible anytime/anywhere
 Responsive design enabling multichannel
access
 Flexible branding and design
 Scalable: 1 page to 40 pages
 Aggregates with frequent data refreshes
(assumes increased data automation)
 Targeted messaging capabilities to varying
populations
 Client authoring capabilities
 Online Printable Statement available on demand
113
Conclusions
 The world isn’t increasingly global…it is global!
 Talent is moving more freely around the world to the best employers
(and employers are moving to the talent)
 Some skill sets and experience have always been in demand—in high
tech and engineering through specialist nurses to certain classes of
truck drivers!
 As unemployment decreases the number of jobs subject to talent
competition will increase
 After years of recession and cost cutting, lower than optimal
engagement is rising again (but not fast)
114
Conclusions (continued)
 New generations of employees expect to engage with their employers
differently than their predecessors
 Employers need to develop an Employment Value Proposition to
attract the right talent to get the work done
 Total Reward will have to be marketed to employees as the
competition for talent increases
 Total Reward Statements are a cost effective way to better promote
what you are already giving your employees!
115
Additional Questions?
116
September 23, 2015
Cyber Liability & Computer Hacking
John Bourke, Cyber Insurance Leader – Financial Institutions,
Aon Service Corporation
117
Expanding Global Business = Evolving Cyber Exposures & Solutions
Section 1 - Cyber Exposures Landscape
•
•
•
•
•
Cyber Solutions Framework
Cyber Exposure Trends
Understand Cyber Exposures
Insurance Coverage & Gap Analysis
Consider Specific Cyber Insurance
Section 2 - Cyber Quantification and Modeling
• Value Opportunities
• Quantification
• Decision Making
Section 3 - Ponemon Institute Cyber Impact Study
• Value of Tangible Assets Compared to Intangible Assets
• Relative Frequency & Severity of Exposures (using
Probable Maximum Loss)
• Total Cost of Risk Financial Statement Impact
118
Aon Cyber Solutions Framework
Aon Cyber Diagnostic Tool
Aon Proprietary Peer
Benchmarking
D&O Cyber Risk
Evaluation & TCOR
Study
Captive &
Insurance
Management
Cyber Coverage
Gap Analysis
Aon Cyber Insight
Modeling
Network Security
Breach Table Top
Exercise
ERM Cyber
Services
IT Security
Assessment
Pre-Breach
Planning
Cyber Risk
Analytics
Incident
Response
Services
Aon Benfield
Reinsurance
Capacity
Claims Advocacy
Claims
Processing
Claims
Preparation
Accelerated
Claims
Closure
Cyber Evaluation
& Risk
Quantification
Risk Finance
Decision Platform
119
2015 Cyber Exposure Trends
Mobile Payments
Cloud Computing/Big
Data Analytics
•
•
•
•
•
•
Cloud provider risk oversight/security
Data storage and privacy laws
Data segregation
Data recovery
Provider solvency
Liability
Regulatory and Industry Changes
 EMV Chip & Pin transforms FI/Retail-Merchant/Card
Association Liability (October 1, 2015)
 EU Data Privacy Directive Amendments & Local Foreign
Country Laws
 ISO Endorsements excluding coverage from GL
Case Law
 Wyndham v. FTC: FTC Authority to police cyber security
Social Media
• Corporate vs. employee activity
• Network security, privacy, and social
engineering
• Defamation, product disparagement,
IP infringement, harassment, and
invasion of privacy
Regulatory (Domestic and International)
 Google v. Vidal-Hall: Damage recovery under Data Protection
Act of 1998 for non-pecuniary losses
 Travelers v. ServerLogic: Warranty exclusion voids coverage
 Spokeo v. Robins: U.S. Supreme Court granted Cert to
consider standing)
 CNA v. Cottage Health System (failure to comply with “regular
IT update requirements”)
 Travelers v. Federal Recovery Services: knowing conduct
exclusion
120
Cyber Diagnostic Tool
https://www.aoncyberdiagnostic.com/
121
Scope of Cyber Insurance Coverage
Defence Costs + Damages +
Regulator Fines
Insured’s Loss
• Failure of Network Security
• Wrongful Collection of
Information (some policies)
• Media content
infringement/ defamatory
content
• System Failure Business
Interruption (some policies)
• Dependent Business
Interruption (some policies)
• Intangible Asset damage
• Reputation Damage (some
policies)
122
• Crisis Management
• Breach-related Legal
Advice
• Call Center
• Credit Monitoring,
Identity Monitoring, ID
Theft Insurance
• Cyber Extortion
Payments
Expense/Service Sections
• All of the above when
committed by an
outsourcer
• Extra Expense
First Party Sections
• Privacy or Security related
regulator investigation
Expenses Paid to Vendors
• Network-related Business
Interruption
Liability Sections
• Failure to Protect/
Wrongful Disclosure of
Information, including
employee information
Benfield
Recent phenomenon
of inverted pricing as
carriers pull out or
charge higher
minimum rate
Captive or
fronting
Cyber Insurance Capacity
Reinsurance
Pricing
$1B
Excess $300M
2.5% - 5% ROL
($25M - $50M)
$300M
Potential Additional Cyber Limits
$200M
$$$
$10M Quota Share
$7K - $10K Price per MM
$50M Quota Share
$7.5K - $15K Price per MM
$10M
U.S. or Certain Lloyd’s of London
$10M
$10M
$10M
$20 - $50K Price per MM
London
$100M Total
Standalone Cyber
program for entities
with revenue > $1 B,
one layer program
with $5 MM or $10
MM total limits with
single carrier is still
most common
Capacity
Bermud
a
Bermuda
U.S.
EU
Lloyd’s
$100K – 10M+
Retention
123
$100M
Financial Statement Impact
Stephen Catlin,
Catlin Founder
(2015):
“Cyber attacks constitute the
biggest, most systemic risk I have
seen and should be covered by
governments as insurers’
balance sheets are not large
enough.”
SEC Commissioner, June 10, 2014:
“Boards that choose to ignore, or minimize, the importance of
cybersecurity responsibility do so at their own peril.
124
Cyber Insurance – Optimal Cyber Program
Insurable
Risks
Peer
Purchasing
Data
Scope of
Coverage/
Control
Contractual
Requirements
Maximum
Probable
Loss
Market
Limitations
Budget
Risk
Tolerance
125
Optimal
Program
Value Opportunities
 Integration with brokerage and risk
financing processes by generating
meaningful information to achieve the
following risk transfer objectives:
Maximize reward for
risk trade off,
including the
expected reward
 Incorporating Analytics into the
decision making process results in:
Guidance on placing
more efficient & better
suited risk transfer
programs
Control tail variance
and exposure
Disclosure of “why”
risk management
decisions are made
Raise probability of
meeting financial
targets
126
A “health check”
of current risk transfer
strategies
Quantification Risk Modeling – Understanding the Exposure
127
Quantification - Risk Modeling Outputs
First Party
Third Party
128
Design & Program Stress Testing – Are Alternatives More Efficient?
Expected TCOR
$ in millions
$ 30.00
$ 25.00
$ 20.00
$ 15.00
$ in millions
$ 10.00
Option 1
Option 2
Versus
Versus
Current
Current
$0.66
$1.91
$ 5.00
Criteria
$ 0.00
Current
Option 1
Expected Loss
Option 2
Premium
Expected Premium
CAT TCOR
Improvement
$0.43
$ in millions
Expected TCOR
$ 200.00
$ 180.00
$ 160.00
$ 140.00
$ 120.00
$ 100.00
$ 80.00
$ 60.00
$ 40.00
$ 20.00
$ 0.00
Improvement
$ 9.65
CAT TCOR
Current
Option 1
CAT loss
Option 2
Premium
129
Deterioration
Improvement
$0.45
Improvement
$ 27.16
Deterioration
How Does Cyber Analytics Guide Informed Decision Making?
 Provides guidance on the financial
impact of decisions about Cyber
risk and insurance
 Helps determine the impact of
program structure on
− Retained losses
 Gives organization-specific advice
to evaluate various insurance
program structures
− Insurance recoveries
− Losses in excess of insurance
coverage
 Provides quantitative results and
can be used in addition to
traditional benchmarking
− Premium value
130
Ponemon Institute 2015 Cyber Impact Study & Report
 To understand how organizations qualify and quantify the financial risk to their
tangible and intangible assets in the event of a network privacy or security
incident.
 A better understanding of the relative financial statement impact will assist
organizations in allocating resources and determining the appropriate amount of
risk transfer (insurance) resources to allocate to mitigate the financial statement
impact of network risk exposures.
 We surveyed 2,243 individuals in 37 countries in the following regions: North
America; Europe, Middle East, Africa (“EMEA”), Asia, Pacific, Japan (“APJ”) and
Latin America (“LATAM”).
 All participants are involved in their companies’ cyber risk management and
enterprise risk activities.
131
Key Takeaways From This Research
 Information assets are underinsured against theft or destruction based on the
value, Probable Maximum Loss (“PML”) and likelihood of an incident occurring,
even though PML can exceed $200 million.
 Disclosure of a material loss of PP&E and information assets differs. Fifty
percent of respondents say their company would disclose the loss of PP&E in
its financial statements as a footnote disclosure. However, 34 percent of
respondents say a material loss to information assets does not require
disclosure.
 Despite the risk, companies are reluctant to purchase cyber insurance
coverage. Fifty-two percent of respondents believe their companies’ exposure
to cyber risk will increase over the next 24 months. However, only 19 percent of
respondents say their company has cyber insurance coverage.
 Thirty-seven percent of companies in this study experienced a material or
significantly disruptive security exploit or data breach one or more times during
the past two years and the average economic impact was $2.1 million.
132
The percentage of PP&E and Information Assets Covered by Insurance
60%
51%
50%
40%
30%
20%
12%
10%
0%
The percentage of potential loss to PP&E assets
covered by insurance
133
The percentage of potential loss to information assets
Companies value PP&E Higher than Information Assets
$900
$848
$815
$800
$700
$600
$500
$400
$300
$200
$100
$0
Total value of PP&E
Total value of information assets
Extrapolated value ($millions)
134
The PML value for PP&E and Information Assets
The value of the largest loss (PML) that could result from
damage or the total destruction of PP&E
$648
The value of the largest loss (PML) that could result from
the theft and/or destruction of information assets
$617
$0
$100
$200
135
$300
$400
$500
$600
$700
The Impact of Business Disruption to Information Assets and PP&E
$250
$207
$200
$150
$98
$100
$50
$0
Estimated loss to information assets
Estimated loss to PP&E
136
Percentage of PP&E and Information Assets Covered by Insurance
Extrapolated Value
70%
58%
60%
51%
50%
40%
28%
30%
20%
12%
10%
0%
The percentage of potential The percentage of potential The percentage of potential The percentage of potential
loss to PP&E covered by
loss to information assets
loss to PP&E that is selfloss to information assets
insurance
insured
that is self-insured
137
Likelihood of loss to PP&E and Information Assets Totaling More than 50
Percent and 100 Percent of PML Over the Next 12 Months
The likelihood of a loss to information assets totaling no
more than 50 percent of PML over the next 12 months
4.6%
The likelihood of a loss to information assets totaling
100 percent of PML over the next 12 months
2.5%
The likelihood of a loss to PP&E assets totaling no more
than 50 percent of PML over the next 12 months
1.6%
The likelihood of a loss to PP&E assets totaling 100
percent of PML over the next 12 months
0.5%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%
Extrapolated percentage
138
How Would Your Company Disclose a Material Loss to PP&E and
Information Assets?
60%
50%
40%
50%
36%
34%
30%
21%
20%
14%
15%
12%
10%
10%
4%
4%
0%
Footnote disclosure in Disclosure as a
the financial
contingent liability on
statements
the balance sheet
Discussion in the
management letter
None – disclosure is
not necessary
Methods to disclose a material loss to PP&E assets not covered by insurance
Methods to disclose a material loss to information assets not covered by insurance
139
Other
Awareness of the Economic and Legal Consequences From an
International Data Breach or Security Exploit
60%
56%
50%
40%
30%
24%
20%
20%
10%
0%
Yes, fully aware
Yes, somewhat aware
140
Not aware
How Companies Determine the Adequacy of Coverage
Formal risk assessment by third party
22%
Policy terms and conditions reviewed by a third-party
specialist
20%
Formal risk assessment by in-house staff
18%
Informal or ad hoc risk assessment
14%
Formal risk assessment conducted by the insurer
13%
Maximum available from the insurance market
12%
Other
2%
0%
5%
141
10%
15%
20%
25%
Types of Incidents Covered by Cyber Insurance
More than one response permitted
External attacks by cyber criminals
84%
Malicious or criminal insiders
75%
Incidents affecting business partners, vendors or other
third parties that have access to your company’s
information assets
33%
System or business process failures
33%
Unsure
28%
Human error, mistakes and negligence
25%
Other
26%
0%
10% 20% 30% 40% 50% 60% 70% 80% 90%
142
How Do Cyber Risks Compare to Other Business Risks?
Cyber liability is a top 5 business risk
29%
Cyber liability is a top 10 business risk
29%
Cyber liability is not in the top 10 of business risks
28%
Cyber liability is the number one or two business risk
15%
0%
5%
143
10%
15%
20%
25%
30%
35%
What Are The Main Reasons Why Your Company will Not Purchase
Cyber Security Insurance?
Coverage is inadequate based on our exposure
31%
Premiums are too expensive
29%
Property and casualty policies are sufficient
26%
Too many exclusions, restrictions and uninsurable risks
26%
Executive management does not see the value of this
insurance
23%
Unable to get insurance underwritten because of current
risk profile
19%
Risk does not warrant insurance
10%
Other
7%
0%
144
5%
10%
15%
20%
25%
30%
35%
Contact
John J. Bourke, Esq.
Cyber Insurance Leader – Financial Institutions
Aon Risk Solutions
200 East Randolph Street
Chicago, IL 60601
P: 312.381.2465 M: 312.961.5049
john.bourke@aon.com
145
Is Your Company’s Cyber Insurance Coverage Sufficient?
80%
72%
70%
60%
50%
40%
30%
17%
20%
11%
10%
0%
Yes
No
146
Unsure
What Type of Data Breach or Security Exploit did Your
Company Experience?
Cyber attack that caused disruption to business and IT
operations
48%
System or business process failures that caused
disruption to business operations
35%
Negligence or mistakes that resulted in the loss of
business confidential information
30%
Cyber attack that resulted in the misuse or theft of
business confidential information
29%
Cyber attack that resulted in the theft of business
confidential information, thus requiring notification to
victims
26%
Other
8%
0%
10%
147
20%
30%
40%
50%
60%
Will Your Company’s Cyber Risk Exposure Increase, Decrease
or Stay the Same Over the Next Two Years?
60%
52%
50%
40%
36%
30%
20%
12%
10%
0%
Increase
Decrease
148
Stay the same
How Did the Security Exploit or Data Breach Change Your Company’s
Concerns about Cyber Liability?
60%
50%
50%
39%
40%
30%
20%
11%
10%
0%
More concerned
Less concerned
149
No change
Coverage Provided by The Insurance Company
Forensics and investigative costs
71%
Replacement of lost or damaged equipment
64%
Legal defense costs
52%
Notification costs to data breach victims
49%
Employee productivity losses
45%
Third-party liability
43%
Communication costs to regulators
38%
Regulatory penalties and fines
32%
Revenue losses
25%
Unsure
17%
Brand damages
15%
Other
17%
0%
10%
20%
150
30%
40%
50%
60%
70%
80%
Other Services Provided by The Cyber Insurer
Access to legal and regulatory experts
85%
Access to cyber security forensic experts
85%
Assistance in the remediation of the incident
65%
Access to specialized technologies and tools
42%
Credit monitoring services for breach victims
42%
Assistance in reputation management activities
41%
Assistance in the notification of breach victims
38%
Advanced warnings about ongoing threats and
vulnerabilities
35%
Identity protection services for breach victims
23%
Other
19%
0%
10%
151
20%
30%
40%
50%
60%
70%
80%
90%
How Did You Determine The Level of Cyber Risk to Your Company?
Hired a third party to conduct an assessment or audit
26%
Completed an informal (ad hoc) internal assessment
21%
Did not do any type of assessment
20%
Intuition or gut feel
18%
Completed a formal internal assessment
15%
0%
5%
152
10%
15%
20%
25%
30%
Methods
Sample response
Freq
Pct%
Total sampling frame
60,121
100.0%
Total returns
2,525
4.2%
Rejected or screened surveys
282
0.5%
Final sample
2,243
3.7%
153
Current Position or Organizational Level
Senior executive
8%
2%
5%
Vice president
6%
Director
14%
Manager
Supervisor
Technician
29%
Associate/staff
16%
Contractor/consultant
Other
9%
13%
154
Worldwide Headcount of The Organization
9%
13%
Less than 500
500 to 1,000
14%
1,001 to 5,000
18%
5,001 to 25,000
25,001 to 75,000
More than 75,000
25%
21%
155
Primary Industry Focus
2% 2%
3%
3%
2%
3%
19%
4%
5%
5%
11%
5%
5%
10%
7%
8%
8%
156
Financial services
Health & pharmaceuticals
Services
Industrial
Retail
Public sector
Consumer products
Energy & utilities
Technology & software
Education & research
Communications
Entertainment & media
Hospitality
Transportation
Defense & aerospace
Agriculture & food service
Other
September 23, 2015
Financial Wellbeing
Jon Renaud, Retirement Consultant, Aon Hewitt
157
What is Financial Wellness?
158
Total Wellbeing
Emotional
Physical
Quality of your
everyday experience
Having enough
energy to complete
daily tasks and make
healthy lifestyle
choices
Financial
The ability to confidently
manage your financial
life today, while preparing
for the future and
anything unexpected
along the way
Wellbeing is a state of balance that
consists of having the appropriate
resources, opportunities and challenges
needed to achieve optimal health
and performance for the
individual and the
organization
159
Social
Perception of the
quality of your
relationships
Wellbeing Stats and Facts
More than
twice as likely
to say they
always adapt
well to change
Emotional
81% less likely
43% less likely
to be newly
diagnosed with
anxiety and
depression
to report a full
recovery after an
illness, injury, or
hardship
to be newly
diagnosed with
anxiety and
depression
$150,000
more in net
wealth
Sources: HelloWallet (comparing budgeters vs nonbudgeters)
Physical
36% more likely
Have
Financial
missed as a
result of poor
health
43% less likely
to seek out a
new employer in
the next year
Have twice the
amount of
liquid assets
41% less work
Employees with
higher level of
wellbeing. . .
43% more likely
to volunteer
Health
satisfaction
linked to social
support among
139 countries
worldwide
Have twice the
amount of
retirement
savings
160
Rated almost
half a point
higher on
performance
reviews by their
supervisors
Social
Financial Stress Impacts Productivity
46% of employees spend
Assuming a 40 hour work, this
means 2.5% of payroll is
spent on workers handling
their personal finances
2-3 hours per week at work
dealing with personal
financial issues
Other ways financial stress impacts productivity:
Absenteeism –
More sick leave among the
financially stressed
Health Concerns –
52% report financial matters
contribute to irritability, anger,
fatigue and sleeplessness
Work Conflicts –
Incomplete work tasks, accidents
and tardiness
Lack of Commitment –
Financially stressed workers are
unsatisfied with their pay leading to
lack of pride in job and negative
feelings about their employer
Source: Purchasing Power whitepaper Financial Wellness: Power Behind the Purchase, July 2013
161
Changing Workforce by 2020
20%
1%
50%
22%
7%
Traditionalists
Baby Boomers
Gen X
Gen Y
Gen Z
(Born 1925-1945)
(1946-1964)
(1965-1980)
(1981-2000)
(2000 or after)
Loyalty, respect for
authority, discipline,
sacrifice
Competitive,
sandwiched
generation, hard
work, long hours
Self-reliance,
eclecticism, free
agents,
independence
Immediacy,
community service,
cyber literacy,
tolerance, diversity,
confidence
Hyperconnectedness,
mobility, media savvy,
life online since
preschool,
e-readers
Work and Life
Work/Life
Balance
Work/Life
Balance
“Weisure”
“Weisure”
Aging population
within workforce
develop chronic
conditions
Aging population
within workforce
develop chronic
conditions
Enter the
workforce with
chronic conditions
Enter the
workforce with
chronic conditions
Enter the
workforce with
chronic conditions
Tobacco Use
8.3%
18.4%
22.1%
26.5%
21.2%
Obesity Level
26.3%
33.3%
32.8%
30.9%
14.7%
Average Debt
$23,245
$29,317
$30,039
$23,332
NA
Broad Traits
Managing
Life
Chronic
Disease
*2020 forecast data based on Future Workplace Survey; CDC BRFSS 2012
Sources: Experian
162
The #1 Initiative in 2015: Focusing on Financial Wellness
93%
49%
feel the significance of financial
wellness has become more
important within the last 24 months
67%
will communicate the link
between financial stress and
health and well-being
are very or moderately
likely to create or
expand financial
wellness programs in a
way that extends beyond
retirement decisions
- 2015 Hot Topics in Retirement
163
Financial Wellness: Wellness Stages Drive Solutions
FREEDOM
GROWTH
Bui l ding
f i na nc ial
f r e e dom
FOUNDATION
SECURITY
Financial Counseling & Education
Budgeting & Financial Basics
Savings & Investing Help
Financial Planning
Retirement Income
164
Focusing on Outcomes
Realistic
Measurable
Evolving
Assess
Engage
Build
Awareness
Benchmark
165
Financial Wellness Programs —
Utilizing Technology
166
Financial Fitness Assessment
167
Personalized Retirement Readiness Plan
168
Solutions Driven By Wellness Stage
Financial Foundation
Financial Growth
169
Financial Freedom
Tracking Financial Wellness And Retirement
170
Financial Wellness Impact
After 3
Months
Increase in Savings
After 1
Year
14.8%
29.3%
Increase in Retirement
Savings
11%
12%
Increase in Share with
Emergency Savings
6.8%
-6.4%
-2.6%
-6.8%
Reduction in Credit Card
Debt
171
Expanding Communications
172
Integrating Personalized Communications
Communication is an integral part of an organization’s financial wellness strategy
Promote Better Outcomes
• Communication
campaigns: targeted,
multimedia
• Integrate with
broader
benefit/reward
messages
Promote
!
!
Understand
Workforce
Tools and Resources
!
Equip Employees
• Leverage and/or enhance
available tools
• Supplement current tools
and resources
173
Equip
Understand Employees
• SAVING Well Segmentation
• Surveys/focus groups
!
Guide
Guide Employees
• Target outreach
based on lifestage
and/or behaviors
• Create roadmaps
for individuals
Case Study: Improving Financial Wellness at LANL
Background
Help employees achieve a
greater level of knowledge
so they can better
appreciate their financial
benefits and take action
Solution
Inspire financial fitness and
confidence with a four-day,
highly targeted employee
learning experience
Results
 3,000+ (40%) attendees
to the 28 sessions
 Earned nearly 500,000
Virgin Pulse HealthMiles
 “I will review where I am
now and tweak my longterm plan.”
174
Understanding Retirement Readiness
175
Financial Wellness and Retirement Adequacy are Hot Topics
93%
Are very or moderately likely to create or expand
financial wellness programs in a way that extends
beyond retirement decisions
72%
Will measure the expected retirement
income adequacy of employees
75%
75%
Source: Aon Hewitt’s 2015 Hot Topics Report
176
Will implement initiatives
to address retirement
savings gaps
Retirement Income Adequacy
Definition in this study:
Accumulating the resources required to maintain preretirement standard of living
for a postretirement lifetime (in addition to Social Security benefits)
Resource shortfall results in lower standard
of living if not compensated by other assets
or postretirement employment
• Employee contributions to employersponsored plans
• Employer-provided benefits
− Matching contributions
− Other DC (non-matching)
contributions
− DB Pension
• Preretirement pay adjusted to reflect:
− No longer saving for retirement
− Change in taxes
− Differences in spending
− Higher medical costs
• Offset by Social Security benefits
Projected
Private
Resources
Projected
Private
Needs
177
The Real Deal—2015 Results
15.8
Main Drivers of Change:
 Increased life expectancy
Decreased capital market
assumptions
 Lower expected cost of
health care
 Positive return on DC assets
offset by reduced DB
provisions
4.8
11.0
2.6
8.4
DC Employee
4.1
DC Employer
2.4
Defined Benefit
1.9
Private
Resources
Shortfall
Private Needs Social Security Total Needs
Source: Aon Hewitt’s The Real Deal—2015 Retirement Income Adequacy at Large Companies, full-career contributors retiring
at age 65
178
How Prepared Will Today’s Workers Be For Their Retirement?
Only about 2 out of 5 workers on track for reasonably adequate retirement
 Includes those whose projected resources:
– Exceed targeted needs
– Fall just below targeted needs; therefore,
Just Below
resource gap may be eliminated by:
Target, 19%
• Other savings
• Modestly adjusting retirement spending
Just Above
Target, 13%
• Retiring slightly later
Distribution of Worker’s Projected
Resources vs. Targeted Needs
Below
Target, 24%
Significantly
Below, 35%
Above
Target, 9%
Significantly Below
More than 4 x Pay Below
Below
Between 2 and 4 x Pay Below
Just Below
Within 2 x Pay of Target
Just Above
Within 2 x Pay of Target
Above
More than 2 x Pay Above
 Considerations
– Are you surprised that so few appear to be
on track?
– What portion of your workers are on track?
– How would measuring and monitoring these
issues be helpful for your situation?
Source: Aon Hewitt’s The Real Deal—2015 Retirement Income Adequacy at Large Companies, full-career contributors retiring
at age 65
179
How Can Workers Tell If They Are On Track?
Workers can choose strong savings rates and measure against key milestones
 Required rates reflect employee savings and
employer benefits
− Employer benefits available average 5% of
pay
 Age 67 retirement decreases the annual amount
of savings needed to 14% if start saving at 25
Total Savings Rates Required
(% of pay if retire at 65)
44%
26%
17%
25
35
45
Age When Start Saving
Targeted Needs if Start Saving at 25
(multiple of pay)
11.0×
9.0×
7.3×
4.3 ×
2.0×
35
45
55
60
65
 Considerations
– Do your employees know how much they
should be saving each year?
– Are you providing context for your
messages about retirement savings, so
your employees can see if they are on
track, and the projected impact of current
behaviors?
Source: Aon Hewitt’s The Real Deal—2015 Retirement Income Adequacy at Large Companies, full-career contributors
180
What Can Employers Do?
 Measure the retirement readiness of your workers
– Current / future workforce trends and emerging patterns
– Influence of recent or pending changes in plan design or investments
– Possible need for early retirement incentives or phased retirement programs
 Help workers know where they stand, and tangible steps to improve results
– Communicate regarding appropriate savings rates and milestones toward adequacy
 Monitor changes in retirement readiness to measure the impact of
– Investment alternatives and fees
– Plan design changes and automation
– Communication efforts, resources, tools, and segmentation
 Increase focus on Financial Wellness
– Budgeting and debt management
– Retirement vs. other savings goals, including
• Retiree medical funding / HSAs
• Education savings / 529 plans
• Housing needs
– Lifetime income solutions
181

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