Property and Liability Insurance Program

Transcription

1 A&I 12/18/ Property and Liability Insurance Program The Risk Management department coordinates the University s comprehensive risk financing program which includes the purchase of commercial coverage for protection against catastrophic loss as well as management of a self-insurance plan to cover commercial premiums, selected deductibles, self-insured exposures, and operating expenses. The program covers University assets and activities system-wide. Major exposures and coverage groups are outlined below: Property o Insured through Factory Mutual Insurance Company (FM Global) The property program provides replacement cost coverage for buildings and contents, fine arts, and business interruption Policy limit $1 billion per occurrence with no annual aggregate Per occurrence deductible is $250,000 A.M. Best financial strength rating of A+ Liability o Insured through United Educators The liability program provides a broad range of coverage including general, auto, professional, employment practices, directors and officers and other exposures Catastrophic excess liability coverage limit of $40 million per occurrence and annual aggregate Catastrophic excess educator s legal liability/director s & officer s liability coverage limit of $25 million per occurrence and annual aggregate Per occurrence deductible is $2 million A.M. Best financial strength rating of A o Commercial crime and employee faithful performance of duties coverage provided by Fidelity and Deposit Company of Maryland (a Zurich company) Policy limits $11 million per occurrence with no annual aggregate Per occurrence deductible is $25,000 A.M. Best financial strength rating of A+ Aviation o Insured through QBE Insurance Group Limited The aviation coverage provides aircraft liability and physical damage coverage as well as general liability coverage associated with ownership and operations of an airport Liability limit of $50 million (airport and turbine craft) and $25 million (piston craft) per occurrence with no annual aggregate limit Each claim physical damage deductible and annual aggregate deductible $250,000 A.M. Best financial strength rating of A

2 Program Financial Health The Viability Ratio measures the funds available to cover outstanding obligations, including reserves established to value outstanding claims and estimates of claims incurred but not reported (IBNR). The gold bar represents the desired operating ratio for the Risk Management fund. Currently, the fund has resources to cover its obligations at a ratio of 1.38 times obligations. The objective of spending down excess reserves since 2012 has been achieved as demonstrated by the current value of the viability ratio. Internal recharge rates will be adjusted over the next year to ensure the fund operates at a breakeven point within our institutional target ratio of 1.5 times obligations. We believe the fund s yearend balance is in a satisfactory financial position to meet all obligations despite being slightly under our desired ratio target Viability Ratio Statement of Revenues, Expenses, and Changes in Net Position The financial activity of the Risk Management operation over the last three years is illustrated in the following chart. Exhibit A is also attached, which shows the Statement of Revenues, Expenses, and Changes in Net Position for the Risk Management operation. The most recent year concluded at a net operating loss of $541,502. This is the result of a continued spend down of cash balances (reserves) through lower internal recharge rates. The Risk Management fund received a very large loss recovery from its property insurance underwriter, which shored up revenue significantly and made insurance year end results appear better than the prior year. The available fund balance as of September 30 is $3.1 million and takes into account current obligations associated with claims outstanding and incurred but not reported loss calculations (via actuarial formula). The current fund balance is significantly lower than the prior year, largely due to increases in the development of current losses that feed into the actuarial based calculation of the incurred but not reported losses figure. Risk Management is currently reviewing its internal recharge rates in an effort to reestablish a break even position going forward, assuring the future health of the fund.

3 Risk Management Summary of Financial Activity Premium Expenses Loss Expenses Other Expenses Total Revenue $1,501,397 $799,212 $597,427 $7,697,240 $6,205,541 $7,669,986 $3,368,451 $3,406,366 $3,635,468 $4,248,905 $4,161,787 $3,978, Premium History The chart below represents the University s three year insurance premium payment history for premiums paid to underwriters regarding major coverage lines. Total external premium related expense decreased by approximately $183,000. This was due primarily to market conditions and negotiations with our insurance underwriters. Property Risk Management Three Year Premiums Paid to Carriers Comparison Coverage Category Student Coverages Liability Aviation Other Coverages Premium Paid

4 Loss History The chart that follows shows the University s three year losses paid comparison, broken out by payments made by the Risk Management fund and losses paid by the carrier or underwriter. Large property losses for 2015 that exceeded the University s retention and required payment from the insurer included a broken water pipe in the Biochemistry building ($1.4 million) and Wade Utility Plant mechanical damage to chiller #11 ($280,000). Property Property Property Risk Management Three Year Losses Paid Comparison Coverage Category Liability Liability Liability Other Other Other Aviation Aviation Aviation RM Paid Carrier Paid Amount Paid Loss Control Loss control and prevention service continues to be an important point of emphasis with Risk Management, the University s brokers, and underwriters. This effort is performed collaboratively with University departments and operations. Examples of risk management activities facilitated this past year include: Sprinkler protection to Lynn Hall, Materials and Electrical Engineering building basement workshop, and portions of the Helmke Library. We are advised by consultant engineers that these efforts have reduced possible fire loss exposure by $219 million for these facilities. Physical and flood/surface water protections and barriers applied to Hansen research areas, Physical Facilities, Housing and Food Services. These efforts equated to water and other related loss exposure mitigation valued at $56 million. We continue to improve utility plant maintenance programs. The University s property insurer made 17 campus visits and expended in excess of 378 engineering hours dedicated to loss mitigation and loss control recommendations. An additional 444 engineering hours were dedicated to complying with required boiler inspections. A detailed analysis of Risk Management incurred legal fees was performed and a recommendation was made regarding the utilization of in-house counsel. This recommendation currently under review has the potential for future savings. The creation and publication of a risk management international travel field guide. This document provides a one stop guide for managing and navigating the risks of international travel. This publication has received positive reviews by Purdue faculty. Worked with residence hall management and consultants to develop and implement a loft bed rail safety program to prevent disabling head trauma to students who fall from lofted beds.

5 Forward View of Plan Year Based upon the assessment of market conditions by Risk Management and Aon Risk Services, the major insurance portfolios of liability and aviation coverages remained with existing carriers for insurance year The property portfolio, however, was marketed and placed with a new underwriter, American International Group (AIG). Marketing efforts and strong negotiations by Purdue s Risk Management team yielded higher coverage limits, broader coverage terms, and a lower applicable rate. AIG has offered, and Purdue has accepted, two successive years of coverage at the same guaranteed low rate. The agreement includes a premium credit based on a favorable loss ratio at each year end. Cumulative savings over the next three years, excluding any premium credits, are expected to be at least $2.1 million. Liability premiums associated with the University s excess general liability underwriter (United Educators) increased slightly by approximately 1%. The increase is associated with the slightly enhanced risk profile of the University as it pursues its mission. Aviation coverage with QBE Insurance Group Limited remained competitively priced and the University experienced an overall reduction in premium paid of approximately 11%. As part of the renewal negotiations, we were able to secure lower deductibles for physical damage to aircraft and many coverage enhancements. One of these enhancements included liability coverage for drones. As a result of its favorable loss history and risk management expertise, Purdue continues to enjoy some of the lowest aviation premiums in the industry.

6 Exhibit A Risk Management Statement of Revenues, Expenses, and Changes in Net Position For the Years Ended September Revenue Revenue Paid to the Risk Management Program $ 5,630,438 $ 5,506,573 $ 6,520,659 Interest Earnings on Reserves 297, , ,877 Loss Recovery by Commercial Carriers 1,637,792 4, ,885 Third Party Recoveries 104, ,667 56,819 Internal Transfer (RM Grant Program) 300,000 Total Revenue $ 7,669,986 $ 6,205,541 $ 7,697,240 Expenses Premium Related Expenses Premiums Paid to Carriers 3,869,893 4,058,929 4,149,765 Broker Fees 108, ,858 99,140 Total Premium Related Expenses $ 3,978,593 $ 4,161,787 $ 4,248,905 Loss Related Expenses Losses Paid 2,814,853 2,178,753 2,671,937 Claim-Related Legal Fees 796,625 1,194, ,124 Third-Party Administrator Expenses 23,990 33,210 27,390 Total Loss Related Expenses $ 3,635,468 $ 3,406,366 $ 3,368,451 Other Expenses Loss Control Program Expenses 63,617 64,305 61,623 Premium Rebate Expense ,000 RM Grant Program Expenses 48, ,097 Insurance Services Enterprise Expenses 485, , ,774 Total Other Expenses $ 597,427 $ 799,212 $ 1,501,397 Total Expenses $ 8,211,488 $ 8,367,365 $ 9,118,753 Change in Net Position $ (541,502) $ (2,161,824) $ (1,421,513) Net Position as of September 30 $ 11,297,733 $ 11,839,234 $ 14,001,059 Less Claims Outstanding (2,671,844) (2,315,449) (1,926,909) Less Claims Incurred But Not Reported (IBNR) (5,510,011) (2,475,712) (2,353,605) Unobligated Net Position $ 3,115,878 $ 7,048,073 $ 9,720,545