...title
Approve a change to the Solano County Self-Insured General Liability Program Self-Insured Retention increasing the current per claim/occurrence $200,000 deductible to a $500,000 deductible
...body
Published Notice Required? Yes ____ No _X _
Public Hearing Required? Yes ____ No _X _
DEPARTMENTAL RECOMMENDATION:
County Counsel recommends that the Board approve a change to the Solano County Self-Insured General Liability Program Self-Insured Retention (SIR) increasing the current per claim/occurrence $200,000 deductible to a $500,000 deductible.
SUMMARY:
Based on actuarial study information of the County Self-Insured General Liability Program, it is proposed that the program be revised and an increase from $200,000 to a $500,000 deductible be established. The study revealed that by increasing the deductible, the County has the potential to provide the maximum cost savings in program costs for future years by seeing a decrease in the annual premium. The average net savings is approximately $1.6 million annually.
The program will be funded at the 85% actuarial confidence level for the next five years to avoid fluctuations in rates from one fiscal year to the next, including variances in the number of annual claims and their ultimate costs.
FINANCIAL IMPACT:
While the exact amount of savings will not be known until the final premiums for FY2024/25 are provided, staff has received estimates for FY2024/25 which indicates that a savings of approximately $1,635,000 across all funds could be realized with the lower premium at $500,000 SIR level. Specifically, it is anticipated that the premium would be reduced by approximately $2,487,000 offset by an increased funding in the claims reserve account at the 85% confidence level of $852,000, for a total savings of $1,635,000.
DISCUSSION:
Solano County has participated in the PRISM General Liability (GL) program since November 1, 1998 (previously known as CSAC-EIA). Originally, the County participated in the GL program with a per claim/occurrence $300,000 deductible but beginning July 1, 2001, the County reduced the deductible through participation in the Primary General Liability (GL) program with a $10,000 deductible.
On April 7, 2020, your Board authorized the increase from $10,000 to a $200,000 deductible to realize cost savings in reduced insurance premiums and other program costs and the position of Claims and Civil Litigation Manager was created to provide liability claims processing and claims manager services along with advice and consultation to County Counsel and the Board of Supervisors on the status and settlement of claims.
Despite the increase to the $200,000 deductible, the GL premium for FY2022/23 was $6,769,691 and jumped dramatically to $10,443,716 for FY2023/2024. Estimated premium for FY2024/25 is projected to go even higher with a potential range of $13,506,000 to $15,515,000. Unfortunately, this cost of insurance for the County will only continue to increase, largely in part due to many of the bigger insurers are no longer underwriting in California as a result of the billions of dollars paid out for wildfires and storm losses. Considering this, staff have explored what options might be available to the County to reduce the overall costs of insurance premiums and claims costs.
County Counsel staff requested from PRISM the projected premium costs for FY2024/2025 if the County remained with the current $200,000 SIR and various alternatives if the SIR limit was increased. The premium costs quoted are estimates only and were cautioned the estimates may change dependent upon varying factors including unforeseen claims expenses and/or occurrences during the present policy year; however, based on the information provided, it appears that the County could recognize significant savings in insurance premiums by raising the SIR to $500,000. Such savings would be offset by a need to increase the funding to cover the costs of claims over the $200,000 SIR.
To avoid fluctuations in rates from one fiscal year to the next, including variances in the yearly number of claims and their ultimate costs, the program will continue to be funded at the 85% actuarial confidence level for the next five years. Actuarial confidence level is an estimated probability that a given funding level will be adequate to pay claims costs. The 85% confidence level refers to an estimate for which there is an 85% chance the amount will be sufficient to pay loss costs. The long-term goal would be at the end of year five to reduce the actuarial confidence level to 75%, similar to the County’s workers’ compensation program.
ALTERNATIVES:
The Board of Supervisors could elect to retain the $200,000 per claim deductible for liability claims; however, this approach is not recommended as the actuarial study documents that total program costs can be reduced as the reduction in insurance premiums is greater than the assumption of the additional costs for claims from $200,001 to $500,000.
OTHER AGENCY INVOLVEMENT:
County Counsel has worked closely with the County Administrator and Auditor-Controller in the evaluation of the general liability deductible and establishment of the confidence level funding level.
CAO RECOMMENDATION:
APPROVE DEPARTMENTAL RECOMMENDATION