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Managing your risk by Michael Kelly

NCACC Risk Management Director Michael Kelly writes a regular column on risk management for CountyLines. With more than 41 years of risk management/ insurance experience, he holds the CPCU - Chartered Property & Casualty Underwriter, ARM-P - Associate in Risk Management for Public Entities, CRM - Certified Risk Manager, ARe - Associate in Reinsurance and CIC - Certified Insurance Counselor Professional Designations. He can be reached at michael.kelly@ncacc.org or (919) 719-1124.  For archives of this column click here.

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Aug 04

Regional Meetings Update

Posted on August 4, 2015 at 12:55 PM by Todd McGee

During the last two weeks of February, the NCACC risk management staff had scheduled five regional meetings located geographically throughout the state. However, the winter weather did not cooperate this year, and only the two located in the eastern counties of Bertie and Bladen actually occurred. The Wake, Transylvania, and Caldwell County locations later participated in a webinar version held on March 17.

The purpose for these gatherings is to provide members and prospective members of the NCACC Governmental Risk Pools a general working outline of current membership statistics, a financial update, available risk/loss control services, and anticipated changes in coverage document design. There is a discussion of our underwriting/rating procedure, as well as a projection of renewal costs as driven by our reinsurance expenses and pool actuary loss projections. As this definitely affects all of our members, this month’s article will serve as a summary review of our major points for those that could not make any of the sessions.

Member Statistics: Currently there are 112 total members – 68 counties and 44 county-related entities. There are 98 members in the Liability & Property Pool and 94 in the Workers’ Compensation Pool. Each year since 2008 both risk pools have achieved consistent, controlled growth with 100 percent of the county membership electing renewal the past three years. Such consistent membership, growing by one or two counties each year, in concert with a zero percent turnover allows our actuaries to develop more statistically sound loss and expense projections, which translates into flatter, more predictable renewal costs for the membership.

Finances: Both the Liability & Property and Workers’ Compensation Pools continue to be in very solid financial shape. The Workers’ Compensation Pool now has grown its unallocated invested reserves to more than $14 million and the Liability & Property Pool has more than $47 million. Unallocated reserves in this instance means money in excess of the projected short and long-term financial need to settle/close all open claims, not including an additional $10.2 million already pre-allocated for several potential Liability & Property Pool named storm reinsurance deductibles. Both pools have maintained their fiscal financial path of steady, conservative growth tempered by sound underwriting and risk assessment.

Reinsurance Cost Projections: Projected reinsurance costs have yet to be formally received, but based on current communications we are anticipating a nominal increase in property only costs, which should be offset by a decrease in reinsurance for the liability lines. Workers’ Compensation is expected to be flat. As reinsurance cost is the second primary expense driver, following actual losses sustained, this is extremely good news.
Special Projects/Announcements: Two projects were completed this year to improve services to our members. The Human Resources Legal Helpline began Jan. 1 and provides limited access to attorneys with strong experience in employment law at no additional cost. This was developed with an eye towards a pre-loss risk control tool for the employment practice liability line. The second project now up and running is the development and rollout of a cyber-liability risk control web-portal for pool members. It provides access to sample cyber-related best practice policies and other related risk control tools such as contractual language as to what should be considered/included in agreements with outside vendors providing IT services in your behalf. Both of these new services are initialized by visiting the Risk Management tab at the NCACC website, where explanation for access is given in greater detail.

Third Party Administrator Report: During the past coverage year, Sedgwick CMS handled more than 1,200 and 1,350 claims for the Workers’ Compensation and Liability & Property Pools respectively. Through their operational process the Pools achieved a savings of more than $6 million through bill review, physician/pharmacy network utilization and their auto damage appraisal program. The primary loss type impacting workers’ compensation stems from motor vehicle accidents, which comprise 36% of the total, followed by slip and falls (23%) and over-exertions (19%). Loss data for the Liability & Property Pool showed automobile claims lead in frequency (71%) with property losses (19%) followed by liability claims (10%).

Risk Control: The forms and procedures for workers’ compensation incident review (post loss) is in the process of review/revamp and will soon include procedures for documenting workers’ compensation claims, investigation pointers as well as sample incident reporting/investigation forms. The projected completion date is April 1. A Fleet Safety Program is currently being drafted that will include all the elements of ANSI Z15.1, including driver qualifications, training requirements, process for securing motor vehicle driving records free of charge, operational policies, auto incident investigation and review, etc., all of which will be adaptable for local, individual member operations, with a completion date of July 1 scheduled. A cyber security training presentation has been developed and is now available for all department heads – with a training resource at the employee level in development as well.

Insurance Market Environment: There was a summary discussion of present insurance carrier/broker market conditions, along with expectations for continued tight underwriting, with slightly less pressure for rate increases and a renewed emphasis of market expansion focused on the less volatile market segments (non-governmental, commercial risks).
According to the various risk and insurance publications as well as contact with Broker/Company individuals operating in North Carolina, the commercial client renewal outlook in the private sector generally is going to emulate last year, with a continued very conservative perspective towards workers’ compensation, continued utilization of larger, per loss retentions. Unsupported workers’ compensation will still not be considered attractive. Law enforcement, public official and employment practice liability coverage will continue to be sharply underwritten, with many of the standard markets continued use of the restrictive “claims made coverage form” instead of occurrence based coverage language, as well as a resistance to backdating the retroactive effective date claim trigger.

Pool Renewal Plan Expectations: The pools renewal process timeline was discussed with underwriting/rating meetings to be held March 19-20 followed by the Board of Trustees meeting on March 26. At that time, the Trustees will meet to review and formally approve next year’s rates and any coverage changes. New and/or renewal applications are available online now at the NCACC RM website under the top header Risk Management/Risk Management Forms. Current property/inland marine/auto schedules will be emailed to our Members during early March along with a digital renewal application from Underwriting. Renewal numbers are expected to be released during the week of April 13 on a first in - first out basis, (subject to complete updated underwriting/exposure information provided) as is our protocol each year.

The Pool’s continued primary renewal goal is to remain as close to a no-change (zero-sum game) status as possible where rating is concerned, tempered by each Member’s own claim/loss experience and safety score accumulation. Being members of both risk pools greatly enhances our ability to do so, as at times one pool member’s increase will be offset by a decrease in their costs in our other pool. We do not anticipate requesting any rate increases by line from our Board of Trustees and as such expect no surprises.

The bottom-line projection is we expect to continue being untouchable in both long-term cost (three years or more) as well as overall coverage design again for next year, with an expected continued, controlled net growth of one or two new counties. All of this stems from a sustained membership commitment to the governmental risk pooling process, which continues to be the engine for more stable renewal costs, and member-based management control, underscored by expected continual financial success. This is in stark contrast to “for profit” insurance companies that typically are only interested when you are having a “good year.” Their interest promptly wanes when you are not having a good year.
Should you have member specific questions please do not hesitate to call us.