August 2010 Executive Staff Report

Document Sample
August 2010 Executive Staff Report Powered By Docstoc
					August 26, 2010

TO:             WSTIP Board of Directors

FROM:           Al Hatten, Executive Director; Jerry Spears, Deputy Director; and
                Tracey Christianson, Member Services Manager

SUBJECT:        Executive Staff Report – August 2010

GOVERNMENTAL ENTITIES MUTUAL (GEM) - July Board meeting Synopsis
Strategic Retreat
The Board, designated member representatives, and staff discussed the implications for GEM of a
continued soft commercial insurance market coupled with budgetary constraints faced by public entities.
The discussion centered on how GEM should look to utilize its surplus in these uncertain market
conditions. To assist the Board in analyzing various options management, in conjunction with Milliman,
presented a risk model using risk-based capital as a benchmark. The model produced a “base case” risk
profile for GEM that will allow the Board to interpret any changes proposed by management. At the
conclusion of the meeting the Board also agreed that time should be set aside on an annual basis for the
Board to hold a strategic retreat.

The June 30, 2010, financial statements showed net income for the six months of $608,985 versus a
budgeted income figure of $1,003,635. While GEM still has a negative variance against budget, the net
loss reported in March has now turned positive. Management estimated that barring any major losses for
the remainder of the year GEM would likely report net income in the $1.6 - $1.7 million range, still below
the original budget estimate.

GEM reported assets of $65.9 million at June 30, 2010, down from a year-end total of $67.1 million. While
investments grew for the first six months that growth was offset by reinsurance recoveries and a decline
in ceded IBNR. Members’ surplus increased to $23.9 million at 6/30 up $1.4 million from year-end with
unrealized gains in the investment portfolio accounting for the other half of the increase not produced by
net income. Management commented that it was possible that GEM could hit the $25 million mark in
members’ surplus by year-end three years before the target date of 2013.

The investment portfolio stood at $49.8 million at June 30, 2010. Year to date performance was 4.54%
versus a benchmark return of 4.78%. Since inception with Galliard, the GEM portfolio has returned net
9.41% versus the benchmark return of 7.56%. Management reported that the underperformance in the
portfolio on an YTD basis was due to the flight to quality that had occurred in the second quarter due to
the European debt problems.
Strategic Asset Alliance reported that the portfolio that there were three areas of non-compliance within
investment portfolio. Cash and equities were below target and bonds were above target. Management
reported that given the low interest rate environment it continued to move cash into the investment
portfolio in order to pick-up yield. In the event that GEM was to need cash, the Galliard portfolio held U.S.
Treasuries that could quickly convert to cash. There was one security on the OTTI watch list; a State of
Illinois GO.

The claims report focused on three specific claims; one with new reserves in excess of $100,000 and two
others with significant developments. The newly reserved claim is a property loss that had been
discussed in April for a police station due to a fire in a sally port. GEM has posted a $500,000 reserve.
The other two claims involve a land use issue that has now moved to a declaratory judgment action and
auto vehicle accident involving a district police chief and a motorcyclist where the cyclist’s condition has
worsened which may necessitate a GEM reserve increase.

Action Items

Appointment of Milliman as the Opining Actuary for 2010
The Board approved the appointment of Anthony Burke, FCAS, MAAA as the opining GEM actuary for

Freedom of Information Policy
The Board approved, with minor modifications, the proposed GEM Freedom of Information Policy.

Board Work Plan
    The Board met in executive session during the meeting to discuss CEO compensation and a
       proposed new contract and also to conduct a self-assessment of the Board’s own performance.
       The Chair reported out that the Board had agreed on a compensation plan for the CEO and was
       working on drafting a new contract to commence on January 1, 2011. Additionally, the Chair was
       asked by the Board to develop a Board orientation program for new Board members.
    The Board accepted the Content and Compliance Review prepared by management.

Discussion Items
Management did a presentation on the underlying business rules and formula’s used to calculate member
accounting balances.

Management reported that the transition from Veris Consulting to SRS Consulting, as GEM’s accounting
service provider, was underway and scheduled to occur on August 1, 2010.

Management presented several new graphs developed by Joel Kress that outlined the development of
GEM’s ultimate loss ratios by line by accident year. Feedback from the Board on these new charts was
extremely positive so management will incorporate them into a yearly presentation at the Board meetings.
Management provided copies of the best practices for broker letters of record as provided by CalTIP, as
well as a copy of the current Towers Watson contract outlining the disclosures requested.
GEM Annual Meeting
At the Annual Meeting Michael Hammond, Michael Rhyner and Gregory Womack were re-elected to the
GEM Board of Directors. Parker Chambers was elected for his first term of office to replace Lew Leigh
who did not stand for re-election. Dean Boes was appointed by the Chair to serve out the unexpired term
of Ty Gagne who resigned from the Board.

2010 – 2011 GEM Officers
Chairman – Al Hatten, Washington State Transit Insurance Pool
Vice- Chairman – Greg Womack, Texas Council Risk Management Fund
Secretary – Brett Davis, Park District Risk Management Agency

Staff will begin the process to solicit the necessary information from the members for the 2011 liability
renewals. A preliminary review would indicate an increase of 4 – 7% based on adverse development and
significant claim losses. The exposures issue is very important to ensure we can properly address the
contraction by some members and the “crystal-ball’ potential of elections results for members seeking tax
increases in late 2010 or early 2011.

We spoke with our brokers, Alliant Insurance Services, and it looks like we are heading in the direction of
adding the entities will tanks over 25 years old to the ACE blanket policy. We may need to do a
cancellation and rewrite of that policy to make this happen. We are in current discussions on our strategy
for the upcoming renewal and the relationship with Zurich. We suspect given the current situation we will
need to move the entire UST portfolio to ACE. In any case, premiums will be going up across the board
for all renewals, but we don’t have any specifics to date. A verbal update will be given at the meeting on
any new developments.

The Secretary of State has sanctioned the signatures for I-1082 and it will be on the voter’s ballot on
November 2, 2010. The goal of I -1082 is to lower industrial insurance (Workers’ Compensation) cost for
employers while also maintaining safe workplaces. I-1082 would dissolve the current state-run monopoly
on workers comp by allowing private insurers the ability to sell industrial insurance. I-1082 does not seek
to address or limit the benefits injured workers receive or are entitled too. Washington State is one of four
states nationwide that do not allow commercial insurance in favor of a state-controlled system.

The Washington State pooling community has approached the State Risk Manager for an opinion on the
impact to the pooling community if I-1082 should pass. An unofficial response indicates the public entity
pools may have the ability to provide a group purchase program, separate of their existing operations, for
workers’ comp benefits to their memberships. The current legislation regarding pooling is a follows:

        RCW 48.62 allows local governmental entities to individually or jointly self-insure risks, purchase
        insurance or reinsurance and contract for risk management/claims/administrative services. It also
        advises that the intent of this legislation is to be liberally construed to grant entities maximum
        flexibility in self-insuring risks as long as they are operating in a safe and sound manner.
        WAC 82.60 provides the guideline of this intent for a joint local governmental
        property/liability/self-insurance programs including non-profit and self-insurance entities.

Our question remains: is this a WSTIP action; WSTA action or something in between?

During the course of the past few months’ staff has been soliciting an idea that may have significant fiscal
benefits for a number of local governments including pools. This idea germinated from the inability to
secure favorable reductions in medical costs from a large medical provider for a clear liability case with
substantial injuries “because we’re too small.”

Several years ago the Washington State Counties Association addressed the issue of inmates and
inmates’ medical maladies after incarceration. Working with their broker they created the Inmate Medical
Program. About 20 counties participate and have a $10,000 deductible with a 3-day waiting period. The
program is administered by the Financial Services Corporation who collects a fee but access most of the
state medical networks for discounted fees.

Our thought is: why not us? We have started a preliminary discussion group of other pools and interested
parties. We want to engage other stakeholders including legislation support, legal analysis and potential
a feasibility study including actuarial. This is only in the talking stages and may not be develop into a
proposal or white paper until later this year or mid 2011.

UPDATE: We met with Michael Shaw of “Shaw – Government Relations” to discuss a personal service
contract to investigate current activities, interested parties/alliances, potential objections or detractors and
legislative concerns. We made it clear that we are not engaging any services to represent our or our
member’s interests to influence legislative members, staff, detractors or participants.

2010 September 1 – 3 - Indianapolis, IN – National Captive Conf – (partial GEM reimbursement)
     October 17 – 20 – Nashville, TN – AGRIP Pool Trustee’s Governance Conference
     October 20 – 21 – Nashville, TN – GEM Board Meeting
     November 4 – 5 – San Francisco, CA – Underwriting review meetings (Tentative)
     December 2 -3 – San Diego, CA – CALTIP Annual Meeting – guest speaker
2011 February 1 – 4 - GEM Board Meeting
     March 14 – 17 – Clearwater, FL – AGRIP Spring Conference
     April 20 - 23 – Washington DC – GEM Board Meeting
     June 4 -8 – Portland, Or – PRIMA Annual Conf (AGRIP Pooling Track)

ADR Monitoring – As previously reported, the meeting with the State Board of Technical Colleges was not
as fruitful as hoped. Although there would be a way to work out an Interlocal agreement, it appears it
would be at a premium price which we feel is unrealistic for this project. This leaves the only option as a
more traditional procurement, although we can utilize the Department of Information Systems pre-
approved list to speed up the project.
IRM Best Practice Assessments
Chris DeVoll is in the final push for all members. At this point, it is easier to report where the work isn’t
complete (work plan in place). Here is a list of members and where they are at in the process: Ben
Franklin, work plan; Columbia, work plan; Community, draft report (scheduled); Cubs, general manager
visit; Grant, final report; Island, general manager visit (scheduled); Pierce, draft report; Valley, general
manager visit; Whatcom, general manager visit; and Yakima, work plan. Whatcom asked for a delay of
meeting until the implementation of their RIF (mid-September) and Yakima also asked for a reschedule
because of potential reorganization issues. Kitsap asked for/received a verbal report and work plan.

IRM Member Project: Workers Compensation
Cathy Reineke, Principal of RiskReady, gave an update on the Workers Compensation project at the
work session on June 25. As you may recall, part of that project was also to provide training on workers
compensation claims handling. These workshops are free to all WSTIP and Training Coalition members.
Workshops were held in Everett on June 30, and Vancouver on July 27. Upcoming sessions are
scheduled for: September 15, Richland; and October 12, Olympia.

HR Sentry
WSTIP staff is now at the implementation/technical stages of the HR Sentry purchase. The technical
folks at HR Sentry are working with Andrea to work out the technical details of accessing the service.
WSTIP would prefer to launch the service from within the Portal; however, access issues require
resolution. We now know what we have to do to put the program together.

Best Practice and Best Practice Resource Development
Cameras – Part of the recommendations from the Camera Initiative Subcommittee was to develop certain
resources. WSTIP has negotiated a contract with TruSys to develop the technical specs of a camera
setup and maintenance procedures, and with Bruce Schroeder at Summit Law to develop a resource
document for members to work with their union. In the Portal, there is a place to gather antidotal
information on the benefits of cameras from each member system. (We have now advertised this place
and have scheduled ongoing reminders for submitting information.) The Public Transportation Office of
the Department of Transportation has been approached to see if the state can assist with the
development of a multi-vendor contract for fleet retrofit. David Chenaur has approached GA and there
are favorable signs a state-sponsored procurement may be a possibility. WSTIP staff reviewed a draft of
the Summit Law resource document and recruited members to review the work for feedback. The
feedback was sent to Bruce Schroeder and we are awaiting the final version. TruSys has met with
vendors and met by phone with three members as subject matter experts on their technical specifications
document. I understand they have a draft document going through an internal review process. I expect
Summit and TruSys to submit their final work by August 31. Resources that have not been developed yet
are the business case, chain of custody/pulling video procedures, and video retention guidelines.

Reduction in Force – The Best Practice in Reduction in Force was mailed to all members (general
managers, human resource managers, and WSTIP Board members). This project is concluded.

Best Practices for Hiring – Kristin Anger of Summit Law has also agreed to develop Best Practices for
Hiring (the best practices and the resource documentation). This project has an expected draft delivery
date of August 1, however, Summit asked for an extension. Staff granted an extension and the draft was
received on August 16. Upon an acceptable draft the document will be sent out for review (again WSTIP
staff will secure volunteers). Based on our experience with the last member review, I expect feedback to
take longer than our original timelines. However, I still expect this project to be completed this year.
Once feedback is incorporated and the Best Practice is approved by Al, then it will be presented to the
Executive Committee.

Best Practices for Vanpool Programs – The Best Practices for Vanpool Programs was mailed to all
members (general managers, vanpool coordinators, and WSTIP Board members). This project is

Board Education Program

                      Board Members - Save the Date!

                                         September 30, 2010
                                             9:00 am – 3:00 pm
                                           SeaTac Radisson

                            For insight on Insurance Pool Business Proficiency
                           Join us to hear industry and state regulators discuss:

                                 Insurance Pool Risk Solvency
                    What Members Should Know and Understand About Their Pool
                What Should be Communicated Between Management and Membership
               How Does Your Pool Sustain Financial Stability During Good and Bad Times
                 How to Read and Interpret Actuarial and Other Pool Financial Reports
                What are the Minimum Acceptable Standards and How to Achieve Them

Staff is currently meeting with all General Managers and appointed Directors to engage in a dialogue on
the current issues of WSTIP and explore individual concerns and issues. Since the annual meeting of
December 10, 2009, visits have been made to Intercity, Mason, Whatcom, Skagit, Everett, Pierce, Pacific,
Columbia County, Asotin, Pullman, Valley, Ben Franklin, Community, Spokane, Grays Harbor, Twin,
Jefferson, Kitsap, Clallam and Yakima.

C-Tran was given a quote for 2011 membership. Staff offered a first dollar liability quote and a $1 million
deductible transition year quote similar to the Pierce Transit transition in 2009 and 2010.

WSTIP currently has 344 open claims. Twenty-five claims are in a litigation status. Total case reserves
for these 344 files are $6,985,565. Ten of the eleven open files in 2006 are in a litigation status. Litigated
files have gone up 30% to 40% in the last couple of years. For loss year 2008, subrogation totals are
$492,601. All these subrogation monies are returned to the members when recovered by staff. For
2009, we have collected $381,090 so far. For 2010 we have collected $122,414 Given that Pierce
Transit is a full member now, we are incorporating 2010 Pierce Transit liability claims data into the
monthly RiskMaster report. This will include their claims counts, reserves and paid claims.

Staff has attended two successful mediations this month and will attend another at the end of August in
Spokane for a Ben Franklin case.

Ben Franklin Transit had a serious rollover vanpool accident in January 2008. It was a single vehicle
accident. This event has seven claimants including the driver. One passenger was at Harborview in
Seattle for six weeks. Four of the seven passengers retained the same attorney to represent their
interests. We retained defense counsel and an outside adjuster to help resolve this matter. We settled
two claims at mediation in December 2008. We settled another claim directly with the passenger. We
settled another at mediation in February and we just settled another in May. We have one remaining
claim. We expect to resolve this by the end of year.

Spokane Transit had a November 2008 bus/pedestrian accident where a bus struck a pedestrian in the
crosswalk in downtown Spokane. The pedestrian sustained a skull fracture from the accident. The
pedestrian has retained an attorney for this accident. WSTIP has retained defense counsel as well. No
claim or lawsuit has been filed on this matter yet. We just received their initial demand on this case. Staff
is seeking settlement authority on this case at the August Executive Committee meeting.

Community Transit had a bus/person on scooter collision in April. The person on the scooter was 86
years old, a retired surgeon and missionary. The scooter driver died from his injuries sustained from the
collision six weeks afterwards. His estimated medical bills are $480,000. The accident occurred in the
crosswalk near a senior center in Stanwood. The entire event is captured on the bus camera system.
The family of the deceased has retained an attorney. WSTIP has retained an attorney and adjuster for
this event. The plaintiff’s family has filed a lawsuit in Snohomish County. Trial is scheduled for December
2010. There is a wide discrepancy between the family and WSTIP as to value. Discovery is ongoing for
both sides in this matter.

Intercity Transit just had a bus/pedestrian accident a few weeks ago. The pedestrian appears to have
been in the crosswalk. WSTIP has retained an attorney and adjuster for this matter. The pedestrian
suffered serious injuries to his back and one foot as a result of the incident. The event is captured on the
IT bus/camera system. The pedestrian went to Harborview for treatment and still may lose his foot. The
pedestrian is not represented by an attorney yet. WSTIP has established a good dialogue with him.

The Estate of Roger Smith has elected to pursue a lawsuit against Intercity Transit and the City of
Olympia for the July 2008 bus/motorcycle accident that resulted in the death of the motorcycle driver and
his passenger. Roger Smith was the motorcycle driver. The motorcycle passenger claim has been
settled by the City of Olympia and Intercity Transit. Mediation is scheduled for September 30 .

It appears Yakima Transit has a serious claim involving an elderly passenger falling onto a nearby
sidewalk while boarding a para-transit vehicle. This event occurred in March 2010. The passenger
suffered a closed head injury and potential blindness in one eye. She is represented by a Yakima
Attorney. She has submitted a $1.5 million demand recently. WSTIP has retained an adjuster and
defense counsel to evaluate this event. WSTIP staff is going to Yakima to discuss the claim in early

Google Transit - Staff has also arranged for a consultant to be available for those small and medium
member’s that wish to upload their scheduling data to Google Transit. Please contact Andrea Powell if

Pierce Transit - Staff continues the transition process for Pierce Transit’s full membership. Staff expects
this to be a smooth but very involved process that includes meetings, negotiation and coordination all
year. The first 8 months of the new relationship is almost complete. WSTIP and Pierce Transit have both
benefited from this relationship. We really appreciate Pierce Transit’s collaboration and cooperation
through this journey.

RiskMaster/Web Forms – After much research and negotiation with multiple firms, WSTIP has signed a
$61,610 contract with Perceptive Software (makers of the WSTIP document imaging system) to design
two web based accident reporting forms for WSTIP members. One web form will be the Event Report
and other web form will be a Supervisors Report. $12,322 of this contract is deferred to 2011. The
WSTIP Board approved $50,000 for this effort in the 2010 budget. Actual costs should be less than the
original costs quoted. Staff has started working on this project. Staff met with Intercity Transit to get their
initial input on the project.

Information Technology (IT) – The WSTIP IT Security Review Subcontractor (Doug Selix) has reviewed
Community Transit and Intercity Transit. His next stop will be Kitsap Transit.

Finances and Underwriting – Staff has started work on the 2011 budget. Staff is collecting exposure data
from all the members. Staff hopes to have all exposure data back by August 31 . Staff has had several
phone calls with the WSTIP Actuary about the 2011 budget recently.

Shared By: