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					CPCU Society Member Opinion Panel “Embracing Change … and the Future” May 2009 Background In November 2008, participants in the CPCU Society’s Member Opinion Panel were asked about the impact of the global financial crisis on the property-casualty insurance industry, their employers, and their careers. Now, more than six months later, the global economy remains in recession, although glimmers of a recovery have been detected. What lies ahead for the industry and for CPCUs? Survey Objectives While the first survey of the “Embracing Change” series in November focused on the causes of the current financial crisis and its implications, this follow-up survey deals with the outlook for the industry’s future. Panelists were asked whether, in their professional opinion, the prospects for the insurance industry would improve or deteriorate further over the next six months. Longer term, these CPCU opinion leaders were asked about the impact a list of potential risks would have on the industry. Specifically, this survey was designed to:  Assess CPCUs’ latest thinking on the severity and duration of the current economic downturn: o Understand the impact to-date of the downturn on the property-casualty insurance industry and CPCU employers o Profile employer responses, both taken and expected  Update the status of industry employer support for professional development, including: o Compensation for employees pursuing professional designations, including the CPCU o Employer payment of association membership dues, and o Budgets for training and development programs     Measure the impact of the recession on CPCU careers Obtain expert opinions on the outlook for the industry over the next six months Gauge the significance of a list of potential emerging issues over the next two to three years Identify measures the Society could take to make membership more valuable near and longer term.

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Methodology CPCUs who volunteered for the Member Opinion Panel received invitations to participate in this web-based survey Tuesday, May 12, 2009. Survey details include: Methodology: Web Survey Survey Period: May 12 through 29, 2009 Number of Panelists Participating: 143 Detailed Findings Assessment of Current Economic Downturn: CPCUs across the board have found this economic downturn to be more severe than those they have personally experienced in the past. More than four out of every five members (over 80 percent) claim the current recession is deeper and broader, both in terms of its global reach and impact across all industry segments, than recent recessions. The Panel diverges a bit, however, when it comes to the downturn’s duration. While close to three-quarters (73 percent) still find it to be longer than anything they’ve experienced, only one-third (32 percent) say it is much longer, and close to one-quarter (23 percent) think it will be similar in duration to downturns experienced in the past.
In comparison to economic downturns you have experienced in the past, how would you characterize the current recession, in terms of ..?
50% 43% 40% 40% 37% 32% 30% 23% 20% 15% 10% 1% 1% 0% Severity/Depth Much less severe Geographic Scope Less severe Similar Industry scope More severe Duration Much more severe 0% 2% 4% 0% 1% 0% 16% 16% 45% 46% 41% 38%

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Impact on Property-Casualty Insurance Industry: CPCUs also differ in their assessment of how significantly the economic downturn has impacted the property-casualty insurance industry. More than one-half (58 percent) perceive the impact to have been substantial (but variable) or significant across the board. However, a sizeable minority describe the impact as moderate (39 percent) or very limited (4 percent).
In your opinion, how has the property-casualty insurance industry been impacted by this recession?
Very significant impact across the entire industry
17%

Substantial overall impact, with significant variation by organization/segment

41%

Moderate impact, with a few notable exceptions

39%

Very limited impact overall

4%

0%

10%

20%

30%

40%

50%

CPCU Employer Responses: In May 2009, eighty percent of Panel members’ employers had taken some action in response to the recession, up from 59 percent six months earlier. The proportion whose employers have not reacted, however, remains within the 20 percent range.
During the past 12 months, has your employer taken any actions to respond to the economic downturn?
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 80% 59%

20% 11% 1% Yes Expected in next 6 months/ soon Nov-08 May-09

18% 10% 2%

No/ Not yet

Don't know

The response most often taken by employers as of May has been the elimination of non-essential costs, an action taken or expected to be taken by nearly all CPCU employers (95 percent). Sixty percent of respondents report reductions in staff due to lay-offs, attrition, or hiring freezes; and -3-

an additional 14 percent expect to see reductions in force at their employers in the near future. More than one-half of the Panelists report that their employers have fine-tuned their investment strategies; which jumps to two-thirds when combined with CPCUs expecting a change in investment approach. More than one-half of CPCUs have also seen, or expect salary freezes and an expanded emphasis on marketing and advertising at their employers. And, while only one out of every three members report that their companies have hiked premiums, another 35 percent expect to see such increases in the future.

What actions have been/are expected to be taken?
Reduce non-essential costs Staff reduction Revised investment strategy Salary freeze/ cut Emphasize mktg/ advertising Emphasize training/dev Increase premiums Acquire other co's Divest insurance units Divest non-insurance units External capital infusion 16% 14% 7% 31% 29% 11% 38% 17% 35% 44% 52% 13% 19% 60% 17% 14% 83% 12% 5% 26% 32% 43% 43% 52% 36% 72% 80% 85% 81% 95% 20% 30% 40% 50% 60% 70% 80% 90% 100%

12% 4% 10%

10% 2% Acquired by another co. 3% 0%

10%

Taken

Expected

Not taken/ expected

In fact, the largest increase since this question was asked in November is in the proportion of CPCUs seeing or expecting premium increases, which jumped from one-quarter to almost twothirds (64 percent) of survey respondents.
What actions have been/are expected to be taken?
100% 80% 60% 40% 20% 0% Reduce nonessential costs Staff reductions/ Hiring freeze Premium increases Nov-08 May-09 Acquisitions Divest insurance units 25% 7% 28% 20% 7% 72% 95% 74% 64%

69%

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Other actions reported taken by CPCU employers as of May 2009 include implementing predictive modeling, and outsourcing clerical positions. Impact on CPCU Careers: More restrictions on business travel (63 percent) and increased workloads due to staff reductions (47 percent) top the list of the implications of this economic downturn for CPCUs. One out of every three CPCUs report cuts in employer support for attendance at professional events and meetings (34 percent), and more limited advancement or business opportunities (31 percent). Benefit cuts have been experienced by close to one-quarter of the Panel (24 percent), followed by salary reductions (16 percent).
What impact has the recession, and your employer's responses, had on your own career?
Limits on travel Increased workloads Reduced support for prof events Limited advancement/business Reduced benefits Reduced salary Reduced support for CPCU Society Reduced support for Cont Ed Expanded advancement/ business Unemployed or retired Reduced support for MBA Reduced support for CPCU Merger/ acquisition Voluntary change in employer Departure from industry

63% 47% 34% 31% 24% 16% 12% 11% 11% 7% 7% 5% 3% 2% 0% 10% 20% 30% 40% 50% 60% 70%

0%

CPCUs also report greater job insecurity, particularly due to staff restructurings and required reapplication for positions; as well as changes in the composition of their business and even reduced outsourcing.

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Near Term Outlook: In the next six months, Society members, on average, expect to see a slight improvement in conditions, particularly for their employer and the US economy and financial sector. Seven out of ten CPCUs, however, do not expect to see any appreciable change in the status of their careers in that time frame.
Over the next 6 months, what is your outlook for the ...
100% 80% 60% 40% 20% 0% 33% 22% 25% 3% Global economy 21% 5% US economy 25% 19% 38% 43% 69% 2% 36% 2% 4% 4% 35% 7% 4% 17% 50% 45% 34%

20%

16%

Avg. Rating

4% 1% 6% US financial US P-C ins Employer sector industry 0.09 0.23 0.23 0.17 0.30 Deteriorate signficantly (-2) (-1) No change (0) (+1) Improve significantly (+2)

9% 1% Career

0.14

Longer Term Outlook: After evaluating the severity and implications of the current economic downturn, members of the Opinion Panel were asked to assess a list of 25 potential risks facing the property-casualty insurance industry, in terms of their expected impact on the industry (from “very negative” to “no impact” to “very positive”), and the probability or likelihood of their occurrence in the next two to three years. In terms of impact on the industry, CPCUs rate the risks from somewhat positive (tort reform, at 52 percent “positive” to “very positive”) to very negative (poor investment returns at 92 percent “negative” to “very negative”). Further industry consolidation was evenly balanced as both a potential negative (37 percent) and positive (41 percent). The remaining ten risks were perceived as largely negative for the industry, particularly resurgent inflationary pressures (and economic stagnation), capital shortages, new business taxes, and a surge in natural catastrophe losses. Damage to the industry’s reputation, and the failure to attract and/or retain talent, two areas reasonably within the industry’s control, were also seen as negative risks by a majority of the expert panelists (69 percent to 77 percent, respectively).

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What do you see being the most significant challenges facing the P-C insurance industry in the longer term (2-3 years into the future)? Please rate their potential impact on the industry ...
Tightened UW standards 3% Tort reform 5% Mgt of pricing cycle 5% Aversion to complex fin instruments Stringent capital/liquidity reqs Further industry consolidation Revision of fin stability ratings Reinsurance avail/security State regulatory changes US regulatory changes Policyholder backlash Other political risks Failure to attract/retain talent Damage to industry reputation Macro-economic stagnation Resurgent inflation Long tail liabilities Failure of risk mgt Capital shortages Natural catastrophe surge Escalating liability losses Rising claims volume New business taxes Poor investment returns Escalating fraud 0% Very negative (-2) 10% 20% 30% 21% 20% 29% 28% 39% 40% 50% 60% 70% 80% 54% 11% 18% 17% 21% 28% 47% 63% 69% 61% 63% 60% 17% 6% 17% 24% 7% 9% 8% 19% 8% 7% 14% 22% 25% 31% 6% 37% 41% 22% 15% 50% 52% 51% 65% 54% 45% 61% 63% 73% 22% 18% 27% 12% 24% 13% 29% 25% 24% 48% 11% 40% 12% 44% 5% 30% 13% 53% 3% 37% 4% 36% 20% 14% 17% 26% 9% 21% 15% 6% 13% 19% 18% 24% 13% 2% 7% 4% 14% 2% 63% 2% 6% 54% 5% 1% 90% 100% 3% 3% 3% 2% 3% 2% 3% 2% 3%

24% 5% 1%

16% 3%

Negative (-1)

None (0)

Positive (+1)

Very positive (+2)

In terms of the probability that these risks will occur in the next two to three years, tort reform again tops the list, this time as the least likely, with three out of every five panelists rating the probability of it happening as “low” (61 percent). Other risks are considered much more likely, particularly some of the most negative: poor investment returns, new business taxes, and economic stagnation.

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What do you see being the most significant challenges facing the P-C insurance industry in the longer term (2-3 years into the future)? Please rate the probability or likelihood of their occurrence ...
Tightened UW stds Tort reform Mgt of pricing cycle Aversion complex finl Stringent capital/liquidity reqs Further industry Revision fin stability ratings Reins avail/ security State regulatory changes US regulatory changes Policyholder backlash Other political risks Failure to attract/retain talent Damage to industry Macro-economic stagnation Resurgent inflation Long tail liabilities Failure of risk mgt Capital shortages Natural catastrophe surge Escalating liability losses Rising claims volume New business taxes Poor investment returns Escalating fraud 0% 13% 61% 33% 25% 19% 11% 33% 23% 26% 20% 33% 30% 29% 28% 14% 23% 30% 44% 28% 23% 26% 21% 12% 8% 9% 10% 20% Low (1) 30% 40% 46% 50% 47% 50% High (3) 60% 70% 80% 90% 49% 53% 52% 42% 50% 61% 51% 53% 59% 47% 33% 50% 43% 39% 52% 45% 48% 56% 56% 46% 60% 30% 27% 10% 21% 30% 34% 33% 12% 18% 27% 47% 17% 28% 32% 21% 37% 25% 19% 14% 22% 15% 23% 26% 42% 42% 44% 100%

Moderate (2)

To better visualize the Panel’s outlook for the next two to three years, the average impact and likelihood ratings are plotted on a chart where the vertical (Y) axis represents the average impact rating (from -1 for “very negative” to 0 for “none” to +2 for “very positive”); and the horizontal (X) axis represents the average likelihood rating (where one equals “low” and three “high”). The four quadrants created by this plot are labeled:     “Silver Lining,” where the impact on the industry is expected to be positive and the likelihood of the event happening is better than moderate “Wish List,” for events with a positive projected impact, on average, but a low likelihood of occurrence “Gambles,” when the event’s impact is potentially negative, but the likelihood is relatively low, and “Storm Clouds,” for more likely events projected to have a negative industry impact.

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Escalating fraud Poor investment returns New business taxes Macro-econ stagnation

Storm Clouds
US regulatory changes

2.4

Silver Lining
Further industry consolidation

2.2 Aversion complex finl instrumts

Tightened UW stds Stringent cap/ liquidity reqs Avg. Impact Rating 0.05 0.25 0.45

Resurgent inflation Failure to attract/retain talent State regulatory changes Escalating liab losses Other political risks -1.35 -1.15 -0.95 -0.75 -0.55 -0.35 -0.15 Capital shortages Reins avail Damage to industry Natural catastrophe reputation losses Long tail liab Policyholder backlash Rising claims

2

1.8
Avg. Likelihood Rating

Mgt pricing cycle

Rev'd finl stability rtgs Failure of risk mgt

Gambles

1.6

Wish List
Tort reform

1.4

This plot highlights the most serious risks to the future of the property-casualty insurance industry. Many of the risks in the “Storm Clouds” quadrant are outside of the industry’s control: poor returns, resurgent inflation, and economic stagnation. Several reflect a new political reality, which can be influenced to some degree by the industry: regulatory/ legislative changes at the federal and state levels and new business taxes. However, the failure to attract and/or retain new talent is a risk that is largely within the control of industry employers. Risks falling within the “Gambles” quadrant also fall generally outside the control of the industry: shortages of capital, concerns about the availability and/or stability of reinsurance, “other” political risks resulting from the financial industry meltdown (such as greater government scrutiny and restrictions on business operations like compensation limits), and a possible surge in natural catastrophe losses. Yet again, there is a risk that the industry can take action to reverse: damage to its reputation due to the problems experienced in the financial services segment. Which one of the risks examined above will have the greatest impact on industry profitability? According to the Panel, it will be poor investment returns (17 percent), followed by macroeconomic stagnation (little or no economic growth - - 11 percent), greater US regulation of the industry (11 percent), and, on the positive side, management of the pricing cycle (ten percent).

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Which one of the above do you predict will have the greatest impact on industry profitability?

Poor investment returns Macro-economic stagnation US regulatory changes Mgt of pricing cycle Stringent capital/liquidity reqs Natural catastrophe surge Rising claims volume Capacity shake-out Tightened UW stds State regulatory changes Capital shortages Escalating fraud Resurgent inflation New business taxes Reins avail/ security Failure to retain talent Failure to attract new talent Damage to industry reputation Aversion complex finl instrumts Lack of tort reform Long tail liabilities Failure of risk mgt

17% 11% 11% 10% 8% 8% 6% 4% 4% 4% 3% 3% 2% 2% 2% 2% 2% 1% 1% 1% 1% 1% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18%

The good news is that almost two out of every three CPCUs feel that the industry is prepared to deal with the most significant risks facing it, although mostly only “somewhat” prepared (60 percent).
In your opinion, how well prepared is the industry to deal with the most significant risks you identified?

Very well prepared

3%

Somewhat prepared

60%

Not well prepared

35%

Not at all prepared

2%

0%

10%

20%

30%

40%

50%

60%

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Value of CPCU and CPCU Society: CPCUs would like to see the Society more aggressively promote the value of the designation within the industry and to its customer bases, both consumers and businesses. (Three out of every four members, or 75 percent, see these actions as contributing to the value of membership). The value of Society membership can also be enhanced through offering more advanced and cutting edge curriculum: courses on the implications of emerging issues for practitioners and possible responses (74 percent rate this as a positive); advanced courses designed for experienced managers (67 percent); and an advanced, post-CPCU program (62 percent). Panel members would also like to see the Job Network enhanced (68 percent), and greater networking opportunities offered at Society events, and through chapters and interest groups. Interestingly, offering more courses with continuing education credits, payment plans or discounts for unemployed members, and health care insurance ranked at the bottom of the list, with about onehalf of members (or fewer) agreeing that these options would increase the value of their membership.
Based on your outlook, how can the CPCU Society enhance the value of your membership?
Promote CPCU within industry Promote CPCU with consumers 2% Promote CPCU with businesses 1% Impact of emerging issues 2% Enhance Job Network 2% Advanced mgt for experienced1% Advanced post-CPCU 4% More networking thru chapters 1% 1% 1% More networking thru int grps More networking at events More webinars/online delivery 2% 1% Enhance career counseling 1% More CE credits 5% 25% 23% 24% 24% 30% 32% 34% 36% 35% 42% 36% 41% 45% 48% 49% 10% 20% 30% 40% (-1) 50% 60% 38% 41% 45% 52% 52% 52% 40% 47% 49% 41% 43% 47% 31% 34% 22% 70% (+1) 80% 37% 34% 31% 22% 16% 15% 22% 16% 14% 17% 18% 12% 20% 16% 22% 90% 100%

Payment plans/ discts for unemp1%2% Explore/offer health care ins 4% 2% 0%

Significant decrease (-2)

No change (0)

Significant increase (+2)

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Respondent Profiles:
What is your current employment status?
Employed full-time Self-employed Retired Employed part-time Unemployed 0% 7% 5% 2% 2% 20% 40% 60% 80% 100% 84%
Female 45%

Respondent Gender

Male 55%

What is your employer's type of business?
60%

Do you spend the majority of your time working on personal or commercial lines of insurance?
61%
50% 53%

Insurance/Reinsurance Agency/Brokerage Service/Consulting/Educ Other Risk Mgt/Buyer Regulatory/Law 8% 22%

40% 30%

5%
20% 17%

20% 9% 1% 0%

2%
10%

1% 0% 25% 50% 75%
Personal Commercial Mix

Reinsurance

Other

Please identify the size of your employer:
70 or older 500 or more 58%

Your age:

4%

60-69

30%

Number of Employees

50-59

37%

40-49 Under 500 42% 39 or under 0% 10% 20% 30% 40% 50% 60% 70% 0% 6%

23%

10%

20%

30%

40%

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