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HomeMy WebLinkAboutMinutes - Minutes - Risk Management and Worker's Compensation Trust Board - Meeting Date: 5/31/2018 Minutes Risk Management Trust Fund Thursday, May 31, 2018 - 9:00 AM Human Resources Training Room 5850 W. Glendale Avenue Glendale, AZ 85301 Members Present Gary Deardorff, Chair Tom Duensing, Trustee Yvonne Knaack, Vice-Chair Ray Malnar, Councilmember, Trustee Staff Present Lorena Sanchez, WC Program Manager Aaron Schepler, Assistant City Attorney Dianne Shoemake,Risk Manager Kathy Thomas, Risk& Safety Analyst 1. Call to Order Gary Deardorff called the meeting to order at 9:31 AM. 2. Citizen Comments No citizens were present. 3. Approval of December 7,2017 Risk Management Trust Fund Board Meeting Minutes The minutes were provided to the Trustees. Yvonne Knaack moved to approve the minutes as written and it was seconded by Ray Malnar. The motion carried with 4 Ayes and 0 Nays. 4. Motion to Enter into Executive Session Tom Duensing moved to enter executive session and it was seconded by Yvonne Knaack. The motion carried with 4 Ayes and 0 Nays. 5. Discussion of Liability and Property Claims and lawsuits Staff reported the following to Trustees. Risk Management handles all property and liability claims received by the City. Claims received from departments and third parties are adjusted internally. Any lawsuit is handled jointly between the City Attorney's Office and Risk Management. The Risk Management Department has seen a 31%increase in liability claims submitted by third parties or by internal departments from 2016 to 2017. Risk Management currently has 249 liability claims open. 34 of those claims are classified as incidents (no formal claim has been received). This leaves 215 active liability claims which we are actively pursuing subrogation, investigating liability, or in active settlement. Staff provided an update on the following claims: R2017502/R2017482—Sahuaro Ranch Fire R2017573 —Claimant: Hall, Marla R2017700—Claimant: Jerome, Michael R2017711 —Claimant: Augustin, Karen R2017585 —Claimant: Gilsdorf, Lisa Aaron Schepler provided an update of the claims that have progressed to litigation, as follows: R2014503 —James Murillo R2014200—Francisco and Irene Herrera R2014513 —David Allan Berenter R2014514—Antonio Marcus Brown R2016328—Robert Greer R2016536—ARA Inc. R2016348—Rebecca Cruz R2017016—Deanne Dallas 6. Motion to Reconvene Regular Session Yvonne Knaack moved to return to regular session and it was seconded by Tom Duensing. The motion carried 4 Ayes and 0 Nays. 7. Authorization to Renew Fiscal Year 2018/19 Property and Liability Insurance/Excess Insurance Program Staff provided the following information to the Trustees. City of Glendale Ordinance, Chapter 2, Administration, Article 5. Financial Affairs, Division 5. Risk Management Trust Fund, Section 2-207 provides that "The city risk manager, acting for the city manager, is authorized to enter into, on behalf of the city, any appropriate commercial insurance, alternative risk financing and surety bonding contracts to provide such risk insurance as determined to be in the best interests of the city". Staff has worked with our broker, Alliant Insurance Services on the renewals. Alliant has been placing insurance for cities for over 26 years. They have been our broker the past 8 years. Their placements include all lines of coverage placed through a proprietary group purchase program for public entities across the United States. Placement is underwritten and priced on a group basis without sharing the risks of the entire group. Alliant obtained quotations for excess or commercial insurance as follows: • property coverage including auto physical damage, cyber, boiler and machinery, pollution, crime and builders risk, • excess liability coverage including automobile, general, errors and omissions, employment practices, employee benefits, • cyber enhancement and excess • pollution enhancement(underground storage tanks) • airport commercial insurance coverage, • deferred compensation committee fiduciary liability, • special liability policy for Glendale Regional Public Safety Training Center (GRPSTC) • public officials bond for risk management and workers' compensation trust fund board A Renewal Projections Spreadsheet was provided showing each type of coverage,the expiring costs and the estimated costs for FY 2018/19. The total projected not to exceed cost for the coverage's listed above is $1,295,289 versus $1,230,886, an increase of $64,403. The rate increased primarily due to the property program. The other coverages remained relatively flat or saw decreases. Property Program The property policy provides coverage for damage to city assets up to $1,000,000,000 with varying deductibles. The city's total insured property values are $802,518,841. Our "all risk"deductible on property is$100,000, except for flood which is $500,000, automobile physical damage is $25,000 and unscheduled property (tunnels, bridges, dam's roads, streets, sidewalks,traffic signals, etc.) is $500,000. The property policy also includes coverage for boiler and machinery, cyber(information security&privacy), and pollution. The property proposal, attached,provides a complete list of the coverages and limits. The not to exceed premium for property coverage is $434,965. We obtained a separate pollution policy that enhances the property coverage for pollution liability for all above and underground storage tanks, seepage and contamination, cost of clean-up for pollution and mold for NEW conditions found. Our current property coverage for underground storage tanks is self-insured up to $750,000 and is excess any other insurance. This coverage does not meet the financial assurance requirements of ADEQ. Our current property policy does not provide coverage for existing asbestos and lead based paint. The premium for the pollution policy is $21,855. The property coverage includes cyber liability. There is coverage for information security and privacy liability,regulatory defense and penalties, website media content liability, cyber extortion loss, data protection loss and business interruption with separate $2,000,000 aggregate limits. Privacy notification costs have a sublimit up to $1,000,000 and PCI Fines and Penalties up to $100,000. The coverage is subject to a$25,000,000 cyber program aggregate. The City has a$100,000 deductible. The cyber program aggregate is for all insureds in the pool and for all claims made against the policy. One large loss or multiple losses in one year by the pooling group could use up the total aggregate limit of insurance. Therefore, staff obtained a quotation for enhanced cyber liability that provides coverage for notification costs that are not subject to the $25,000,000 program aggregate,provides a lower deductible and no monetary cap for credit monitoring and call center services. The estimated cost is $22,801. The deductible is reduced from$100,000 per occurrence to kick in after 100 individuals have been notified. The average cost of notification is $295. The deductible would be reduced to approximately$29,500. This addition provides up to 250,000 per person notification services. We obtained a quote for excess cyber coverage with limits totaling $3,000,000, which are excess $2,000,000 covered in the primary property policy. The estimated cost is $25,946. The city purchases crime insurance which provides protection for the city's money and securities up to $10,000,000 in limits with a$50,000 per occurrence deductible. The premium remained flat this year. The total estimated premium is $28,588. The city purchases a fiduciary liability policy which covers the Deferred Compensation Plan Committee with$5,000,000 limits with a$5,000 deductible. This premium decreased slightly. The total estimated cost is $12,562. The city purchases a public employee blanket bond (required by ordinance) which covers the Risk Management and Workers' Compensation Trust Fund board with a$10,000 limit. The policy cost$180, same as the expiring policy. The total estimated premium for the Property Program as listed above is $546,897. Liability Program The city's excess liability insurance provides coverage on an occurrence basis up to a $50,000,000 limit with a$1,000,000 self-insured retention(SIR). This means that the first$1,000,000 of each occurrence is for the City to pay. The carriers are Safety National who provides the first layer of coverage up to $10,000,000 with Navigators Specialty Insurance providing the second layer up to $15,000,000, Hallmark Specialty Insurance Company providing the third layer up to $25,000,000 and Arch Insurance Company providing the fourth layer up to $15,000,000. The premium for all four layers is $733,213. For the primary layer, $10,000,000 (excess $1,000,000 SIR), Safety National provides the coverage as follows: Safety National (also excess WC $510,981 Primary layer$10M XS $1M Carrier) SIR Coverage limits Genl/Auto $2M occ/$4M agg Public Officials/Emp. Prac. $2M/$4M Aggregates XS above $8M with$3M annual agg for sexual abuse and molestation Total $10M primary layer $222,232 $40M XS above primary may have to drop to primary to fill in above aggregate Total estimated premium all limits. layers $733,213 Terrorism included in first $35M Alliant will continue working with the carriers to obtain further discounts. We expect final firm quotes by mid-June. The city purchases a separate airport owners and operator's general liability policy with $20,000,000 in limits on an occurrence basis including bodily injury and property damage liability,products and completed operations,personal injury and advertising injury,hangar keepers, non-owned aircraft liability, and fire damage liability. This policy is needed to provide coverage for the airport operations hazards which are not covered in the excess liability policy. There is no self-insured retention and no deductible. The carrier held the premium at$7,995. We added Terrorism coverage for an additional premium of$1,000. The total premium is $8,995. The city purchases a small liability insurance policy to protect the Glendale Regional Public Safety Training Center(GRPSTC) with$2,000,000 in limits with a$5,000 deductible. This facility partners with five public entities (City of Surprise, City of Peoria, City of Avondale and Maricopa County Community College District)who use and share the costs based upon their agreements with the City. The total cost sharing of all other entities does not exceed 25%of the facility costs. Since this facility is used by all partners and the costs shared, we recommend continuing to purchase this separate insurance policy. The carrier has paid one claim for a trip and fall injury amounting to $125,000 plus their cost of attorney's fees. The City paid, and shared the cost, of the $5,000 deductible. The not to exceed quote is $6,184. This coverage does not renew until September 29,2018. The total premium for the Liability Program is $748,392. The premium cost of both the Property and Liability Programs for FY 2018/19 is $1,295,289. The premiums are paid from the Risk Management Trust Fund. The amount being recommended is included in the budget that was approved by City Council on May 22, 2018. Yvonne Knaack motioned we recommend to City Council approval of FY 2018/19 renewal of the property and liability insurance programs totaling$1,295,289. The motion was seconded by Ray Malnar. Motion carried with 4 Ayes and 0 Nays. 8. Discussion of Actuarial Analysis of Self-Insured Liability and City Property Programs as of April 20,2018 Extrapolated to June 30,2018 Staff presented the following information to the Trustees. Aon Risk Solutions completed the actuarial analysis of the Risk Management Trust Fund self-insured liability program and property program from data extrapolated to June 30, 2018. A copy of both reports was provided. The actuary conducted the analysis on a fiscal year basis. Self-Insured Liability Program The actuary was provided with the following information, 3 years annual payroll, 10 years claims data including claims payments and current reserves as of December 31, 2017, city operating budget, interest rate and CAFR. Currently the City has a$1,000,000 self-insured retention(SIR). The actuarial report provides the following: • Estimate of outstanding losses (cost of unpaid claims)—This estimate of outstanding losses includes allocated loss adjustment expenses (ALAE), claims reserves, development of known claims and incurred by not reported(IBNR) claims limited to the SIR • Project Ultimate Limited Losses—This is a projection of future losses (the amount of money needed to pay claims). The amount is limited to the self-insured retention. • Project Losses Paid—This is an estimate of the claims payments expected to be made during the fiscal year. • Comparison to the Previous Actuarial Study • Affirm GASB Statement No. 10 Compliance In the report, Table III-1, column 2 "Estimated Outstanding Losses" of the report,the amount of money needed to pay expected claims (outstanding claims) is $3,551,841, see page 4. GASB 10 requires funding of expected claims at a 55% confidence level. This is the minimum amount of funds that are needed in the trust fund to pay current outstanding claims. The estimate increased by about$2.1 million from the previous study as of June 30, 2017. The change consisted of: • +$1.5 million increase from an additional year(2017/18) of exposure, • -$1.1 million decrease for claim payments made during 2017/18, and • +$1.1 million decrease due to an increase in projected ultimate losses for claims periods 2016/17 and prior; the total case reserves increased by$1.3 million. There emerged four large claims (R2016536, R20164634, R2017015 and R2017573)with $1.3 million in case reserves as of December 31, 2017. The projected ultimate limited losses (future claims)to be paid for fiscal year 2017/18 is estimated at$1,589,000, see page 5, Table III-2A, (column 4 titled"Projected Ultimate Losses"). The prior study was $1,051,000. For fiscal year 2018/19 projection is the same, see page 6, column 4. The projection of FY 2018/19 losses paid(payments expected to be paid during the fiscal year), is $1,762,339, see page 6, Table III-3, column 2. On Page 7 the estimated cost per claims per$1,000 of Operating budget for FY 2017/18 is $3.83. On Page 8,the estimated cost per claim per$1M of operating budget is $12,506. The frequency of claims decreased to 42 cents per$1M of operating budget. As of the date of the actuarial report, Risk received 159 claims in FY 2016/17 compared to 173 claims for the prior fiscal year. Self-Insured Property Program The actuary completed an analysis of the self-insured city property program. The city is self-funded at various levels for damage to its property which is paid out of the Risk Management Trust Fund. When damage to city property occurs, Risk Management acts as the city's insurance office and determines when losses are covered and reimburses city departments based upon the property damage reimbursement procedure. The actuary was provided with the following information to complete the analysis: • History of self-insured retentions/deductibles • Five years of loss data • Property values from FY 2008/09 through 2015/16. On page 4,the actuary provides the estimate of outstanding losses at$491,436. The estimate decreased from the previous study by about$196,000 as of June 30, 2017. This change consists of: • +$673,000 increase from the additional year (2017/18) of exposure • -$85,000 decrease for claim payments made during the FY, and • -$784,000 due to a decrease in projected ultimate losses for claims periods 2016/17 and prior On page 5, column 4,the projected ultimate limited losses (future losses) is $384,000. This amount is limited to the self-insured retentions. In Table III-3, claims payments expected(projected losses paid) to be made during the upcoming fiscal year is $668,668. The estimated total current outstanding losses (current claims) for both liability and city property is $4,043,277 ($3,551,841+$491,436). Staff reported the information contained in the actuarial report was provided to Finance for the development of rates to be charged to the Departments for their insurance premiums. The next actuarial report will be completed in February 2019. The information provided was for discussion only. 9. Discussion of Risk Management Trust Fund Fiscal Year 2017/18 Revenue and Expenses and Fund Balance Staff provided a spreadsheet of FY 2017/18 revenue and expenses for the Risk Management Trust Fund (2540). The information provided in the spreadsheet is for expenses and revenue as of May 25, 2018 on a budget basis. In the column entitled "2018 FYTD",the total revenue received to date is $3,359,765. Revenues are trending higher than budgeted due to interest income and restitution, subrogation and insurance recoveries. Of the revenue received, $41,172 is from interest income, $114,244 from miscellaneous income and $3,204,349 from self-insurance premiums. Self-insurance premiums have been deposited through April 2018. There are two months of premiums to be deposited for the remainder of the fiscal year or$320,434 monthly. Total expenses paid is $2,897,299. Of that amount $1,413,675 is for payment of claims, $1,289,520 for payment of professional and contractual fees (actuarial, brokerage, insurance premiums, loss control) and$194,104 for administrative and general expenses. Claims payments exceeded the amount budgeted in May. The budgeted amount was $1,410,759 and payments to date are $1,413,675. This required a$500,000 transfer of funds from the contingency to cover the budgeted overage. Council approved the transfer on May 22, 2018. The new FY budget for payment of claims is $1,910,759. This will carry us through the end of the fiscal year. The ending fund balance is $4,910,674. The actuary completed their analysis on April 20, 2018 and provided their recommendations for a fund balance at a 55% confidence level as required by GASB 10. Currently, the actuarial minimum balance is $4,043,277. This minimum amount is required to pay known liabilities. Currently the fund balance is $4,910,674 or$867,397 above the minimum. There are two months left to pay expenses in this fiscal year and two months of premiums to be deposited. The fund is expected to remain above the minimum balance through the end of the fiscal year. We will continue to monitor the fund balance monthly. Risk Management benchmarks itself against the industry based upon the total cost of risk (TCOR)to the organization. The TCOR is determined by adding all costs of the risk management and workers' compensation programs (TCOR) and dividing the TCOR by the City's operating budget. The TCOR benchmark for public entities is generally set at no more than 3 percent of the City's operating budget. Currently our TCOR is at 1%. This indicates that the trusts are operating very lean and efficient. Annually the City audits the Risk Management Trust Fund as part of the Comprehensive Annual Financial Report. The report for FY 2016/17 was completed December 21, 2017. There were no material issues found. The item was for discussion only,no motions made. 10. Discussion and Approval of FY 2016/2017 Risk Management Annual Report to City Council Staff advised Glendale City Ordinance, Chapter 2, Article V., Division 5, Section 2-204 requires the Trustees to provide to City Council a report as to the status of the risk management trust fund. The report shall include a summary of all monies collected and all payments made and any recommendations the trustees deem necessary to meet their joint fiduciary obligations for administering the risk management trust fund. A draft of the Risk Management Trust Fund Report to Council for the period of July 1, 2017 was provided for your review and approval. As in past years, we have provided the following information. • Introduction • Risk Management Structure &Functions • Risk Management Trust Fund Audit • Self-Insurance and Excess Insurance • Property and Liability Revenues and Expenses • Workers' Compensation Revenue and Expenses • Accomplishments • Safety and Loss Control • Claims Management • Total Cost of Risk Ray Malnar made a motion to approve the report as written and it was seconded by Yvonne Knaack. The motion passed with 4 ayes and 0 nays. 11. Adjournment Ray Malnar moved to adjourn the meeting which was seconded by Yvonne Knaack. The meeting was adjourned at 10:00 AM. onivivoic avArirtiaL__ Submitted by: Dianne Shoemake