The State of State Risk Financing

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The State of StateRisk Financing

• Rollie Boeding
• Bureau of State Risk Management
• Department of Administration
• November 5, 2003

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Goal

• Provide you with an overview of past, current and
  future risk financing in state government
• How current and future conditions will impact
  state agencies

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Approach Review
Current re-insurance market State claim
costs State Risk Management financial
condition Activities to address the issues
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Issues facing insurance companies

• No great place to invest their funds
• Reserves have been depleted
• both first line companies and re-insurers
• Need to avoid catastrophic exposures
• major loss would totally disrupt markets

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Current Market Conditions (same slide used last
year)

• Dynamic
• Chaotic
• Tougher restrictions on all forms of coverage
• Stringent information requirements

BUT the market is starting to be competitive
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Current Market Conditions

• Fewer places to shop (consolidation)
• Less wiggle room during negotiations

BUT Supply is starting to catch up with
demand! Underwriters have more capacity.
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Program OverviewBureau of State Risk Management

• Property Coverage to All Agencies and UW System
• 15.7 Billion in Value
• Liability Coverage to All State and University
  Employees, Officers and Agents
• General, Auto, Employment Practices,
  Discrimination, Medical Malpractice, Professional
  Errors Omissions
• Workers Compensation Coverage
• Covers all State and University Employees
• Pays Indemnity (Wage Replacement) and Medical
  Costs

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• Excess Property Insurance
• Have 2.5 M. per occurrence SIR and 2.7 M
  annual aggregate SIR
• Limits of 300 million
• Includes both international and domestic
  terrorism
• Builders Risk w/ 50,000 deductible
• All risk policy, excludes mold
• Blanket Coverage for Contents

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Excess Property Premium Total FY 04 premium
2,037,773 All Risk Coverage
1,862,500 Terrorism
175,273 FY03 Premium 2,281,635
If we had purchased full layer Terrorism
Exclusion Rate reduction of 22 for FY04
Renewal However FY02 Premium 746,701
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Property Rates History
0.02
0.018
0.0151
0.016
0.014
0.0118
0.012
0.00948
Rates
0.01
0.00823
0.008
0.00628
0.00591
0.00581
0.0057
0.00491
0.006
0.00426
0.004
0.002
0
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Fiscal Year
Property Rate History
Trendline
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Excess Liability Insurance 3 M SIR 50 M in
limits Excludes Medical Malpractice Employment
Practices Terrorism Mold
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Excess Liability Premium FY04 Premium 511,500
9 Increase FY03 Premium 469,100 38
Increase FY02 Premium 338,100
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Other Programs Workers Compensation No
Excess Insurance Medical Malpractice No Excess
Insurance
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• State Claims Costs
• Increased Significantly in FY03
• Increases Across All Programs
• Future Projections Also Up

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Property Claims Cost FY93-FY03
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Liability Claims Cost FY93-FY03
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Workers Compensation Claims Cost FY93-FY03
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Workers Compensation CostsIndemnity, Medical
ExpensesFY93 - FY03
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Number of Workers Compensation ClaimsMedical
Only Lost Time/Hazardous DutyFY93 - FY03
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Total Claims CostFY93 - FY03
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Total Claims Cost w/InflationFY93 - FY03
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Total Premiums ChargedFY93 - FY03
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Total Premiums Charged w/Inflation FY93 - FY03
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Property Premiums ChargedFY93 - FY03
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Liability Premiums ChargedFY93 - FY03
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Workers Compensation Premiums ChargedFY93 - FY03
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Scenario Costs Increasing Substantially No
Premium Increases Since 1995 End Result -
Drastic Reduction in Program Fund Balances
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Property Program Fund Balance FY93 - FY03
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Liability Program Fund Balance FY93 - FY03
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Workers Compensation Fund Balance FY93 - FY03
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Program Fund BalancesFY93 - FY03
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• Cost Drivers
• Liability Claim Costs
• FY 03 - Primarily Dept of Corrections
• Workers Compensation Medical Costs
• Excess Insurance Premiums
• Primarily Property Insurance

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Spring of 2001

• Planned reduction in program fund balance with
  smooth transition to next Biennium
• Premium Increase in FY02 to 22,600,000 (2M
  increase)
• Premium Increase in FY03 of 23,450,000 (1.45M
  increase)
• Overall program fund balance projected
• to be 4.9 million end of FY03
• No Premium Increases Since 1995

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Where we are today...

• Minuses
• Reduced program fund balances
• Work Comp medical costs still increasing
• Liability claims costs at all time high
• Excess insurance costs still significantly higher
  since FY02
• Agency premiums have to increase to pay costs

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Where we are today...
Pluses Excess Insurance Markets improving Number
of Work Comp claims declining Medical Providers
open to discussion Future liability claim
projections lower We have management attention!
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What does this mean for the State Risk Management
Financing in the Future?What does this mean
foragency premiumsfor the next biennium?
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Projected Property Claims CostsFY93-FY05
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Projected Liability Claims CostsFY93-FY05
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Projected Workers Compensation Claims Costs
FY93-FY05
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Projected Total Claims CostFY93-FY05
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Projected Property PremiumsFY93-FY05
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Agency Building Property Rates
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Projected Liability PremiumsFY93-FY05
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Projected Workers Compensation Premiums
FY93-FY05
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Total Projected PremiumsFY93-FY05
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Projected Property Program Fund Balance FY93-FY05
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Projected Liability Fund BalanceFY93-FY05
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Projected Workers Compensation Fund Balance
FY93-FY05
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Projected Program Fund BalanceFY93-FY05
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What Are We Doing to Address Issues General
Program Risk Assessment - Risk
Retention Evaluation Agency Premium
Methodology Review Goal Agencies Ultimately
Pay Their Fair Share of the Costs
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Property Program Improved Data for
Underwriting Appraisal PMLs (Probable Maximum
Loss) COPE (Construction, Occupancy, Protection,
Exposure) Meeting with Underwriters
Frequently Agency Staff Involved Captives,
Pools, Finite Risk
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Workers Compensation Program Claims
Management/Program Review Governors Safety
Initiative Evaluating RTW Medical Costs
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Attacking Medical Costs

• Preferred Provider Discounts
• Added Dean Care to PPO Network
• Pharmaceutical Benefits Management
• Implemented Drug Card Program
• Medical Cost Control Consultant
• Negotiate Reduced Rates with non-PPO Providers
• Occupational Medical Providers
• Prevent Injuries Return to Work Review

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Liability Program DOC Inmate Medical
Services 15 Passenger Use Guidelines Van
Training / Driver Proficiency General Driver
Training/Awareness Employment Practices
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Future is certainly not a pretty landscape! We
have our challenges! We have managements
attention. Risk Management Now More Than Ever
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?
Thank you!