ABAG PLAN Corp. Strategic Planning Meeting

1
ABAG PLAN Corp.Strategic PlanningMeeting

• October 8, 2003
• Dublin, CA

2
Planning Meeting Goals

• Review Renew our Mission
• Agree on future characteristics of the pool
• Clear idea of what members want to achieve
• Establish benchmarks for determining success

3
AGENDA

• Where are we now?
• Progress Since Last Meeting
• Issues Remaining
• Where are we going?
• Five-Year Plan
• Next 2-5 years

4
Issues For Today

• Digest remaining issues from last meeting
• MOC and Doc Review/Discussion
• Review current financial condition ratios
• Plan for funding beyond goal of 10 mil in SIR
  Fund
• Assess WOTS
• Revise objectives

5
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.

6
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

7
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

8
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?
9
Planning Meeting Goals Progress

• 9 Goals Identified
• Update Strategic Plan Annually - were 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

10
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

11
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

12
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

13
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

14
Item 5. Document ReviewGoals

• Memorialize current practices understanding
• Agree on future characteristics and practices of
  the pool
• Clear idea of what members want to achieve
• Memorandum of Coverage
• Bylaws
• Claim Policy

15
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

16
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 Levels
• Reporting Requirements
• Performance Standards

17
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

18
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?

19
Item 5. Document Review Claim Policy

• Settlement Authority
• Member PD only up to 10 of Deductible
• Claims Manager 50k gt Ded. Defense
• Risk Manager 100k gt Ded. Defense
• Claims Committee gt 100k Ded. Def.
• Reporting Requirements
• To/From Member and Committee
• Program Performance/Audit Standards

20
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

21
Item 5. Document ReviewMemorandum of Coverage

• Covered Parties
• Deal with auto - permissive use
• Include PLAN Board?
• Duty to defend/indemnify when member cant
• Exclude parties due to intentional tort or
  conflict of interest, per G.C. 815.3, 825.6, 995,
  996.6?

22
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., EO,
  Employee Benefit Liability

23
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.

24
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

25
Item 5. Document ReviewMemorandum of Coverage

• Insuring Agreements (p. 1)
• MOC has 4 - PD, BI, PI, EO
• XS has 3 PD/BI, EO, EBL
• EBL EO 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

26
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.

27
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.

28
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 EO
• excludes ERISA
• excludes insufficiency of funds (u.)

29
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

30
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.)

31
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?

32
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

33
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.

34
Review Discussion of Suggested Topics Changes

• MOC
• Bylaws
• Claim Policy
• Other

35
Item 7. Management of Retained Funds

• Current Financial Condition
• Funding Policy Benchmarks

36
Balance Sheet Comparison
37
Income Statement Comparison
38
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

39
(No Transcript)
40
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

41
Funding PolicyBenchmarks

• Financial Ratio Numbers
• Net Deposits 4.0 Mil
• Total Liabilities 11.2 Mil
• Total Fund 25.7 Mil
• SIR 5 Mil
• SIR Fund 19.5
• Including standards used by WA State and MI
  Municipal Insurance League (MML) - see handout

42
Funding PolicyBenchmarks

• Yearly Deposit at least 50 CL
• Goal 70. Current Funding at 50.
• Total Fund to SIR ratio at least 21
• Goal 31. Current 51
• 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.

43
Total Fund to SIR

• Measures Conservatism in Self Funding - maximum
  Fund would decrease from one loss.
• Pools typically at 51 to 151. A larger SIR
  would merit a ratio of 3.0 to 1.0 (WA State
  Guide). MML benchmark 10 or more, current
  36.81
• PLAN ratio is 51 (255 Mil)
• Exceeds Funding Policy Goal of 31 , Min. 21
• Up from 3.81 last year
• Raise goal from 31 to current 51 and minimum
  from 21 to 31

44
Yearly Deposit to Total Fund

• Measures 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 11
• New Pool 51 Mature Pool .51 (WA Guide)
• MML benchmark 1.0 or less, current .791
• PLAN ratio is .161 (425.7)
• No benchmark in Funding Policy
• Keep at .251 or less

45
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 0.41 to 2.51
• Low ratio desirable, lt 1.51 (WA), lt 31 (MML
  with current ratio 21)
• PLAN ratio is .441 (11.225.7)
• Add benchmark minimum 1.51 or less, goal of
  11 or less.

46
SIR Fund to SIR

• Unique to PLAN
• Minimum Ratio 11
• Goal 10 mil - current 19.5 mil
• Current Ratio 19.55 3.91
• Up from 9.65 1.92
• Raise minimum from 11 to 21 with goal of 31
  (current 3.91)

47
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
  years loss reserves
• 15.8 to 11.2 Mil change 29 Decrease
• Funding No more than 10 Increase
• PLAN funding increase 0.6

48
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?

49
Suggested Funding Benchmarks

• Fund to SIR - raise goal from 31 to current 51
  and minimum from 21 to 31
• SIR Fund to SIR - raise minimum from 11 to 21
  with goal of 31 (current 3.91)
• Loss Reserves to Fund - add benchmark minimum
  1.51 or less, goal of 11 or less. (current
  .441)
• Others? Limit Deposit to 10 increase?

50
Evolution of PLAN Funding

• 1986 - 1990 Growth of Risk Margin Fund
• 1991 - 1996 Dividends Declared
• 1997 - 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?

51
Pool Nirvana

• Assets Interest gt Deposits Admin
• No 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

52
Pool NirvanaIs it Realistic?

• Other Pools Achieved?
• Under what conditions?
• How has the PLAN compared?
• Could we achieve it now?

53
Pool Nirvana PLAN Results
54
Pool Nirvana PLAN Results
55
Pool Nirvana PLAN Results
56
Pool Nirvana PLAN Net Expense
57
Pool NirvanaWithout SIR Fund

03 New Actuary
58
Net ExpenseSIR Fund Comparison
59
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

60
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

61
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

62
Pool NirvanaReality

• Dividends used to make deposits more predictable
• Help ease impact of budget fluctuations
• Fund more services for members
• Deposits above or below predictable level (_at_
  payroll increase) should be based on members
  compliance with loss prevention policies and
  preventable losses

63
Item 8. Review, WOTS Objectives

• Trends Market Conditions
• Review of prior meetings
• Weaknesses
• Opportunities
• Threats
• Strengths
• Objectives

64
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

65
Future TrendsInterest Rates

• Still at record lows
• Using 4.0 vs. 4.5 last year (5 prior)
• 0.5 drop increased funding _at_ 40,000 and
  increased outstanding liabilities
• No immediate pressure to increase
• Possible Deflation
• Any Estimates?

66
Future Trends

• Your Budgets?
• Your Concerns?

67
WOTS Analysis

• Weaknesses
• Opportunities
• Threats
• Strengths

68
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

69
Prior Planning Meetings

• Weaknesses 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.

70
Prior Planning Meetings

• Weaknesses 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

71
Prior Planning Meetings

• Opportunities 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.

72
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

73
2003 Strengths

74
2003 Weaknesses

75
2003 Threats

76
2003 Opportunities

77
2003 Board Goals Objectives

78
9. Other Business

• Comments?
• Questions?
• THANK YOU!