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Home My WebLink About03.d. Accept budget of Self-Insurance Fund and approve FY 2012-13 allocationCentral Contra Costa Sanitary District BOARD OF DIRECTORS 3.0t. POSITION PAPER Board Meeting Date: APRIL 5, 2012 subject: REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $850,000 TO THE FUND FOR INCLUSION IN THE FISCAL YEAR 2012 -13 OPERATIONS & MAINTENANCE BUDGET Submitted By: Initiating Dept. /Div.: Shari Deutsch, Safety & Risk Administrative /Safety & Risk Management Management Administrator REVIEWED AND RECOMMENDED FOR BOARD ACTION: Deutsch Ann Oarrell, General Manager ISSUE: The Self- Insurance Fund (SIF) is to be reviewed each year by the Board of Directors with staff presenting funding recommendations for the upcoming fiscal year. The Budget and Finance Committee reviewed this position paper at the April 2, 2012 Committee meeting. RECOMMENDATION: Receive the fiscal year 2012 -13 SIF Budget and authorize the allocation of $850,000 to the fund from the fiscal year 21012 -13 Operations & Maintenance (O &M) Budget for inclusion in the budget. FINANCIAL IMPACTS: The impact of this action requires the allocation of $850,000 from the fiscal year 2012 -13 O &M Budget to the SIF. ALTERNATIVES /CONSIDERATIONS: The alternatives to this action are to provide less funds than recommended, to not fund the SIF, decrease the fund balance, or to increase the fund balance by transferring more than $850,000. BACKGROUND: The District has self- insured most of its liability and some of its property risks since July 1, 1986, when the Board approved the establishment of the Self- Insurance Fund. The District currently self- insures liability risks within its $1,000,000 retention. At this time, the District does not purchase insurance coverage for earthquake or flood losses because insurance programs currently available in California are too expensive for the scope and limits of coverage provided. As a result, the District essentially self- insures these risks as well. The SIF has effectively funded District losses over its twenty -six year history. Each year funds are transferred from the O &M Budget to the SIF. According to the ten year plan, the O &M contribution for fiscal year 2012 -13 is $850,000. POSITION PAPER Board Meeting Date: April 5, 2011 Subject. REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $850,000 TO THE FUND FOR INCLUSION IN THE FISCAL YEAR 2012 -13 OPERATIONS & MAINTENANCE BUDGET Fund Allocation In 1994, a new Government Accounting Standards Board Statement No. 10 (GASB -10) set forth requirements on how public agencies must fund their self- insured risks. To assure compliance with GASB -10, the District restructured the SIF into three sub - funds. Each of the three (3) sub -funds was established to fund specific risks. SUB -FUND A: GASB -10 Actuarially-Based risks. These include general liability and automobile liability risks. Under the requirements of GASB -10, risks that can be actuarially studied must be funded based on an actuarial study to be performed every two years. General liability and automobile liability are readily studied throughout the insurance and self- insurance industry to determine funding levels for these liabilities. The District obtained an actuarial review of its self- insured general liability and automobile liability in November 2010 that projected losses for these risks. The actuary, Aon Risk Consulting (formerly ARM Tech) recommended the Sub -Fund A reserve for fiscal year 2012 -13 claims be $391,000 based on insurance industry statistics, the District's actual claims experience and a self insured retention (SIR) of $1,000,000. However, given the increased likelihood and cost of litigation of claims paid from this fund, the Board increased the target reserve to $1,000,000. Sub -Fund A is used to self- insure these risks based on the District having a $15,000,000 excess liability policy and a $1,000,000 self- insured retention. The average annual expense for Sub -Fund A over the last three fiscal years has been approximately $232,000, offset by average revenue of approximately $10,000 for an average draw down of reserves of $222,000 annually. The budgeted revenue for fiscal year 2012 -13 is $4,000 with expenses of $305,000 for an estimated reduction in Sub - Fund A reserves of $301,000. A transfer of $301,000 from Sub -Fund C is necessary in order to maintain the reserve at $1,000,000. SUB -FUND B: GASB -10 Non - actuarially -based risks. These include employment - related and pollution - related risks. Because employment - related and pollution - related losses occur infrequently and the costs of the claims vary widely, the frequency and severity of these losses are less predictable than those addressed by Sub Fund A. For this same reason, GASB -10 does not require a biennial actuarial review of these risks. However, GASB -10 requires that such potential risks be adequately funded even though they are not actuarially reviewed. With guidance from risk management and POSITION PAPER Board Meeting Date: April 5, 2011 subject. REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $850,000 TO THE FUND FOR INCLUSION IN THE FISCAL YEAR 2012 -13 OPERATIONS & MAINTENANCE BUDGET insurance specialists, the District established Sub -Fund B at $2,400,000, to fund employment - related and pollution - related risks based on the purchase of an Employment Practices Excess Liability insurance policy. Sub -Fund B is currently being used to fund legal expenses in two ongoing matters. The District has only drawn down this fund in the current and preceding fiscal years. The average annual expense for Sub -Fund B over these two years was $209,000, offset by revenue of $11,000 for total draw down of reserves of $188,000. The budgeted revenue for fiscal year 2012 -13 is $9,600 with expenses of $295,000 for an estimated reduction in Sub -Fund A reserves of $285,400. A transfer of $285,400 from Sub -Fund C is necessary in order to maintain the reserve at $2,400,000. SUB -FUND C: Non -GASB 10 risks. This Sub -Fund covers all risk management program insurance premiums, potential losses from uninsurable risks, and the costs of initiating claims and lawsuits against others who have damaged the District. The District established this Sub -Fund to fund non -GASB 10 risks under our risk management program. Specific costs include: insurance premiums for a $15,000,000 excess general liability policy; $5,000,000 excess general liability and $10,000,000 pollution liability policy for the Household Hazardous Waste facility, $1,000,000 employment practices liability with $15,000 retention, a crime policy which includes coverage for computer fraud and insurance premiums for insuring District properties for fire, explosion, water damage, etc. for losses above $250,000. Staff is anticipating an approximate increase in general liability insurance premiums of at least five percent and a ten percent increase in property insurance premiums. The annual average expense for Sub -Fund C over the past three fiscal years has been approximately $415,000 offset by average revenue of approximately $1,066,000 for an average increase of $651,000 to reserves. When reduced by the average annual transfer from Sub -fund C to other Sub -funds over the past three fiscal years the annual average increase to Sub -fund C reserves is approximately $219,000. The budget for fiscal year 2012 -13 revenue is $886,400 with expenses of $497,000 for an estimated addition to Sub -Fund C reserves of $389,400. However, $586,400 is anticipated to be transferred to Sub -Funds A and B for a net decrease in Sub -fund C reserves of $197,000. This leaves a reserve balance of $1,178,710. POSITION PAPER Board Meeting Date: April 5, 2011 subject. REVIEW THE FINANCIAL STATUS AND BUDGET OF THE SELF - INSURANCE FUND AND APPROVE THE ALLOCATION OF $850,000 TO THE FUND FOR INCLUSION IN THE FISCAL YEAR 2012 -13 OPERATIONS & MAINTENANCE BUDGET Exhibits and Charts Exhibit I presents a recent financial history and projection of the SIF and shows the 2012 -13 SIF budget estimates total revenues of $900,000 and total expenses of $1,097,000, decreasing the projected fiscal year 2012 -13 total SIF reserves by $197,000 to $4,578,710 on June 30, 2013. The budgeted revenues include the recommended allocation of $850,000 from the fiscal year 2012 -13 O &M budget to the SIF. Exhibits II, III & IV present the projected Sub -Fund A, Sub -Fund B and Sub -Fund C fiscal year 2012 -13 budget summary. Chart 1 shows the revenue, expense and reserve history for the entire SIF. Chart 2 shows the history of loss payments and insurance premiums. Chart 3 shows historical and projected SIF reserves for each Sub -Fund. Chart 4 shows the individual Sub - Funds and combined SIF historical and projected reserves. A presentation on the Self- Insurance Fund will be made to the Budget & Finance Committee on April 2, 2012. If the Committee has any concerns this item will be removed from the Consent Calendar for discussion. If the Committee agrees with staff's analysis and recommendations, the item will remain on the Consent Calendar. RECOMMENDED BOARD ACTION: Receive the proposed fiscal year 2012 -13 Self - Insurance Fund Budget and approve the allocation of $850,000 to the fund for inclusion in the fiscal year 2012 -13 O &M Budget. Revenues SIF Allocation from O &M Fund Insurance Allocation from HHW Subrogation Recovery Interest Income Total Revenue Expenses Claims Adjusting Insurance Consulting Loss Payments Legal Services Technical Services Insurance Premiums Total Expenses Revenue Over Expense Reserves Beginning of Year Revenue over Expense End of Year Reserves Uncommitted Reserves CENTRAL CONTRA COSTA SANITARY DISTRICT SELF - INSURANCE FUND (SIF) July 1, 2006 - June 30, 2013 Actual Actual Actual Actual Actual Projected Budget 2006 -2007 2007 -2008 2008 -2009 2009 -2010 2010 -2011 2011 -2012 2012 -2013 700,000 1,117,000 850,000 1,383,000 850,000 850,000 850,000 33,278 29,334 0 52,471 26,563 25,000 31,500 0 14,644 18,031 0 7,500 0 0 162,627 159,501 87,106 29,815 23,873 18,500 18,500 895,905 1,320,479 955,137 1,465,286 907,936 893,500 900,000 0 0 0 0 0 0 1,500 0 0 0 0 0 0 5,000 43,013 399,956 166,040 45,347 240,844 150,000 250,000 3,711 69,371 200,710 31,163 210,677 210,000 260,000 27,569 75,355 83,962 15,482 137,445 75,000 105,000 478,269 401,292 388,013 404,620 414,149 425,000 475,500 552,562 945,974 838,725 496,612 1,003,115 860,000 1,097,000 343,343 374,505 116,412 968,674 (95,179) 33,500 (197,0002 a 3,034,455 3,377,798 3,752,303 3,868,715 4,837,389 4,742,210 4,775,710 343,343 374,505 116,412 968,674 (95,179) 33,500 (197,000) 3,377,798 3,752,303 3,868,715 4,837,389 4,742,210 4,775,710 4,578,710 Actuarial Reserves - GASB 10 (Fund A) 629,820 629,820 750,000 1,000,000 1,000,000 1,000,000 1,000,000 Non- Actuarial Reserves - GASB 10 (Fund B) 2,152,955 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 2,400,000 Non -GASB 10 Reserves (Fund C) 595,023 722,483 718,715 1,437,389 1,342,210 1,375,710 1,178,710 Total Reserves 3,377,798 3,752,303 3,868,715 4,837,389 4,742,210 4,775,710 4,578,710 Change in Reserves 343,343 374,505 116,412 968,674 (95,179) 33,500 (197,000) Exhibit I SELF - INSURANCE FUND Actual 2010 -2011, Projected 2011 -12 and Budget 2012 -2013 SUB -FUND A: GASB -10 ACTUARIALLY BASED RISKS GENERAL LIABILITY AND AUTOMOBILE LIABILITY Actual Projected Budget 2010 -2011 2011 -2012 2012 -2013 Actuarial Reserves - GASB 10 - Beginning of Year $ 1,000,000 $ 1,000,000 $ 1,000,000 Revenues: O &M Subrogation Recovery Interest Total Revenues Expenses: Losses Legal (1) Technical Insurance Consulting Services Total Expenses Revenue over Expense Reserves: Transfer (to) /from Sub -Fund C Transfer (to) /from Sub -Fund C 7,500 - - 5,528 4,000 4,000 13,028 4,000 4,000 240,844 150,000 250,000 167,120 10,000 15,000 137,248 40,000 40,000 0 0 0 545,212 200,000 305,000 (532,184) (196,000) (301,000) 532,184 196,000 301,000 Total Reserves Projected End of Year $ 1,000,000 $ 11000,000 $ 1,000,000 (1) Includes pollution claim legal expense of $139,040 that should have been included in Sub -Fund B. See Sub -Fund B note. Exhibit 11 SELF - INSURANCE FUND Actual 2010 -2011, Projected 2011 -12 and Budget 2012 -2013 SUB -FUND B: GASBA0 NON- ACTUARIALLY BASED RISKS EMPLOYMENT RELATED AND POLLUTION RISKS Actual Projected Budget 2010 -2011 2011 -2012 2012 -2013 Beginning Reserves $ 2,400,000 $ 2,400,000 $ 2,400,000 Revenues: O &M - - - Recovery - - - Interest 13,319 9,600 9,600 Total Revenues 13,319 9,600 9,600 Expenses: Losses - - - Legal (1) 43,512 200,000 235,000 Technical 197 35,000 60,000 Total Expenses 43,709 235,000 295,000 Revenue over Expense (30,390) (225,400) (285,400) Reserves: Transfer (to) /from Sub -Fund A - - - Transfer (to) /from Sub -Fund C 30,390 225,400 285,400 Total Reserves Projected End of Year $ 2,400,000 $ 2,400,000 $ 2,400,000 (1) Excludes pollution claim legal expense of $139,040 that was paid in Sub -Fund A. See Sub -Fund A note. Exhibit III SELF- INSURANCE FUND Actual 2010 -2011, Projected 2011 -12 and Budget 2012 -2013 SUB -FUND C: NON GASB -10 RISKS RISK MANAGEMENT PROGRAM INSURANCE PREMIUMS AND COSTS OF INITIATING CLAIMS /LAWSUITS AGAINST OTHERS Beginning Reserves Revenues: Actual Projected Budget 2010 -2011 2011 -2012 2012 -2013 $ 1,437,389 $ 1,342,210 $ 1,375,710 O &M 850,000 850,000 850,000 Subrogation Recovery - - - Insurance Recovery from HHW Partners 26,563 25,000 31,500 Interest 5,026 4,900 4,900 Total Revenues 881,589 879,900 886,400 Expenses: Insurance Consulting Services - - 5,000 Claims Adjustment - - 1,500 Losses - - - Legal 45 - 10,000 Technical - - 5,000 Insurance Premiums 414,149 425,000 475,500 Total Expenses 414,194 425,000 497,000 Revenue over Expense 467,395 454,900 389,400 Reserves: Transfer (to) /from Sub -Funds A (532,184) (196,000) (301,000) Transfer (to) /from Sub -Funds A - - Transfer (to) /from Sub -Funds B (30,390) (225,400) (285,400) Total Reserves Projected End of Year $ 1,342,210 $ 1,375,710 $ 1,178,710 Exhibit IV $6,000,000 $4,000,000 N o $3,000,000 $2,000,000 $1,000,000 $04 2006 -2007 Actual Chart 1 Self Insurance Fund History of Revenue, Expense and Reserve Balance 2007 -2008 Actual 2008 -2009 Actual ❑ Total Revenue 2009 -2010 Actual Fiscal Year ❑ Total Expenses 2010 -2011 2011 -2012 Actual Projected ■ End of Year Reserves 2012 -2013 Budget $600,000 $500,000 $400,000 o $300,000 $200,000 $100,000 $0 Chart 2 Self Insurance Fund History of Loss Payment & Insurance Premiums 2006 -2007 2007 -2008 2008 -2009 Actual Actual Actual ❑ Loss Payments 2009 -2010 2010 -2011 2011 -2012 Actual Actual Projected Fiscal Year 13 Insurance Premiums 2012 -2013 Budget $3,000,000 $2,500,000 $2,000,000 U) L c $1,500,000 D i $1,000,000 i $500,000 I� $0 + 2006 -2007 Actual Chart 3 Self Insurance Fund Reserves By Sub -Fund 2007 -2008 Actual 2008 -2009 Actual 2009 -2010 Actual Fiscal Year 2010 -2011 2Ul 1 -1012 2012 -2013 Actual Projected Budget 0Actuarial Reserves - GASB 10 (Fund A) 0 Non- Actuarial Reserves - GASB 10 (Fund B) ■Non -GASB 10 Reserves (Fund C� Chart 4 Self Insurance History of Reserves $5,000,000 $4,000,000 c $3,000,000 a $2,000,000 $1,000,000 $0 -] I _J L_1 L 1 2006 -2007 2007 -2008 2008 -2009 2009 -2010 Actual Actual Actual Actual Fiscal Year 2010 -2011 2011 -2012 Actual Projected 2012 -2013 Budget ❑Actuarial Reserves - GASB 10 (Fund A) ❑ Non- Actuarial Reserves - GASB 10 (Fund B) ■Non -GASB 10 Reserves (Fund C)