A&I 12/18/15
2014-15 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
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.
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.
3.27 2.47 1.38 0 0.5 1 1.5 2 2.5 3 3.5 2012-13 2013-14 2014-15
Viability Ratio
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.
Other Coverages Aviation Liability Student Coverages Property Premium Paid C ove rage C at egor y Risk Management
Three Year Premiums Paid to Carriers Comparison
2014-15 2013-14 2012-13 $4,248,905 $4,161,787 $3,978,593 $3,368,451 $3,406,366 $3,635,468 $1,501,397 $799,212 $597,427 $7,697,240 $6,205,541 $7,669,986 2012-13 2013-14 2014-15
Risk Management
Summary of Financial Activity
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).
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.
Aviation 2012-13 Aviation 2013-14 Aviation 2014-15 Other 2012-13 Other 2013-14 Other 2014-15 Liability 2012-13 Liability 2013-14 Liability 2014-15 Property 2012-13 Property 2013-14 Property 2014-15 Amount Paid C o v er ag e C at eg o ry Risk Management
Three Year Losses Paid Comparison
RM Paid Carrier Paid
Forward View of Plan Year 2015-16
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 2015-16. 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.
Exhibit A
2015 2014 2013
Revenue
Revenue Paid to the Risk Management Program $ 5,630,438 $ 5,506,573 $ 6,520,659 Interest Earnings on Reserves 297,526 275,551 367,877 Loss Recovery by Commercial Carriers 1,637,792 4,750 751,885 Third Party Recoveries 104,230 118,667 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 108,700 102,858 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 1,194,403 669,124 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 - - 750,000 RM Grant Program Expenses 48,448 165,097
Insurance Services Enterprise Expenses 485,362 569,810 689,774
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
Risk Management
Statement of Revenues, Expenses, and Changes in Net Position
