abag plan corp. strategic planning meeting october 8, 2003 dublin, ca
TRANSCRIPT
ABAG PLAN Corp.Strategic Planning
MeetingOctober 8, 2003
Dublin, CA
Planning Meeting Goals
Review & Renew our Mission Agree on future characteristics of the poolClear idea of what members want to
achieveEstablish benchmarks for determining
success
AGENDA
Where are we now? Progress Since Last Meeting Issues Remaining
Where are we going? Five-Year Plan Next 2-5 years
Issues For Today
Digest remaining issues from last meetingMOC and Doc Review/Discussion Review current financial condition & ratios Plan for funding beyond goal of $10 mil in
SIR FundAssess WOTS Revise objectives
ABAG PLAN Mission Statement
The purpose of the PLAN is to benefit the citizens of each Member Entity by establishing a stable, cost-effective self-insurance, risk sharing and risk management program for each Member Entity.
Strategic Planning Five Year Plan
2000-01: Admin & Internal Procedures
Outsourcing personnel/equip.
Claims Procedures RiskMaster Web site revamp
2001-02: Funding Procedures
SIR Fund growth No dividend Funding Policy Actuary change
Strategic Planning Five Year Plan
2003-04: Governing Documents & Procedures
Committee Roles MOC Issues Claim Policy
2004-05: U/W & Risk Control Standards
RM Assessment Model Policies RM Funding Incentives/Penalties
Strategic Planning Five Year Plan
2005-06: Long-term Funding Objectives
Growth? Nirvana? Dividends? Expand Coverage?
2006-07: Evolution Response to change Customize to member Start over with 3-5
year review cycle
2007 + Where do Members want to be?
Planning Meeting Goals & Progress 9 Goals Identified
Update Strategic Plan Annually - we’re here! Draft revisions to MOC - today Define Committee Roles - today Continue to evaluate Funding Policy - today Implement loss control approach - begun Reward or penalize members for participation or policies - TBD Get alternates involved - begun Become Accredited? TBD Staffing Plan - Continue to Update
Goals Completed by Next Board Meeting
Document Review & Revision MOC & Bylaws Claim Policy Funding Policy
Implement Loss Control Approach Risk Management Assessment - update Risk Control Policies - Committee Role
• Expectations
• Enforcement
Issues For Next Board Meeting
SIR Increase SIR to $10 mil? Purchase excess insurance?
• Aggregate stop-loss?
• Re-insurance?
• Increase limit? SIR Fund contribution & target ratios Future funding goals and benchmarks
Issues for Future Board Meetings
Extent of Support for Risk Management Programs & Risk Control Policies Risk Management Assessment progress Required & recommended policies & programs To what extent do we mandate policies and
how do we enforce? Funding commitment Expand current offerings
Issues for Future Board Meetings
Long-term Funding and Stability Growth of SIR Fund Net Expense/Nirvana Proactive v. reactive risk control Customizing to each member Target funding to member need Role of excess or reinsurance
Item 5. Document ReviewGoals
Memorialize current practices & understandingAgree on future characteristics and practices of
the poolClear idea of what members want to achieve
Memorandum of Coverage Bylaws Claim Policy
Item 5. Document ReviewBylaws
Committee Roles and Responsibilities Risk Control & Underwriting Committee
• Police
• Public Works? Actuary Committee Claims Committee Finance Committee? Executive Committee
Clean up items
Item 5. Document Review Claim Policy
Objectives Maintain sufficient resources to manage claims Provide experienced legal counsel to defend
covered claims Resolve disputes in a fair and cost-effective manner
Authority LevelsReporting RequirementsPerformance Standards
Item 5. Document Review Claim Policy
Claims Management Claims Examiner designated for each Member Claims Liaison designated by Member Tailor claims management program Commitment to training Audit at least every two years
Item 5. Document Review Claim Policy
Defense Counsel List Maintained by Claims Committee Must use for covered claims Litigation Management Guidelines apply
Coverage Determination Risk Manager/Coverage Counsel Appeal Process: Claims - Exec - Board Beyond that?
Item 5. Document Review Claim Policy
Settlement Authority Member = PD only up to 10% of Deductible Claims Manager = $50k > Ded. & Defense Risk Manager = $100k > Ded. & Defense Claims Committee = > $100k & Ded. & Def.
Reporting Requirements To/From Member and Committee
Program Performance/Audit Standards
Item 5. Document ReviewMemorandum of Coverage
Objectives Address new risks and coverage changes Solicit member input and intent Condense & simplify language Align language with understanding & practice Inform members of coverage nuances and gap
analysis of excess coverage
Item 5. Document ReviewMemorandum of Coverage
Covered Parties Deal with auto - permissive use Include PLAN & Board? Duty to defend/indemnify when member can’t
• Exclude parties due to intentional tort or conflict of interest, per G.C. 815.3, 825.6, 995, 996.6?
Item 5. Document ReviewMemorandum of Coverage
MOC Declarations Include Additional Covered Entities (v. End.?) Limit = $5 Mil per Loss
Excess Declarations Named Insured Includes ABAG PLAN Corp. Limit = $5 Mil per Occurrence, Wrongful Act, or
Employee Benefit Wrongful Act. Aggregate $5 Mil Limit: Prod./Ops., E&O,
Employee Benefit Liability
Item 5. Document ReviewMemorandum of Coverage
Definitions (xs pp. 3-12) BOLD throughout in revised MOC Add “Damages”? Dam - def. & excl. in excess is broader BI include ED? xs does PI - xs includes AI, wrongful eviction & assault and
battery but restricts civil rights to privacy. MOC PI limited to emotional distress.
Pollutants - ag. & stormwater? XS excl. sewer Ultimate Net Loss - revise/ERISA, etc.
Item 5. Document ReviewMemorandum of Coverage
Who is An Insured? (XS pp. 13-14) A.-C. Similar to MOC, but includes ABAG
PLAN & its Board D. Any & all JPAs representing any named
insured. Broader than MOC. Section E. for auto exposure - add to MOC? MOC adds “others” via contract ops/facilities
Item 5. Document ReviewMemorandum of Coverage
Insuring Agreements (p. 1) MOC has 4 - PD, BI, PI, E&O XS has 3: PD/BI, E&O, EBL EBL = E&O in the administration (counseling,
handling records, enrolling or terminating participants) of the program
• MOC much broader? (p. 31 excl. n.) Reference to “insured contract” in XS PD/BI
• MOC covers via def. of Covered Parties• Subject of additional insured endorsements
Item 5. Document ReviewMemorandum of Coverage
Exclusions - condense to one set Failure to comply with terms of grant,
subvention, or other benefit (ex - block grants) Money damages based on failure to comply with
any regulation, law, etc.? Inverse - combine in to one and add exception
• include failure to maintain• see XS policy and practice• Exclude diminution of value.
Item 5. Document ReviewMemorandum of Coverage
Exclusions - continued Pollution - add sudden & accidental exception?
• see XS but also def. of pollution• group purchase? see quote in handout
Hospital/Airport - add clinics, etc. XS does Transit Service - shuttle OK? Medical Services
• Beyond EMT? Mgmt.? Police? Ambulance Watercraft - define & add excl.
Item 5. Document ReviewMemorandum of Coverage
Exclusions - continued Employment Practices Liability
• Excluded in MOC, covered in excess policy• Cover vicarious liability of employer?
Employee Benefit Plans• Exclude all? Revise ERISA excl. in def. of UNL • Only for unlawful discrimination? (MOC ex.)• Excess covers Employee Benefit E&O
– excludes ERISA– excludes insufficiency of funds (u.)
Item 5. Document ReviewMemorandum of Coverage
Exclusions - continued Bidding/contracting: add project mgmt.? Terrorism - excluded by excess insurance Land Subsidence - excluded by xs Mold ? Asbestos? Financial Instruments/Investments Montrose - continuous/stacking exposure
Item 5. Document ReviewMemorandum of Coverage
Defense Maintain duty to defend (v. right only) Delete reference to 2860, keep Cumis obligations
and responsibilities Apportionment of fees, covered & not?
Conditions Prevent stacking, progressive PD, EQ, storm Not “Other” Insurance Process for resolving disputes (xs binding arb.)
Item 5. Document ReviewMemorandum of Coverage
Process for resolving disputes - goal Prevent a judge or jury from interpreting
coverage in a manner that is inconsistent with the intent of the Members or that threatens the financial viability of the pool.
Who should have the final say?
Item 5. Document ReviewMemorandum of Coverage
How will MOC be interpreted? MOC is not insurance Rely on intent of the parties Rely on case law to what extent?
How will disputes be resolved? Intersection with Claim Policy Board decision final? XS has binding 3-person arbitration
Item 5. Document ReviewMemorandum of Coverage
This Memorandum of Coverage does not provide insurance, but instead provides for pooled risk sharing. This Memorandum shall be applied according to the principles of contract law, giving full effect to the intent of the Members, acting through the Board of Directors, in adopting this Memorandum of Coverage. However, coverage decisions involving the interpretation of language within this Memorandum that is similar to standard commercial general liability insurance will be based, where applicable, on California case law interpreting such liability insurance contract language.
Review & Discussion of Suggested Topics & Changes
MOCBylawsClaim PolicyOther
Item 7. Management of Retained Funds
Current Financial Condition Funding Policy & Benchmarks
Balance Sheet ComparisonAssets 02-03 01-02 ChangeCash and Cash Equivalents 7,480,841$ 13,393,794$ ($5,912,953)Investment at Fair Market Value 31,692,946 23,293,550 $8,399,396Accounts Receivable 600,662 660,914 ($60,253)Equipment, Net 226,227 278,253 ($52,026)
TOTAL: 40,000,676$ 37,626,512$ $2,374,164
LiabilitiesClaims Reserves 11,629,914$ 15,862,532$ ($4,232,618)Other Payable 176,711 151,970 $24,741Retained Earnings 28,194,051 21,612,010 $6,582,041
TOTAL: 40,000,676$ 37,626,512$ $2,374,164
Income Statement Comparison Revenue 01-02 02-03 03-04 Change Funding from members 02-03 Administrative 1,500,001$ 1,534,233$ 1,800,000$ 265,767$ Liability Program 3,986,239 4,689,641 4,500,000$ (189,641)$ Property Program 516,423 829,308 816,527$ (12,781)$ Investment Income 1,844,336 1,683,202 1,650,000$ * (33,202)$ TOTAL REVENUE 7,846,999$ 8,736,384$ 8,766,527$ * 30,143$
Expenses Property Insurance 347,012 695,067 658,527$ (36,540)$ Depreciation 61,834 61,834 61,834 -$ Management and Administrative 1,295,276 1,516,478 1,870,000$ 353,522$ GL & Crime Insurance 263,979 369,776 436,500$ 66,724$ Contract Services & Other 285,649 262,720 120,000$ * (142,720)$ Provision for Claims and AE 1,602,817$ (977,780) 1,500,000$ * 2,477,780$ TOTAL EXPENSES 3,856,567$ 1,928,095$ 4,646,861$ * 2,718,766$
Retained Earnings 3,990,432$ 6,808,289$ 4,119,666$ * (2,688,623)$
* estimate
Program Funding as of 6/30/03
Liability Program - $37.6 Mil Assets $11.2 Mil Total Liabilities (50% CL) $25.7 Mil Retained Earnings Over deductible paid = $3.25 Mil
Property Program - $2 Mil Assets $157,500 Total Liabilities $1,925,725 Retained Earnings Over deductible paid = $232,707
Liability PoolBreakdown of Liabilities & Fund Balances
Case Reserves
$9,817,458 IBNR Reserves, undiscounted
$6,229,000 Risk Margin Fund
$19,557,650 Self-Insured Retention (SIR)
FUND
$0
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
Liability Breakdown at June 30, 2003
Total Assets at June 30, 2003 = $37,609,064
$37,259,064
$17,473,000Liabiities, Discounted
90% CL
$11,244,000
$1,654,956
Reserve
Fund Balance$25,786,650
Liabilities, Discounted Expected Basis - 50%CL
$11,244,000
Loss Prevention Fund$350,000
What is Adequate Amount of Retained Funds?
“It Depends” (See WA State Review Criteria)
Aversion to Risk Ability to Assess Large Loss Probability Strategic Goals Changes in SIR, coverage, reserving, actuary
Leverage Ratios
Funding PolicyBenchmarks*
Financial Ratio Numbers: Net Deposits = $4.0 MilTotal Liabilities = $11.2 MilTotal Fund = $25.7 Mil SIR = $5 MilSIR Fund = $19.5
* Including standards used by WA State and MI Municipal Insurance League (MML) - see handout
Funding PolicyBenchmarks
Yearly Deposit at least 50% CL Goal = 70%. Current Funding at 50%.
Total Fund to SIR ratio at least 2:1 Goal = 3:1. Current = 5:1
Maintain SIR Fund = PLAN SIR Goal = $10 Million. Current = $19.5 Mil
Maintain Risk Margin Fund at 90% CL Current = $17.4 Mil. Total Assets = $37.6 Mil.
Total Fund to SIRMeasures Conservatism in Self Funding - maximum
Fund would decrease from one loss. Pools typically at 5:1 to 15:1. A larger SIR would merit
a ratio of 3.0 to 1.0 (WA State Guide). MML benchmark = 10 or more, current = 36.8:1
PLAN ratio is 5:1 ($25:$5 Mil) Exceeds Funding Policy Goal of 3:1 , Min. = 2:1 Up from 3.8:1 last year
Raise goal from 3:1 to current 5:1 and minimum from 2:1 to 3:1
Yearly Deposit to Total FundMeasures exposure to pricing errors. If PLAN
underprices loss funding subsequent poor loss experience would impact Fund. Also measures growth potential supported by Fund
A low ratio is desirable - i.e. less than 1:1 New Pool 5:1; Mature Pool .5:1 (WA Guide) MML benchmark: 1.0 or less, current .79:1
PLAN ratio is .16:1 (4:25.7) No benchmark in Funding Policy Keep at .25:1 or less
Loss Reserves to Total Fund
Measures the potential impact on solvency of under reserved losses. The higher the ratio the more critical reserves be accurate.
Pools typically at 0.4:1 to 2.5:1Low ratio desirable, < 1.5:1 (WA), < 3:1
(MML with current ratio 2:1)PLAN ratio is .44:1 ($11.2:$25.7) Add benchmark: minimum 1.5:1 or less, goal
of 1:1 or less.
SIR Fund to SIR
Unique to PLANMinimum Ratio = 1:1Goal $10 mil - current = $19.5 milCurrent Ratio = 19.5:5 = 3.9:1Up from 9.6:5 = 1.92 Raise minimum from 1:1 to 2:1 with goal of
3:1 (current = 3.9:1)
Change in Fund, Reservesor Funding
Fund: More than 10% reduction merits a study of rate or funding levels. $19.3 to $25.7 Mil change = 32% Increase
Reserves: No more than a 25% increase in prior year’s loss reserves $15.8 to $11.2 Mil change = 29% Decrease
Funding: No more than 10% Increase PLAN funding increase = 0.6%
Funding Goal = 70% CL
Currently at 50% CL Raise to 70% for 2003-04?Would add $660,000 or 16% to Current
Funding ($4,720,000 v. $4,060,000)
Options? Increase Funding Leverage Retained Funds? Lower SIR?
Suggested Funding Benchmarks Fund to SIR - raise goal from 3:1 to current
5:1 and minimum from 2:1 to 3:1 SIR Fund to SIR - raise minimum from 1:1
to 2:1 with goal of 3:1 (current = 3.9:1)Loss Reserves to Fund - add benchmark
minimum 1.5:1 or less, goal of 1:1 or less. (current = .44:1)
Others? Limit Deposit to 10% increase?
Evolution of PLAN Funding1986 - 1990: Growth of Risk Margin Fund1991 - 1996: Dividends Declared1997 - 1998: $3.4 mil Dividend, SIR Fund Created and
Net Expense = $196,000 1998 - 2001: Increased SIR, Loss Funding, & SIR Fund,
Decreased Dividends 2001- 2003: Decreased SIR, XS Ins., SIR Fund Growth:
no dividend, actuary change. 2003 & Beyond: SIR Fund Higher? Dividends?
Leverage? Nirvana?
Pool Nirvana
Assets & Interest >= Deposits + AdminNo new funds are EVER required Is that a realistic goal? Should it be a goal of the PLAN?Great way to view dividends, interest, and
funding from a strategic standpoint.Measure of opportunity cost
Pool NirvanaIs it Realistic?
Other Pools Achieved?Under what conditions?How has the PLAN compared?Could we achieve it now?
Pool Nirvana PLAN Results
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
91 92 93 94 95 96 97 98 99 '00 '01 '02 '03
DepositsDividendsInterestAdmin
Pool Nirvana PLAN Results
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
91 92 93 94 95 96
DepositsDividendsInterestAdmin
Pool Nirvana PLAN Results
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
$4,500
97 98 99 '00 '01 '02 '03
DepositsDividendsInterestAdmin
Pool Nirvana PLAN Net Expense
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
91 92 93 94 95 96 97 98 99 '00 '01 '02 '03
ExpenseIncomeNet Expense
Pool NirvanaWithout SIR Fund
($6,000)
($4,000)
($2,000)
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03
Expense
Income
Net Expense
** 03 New Actuary
Net ExpenseSIR Fund Comparison
($6,000)
($4,000)
($2,000)
$0
$2,000
$4,000
$6,000
97-98 98-99 99-00 00-01 '01-02 '02'03
With SIRNo SIR
Pool NirvanaShould It Be a Goal?
Other Uses of Funds Dividends Reduce Funding Increase SIR Increase Occurrence Limit New Programs or Coverages Increase Services - esp.. Risk Control
Pool NirvanaShould It Be a Goal?
How would that change our current goals and practices? SIR Fund = $10 mil + ? SIR = $10 mil? Dividends? Funding Credits
Pool NirvanaReality
Interest Rate and Loss Probabilities make it unpredictable
Possible By-product of Overall Funding Strategy
Is a goal in the sense it reflects pool stability and efficiency
Good tool in measuring funding options and strategic objectives
Pool NirvanaReality
Dividends used to make deposits more predictable
Help ease impact of budget fluctuationsFund more services for members Deposits above or below “predictable” level
(@ = payroll increase) should be based on member’s compliance with loss prevention policies and preventable losses
Item 8. Review, WOTS & Objectives
Trends & Market ConditionsReview of prior meetingsWeaknessesOpportunitiesThreatsStrengthsObjectives
Trends and Funding Issues
Insurance Market Flattening? Coverage terms stabilizing Funding goal is to increase to 70% CL PLAN Document & Coverage Review Liability of PEs increasing
Inverse, pursuit, attorney fees State budget & government by special interest
Future TrendsInterest Rates
Still at record lowsUsing 4.0% vs. 4.5% last year (5% prior)
0.5% drop increased funding @ $40,000 and “increased” outstanding liabilities
No immediate pressure to increasePossible DeflationAny Estimates?
Future Trends
Your Budgets?Your Concerns?
WOTS Analysis
WeaknessesOpportunitiesThreatsStrengths
Prior Planning Meetings
Strengths & Benefits Good Business Practices - Board, Staff & Members Financially Sound Members in Control & Act in Unison Commitment to Training Lower Premiums/stable pricing Equity Distribution Risk Management Staff Responsiveness Training commitment Web site - docs available Proactive response to claim “incidents” Good mix of active Board members
Prior Planning MeetingsWeaknesses & Threats
* Complacency & lack of flexibility in responding to change * Lack of some member involvement/connection* Short-term vs. long-term thinking (i.e. equity expectations)* Pressure to reduce costs* Bad Loss Trends - large loss(es) impact on equity/surplus* Bring SIR in balance with Fund* Give up dividends?* How decide if need excess insurance?* How to respond to multiple losses?* Keep up on new member risks (mold)* Reactive v. proactive training* Loss of member staff talent, esp.. in police, due to PERS 3% at 50 retirement* Economy - member revenue down, PLAN interest income lower.
Prior Planning MeetingsWeaknesses & Threats
Members have no full-time risk manager No authoritarian presence Board member succession planning No model set of risk management policies No monitoring or re-assessment of risk management profile Protection of asset base Per occurrence limit enough? Fraud, including electronic fraud Litigation status communication Longer statute (2 yrs) for civil rights claims and limit time to file MSJ Insurance market continued hardening Diversity of member risks makes it more difficult to address needs Lack of health insurance leads to more pressure to file claims Uninsured employees leads to Work Comp pressure
Prior Planning MeetingsOpportunities & Objectives
Sharing good ideas & “Best Practices” Growth of pool Pool Nirvana Pay dividend again Workload/staffing balance – keep services up. Emphasize training Re-define Committee roles Limit attorney rotation? Improve communication between claims examiners and citizens Risk Management Programs (like sewer program) lead to better ID of
where money is spent and lead to more money to fix.
Prior Planning Meetings
Opportunities & Objectives More On-Site Visits & Recommendations Better Explanation of Formulas, Budgets, Services Better Claim Reports - Graphs, Trends, etc. Training in the Field Fund Loss Prevention Program, including model practices and
audit Share knowledge & resources of staff and other members Pay for Board member training Scholarship fund for education in risk mgmt
Earthquake exposure identified
2003 Strengths
2003 Weaknesses
2003 Threats
2003 Opportunities
2003 Board Goals & Objectives
9. Other BusinessComments?Questions?
THANK YOU!