Complete Document A - VBgov.com

2010

Risk Management

Financial Report

For The Year Ended

June 30, 2010

Prepared By

Department of Finance

Patricia A. Phillips

Director

Acknowledgments….

The preparation of this report has been accomplished by the efficient and dedicated

services of the staff of the Division of Risk Management who have been assisted by

Sedgwick CMS staff. The contributions of all are invaluable and sincerely appreciated

and clearly reflect the high standards which have been set by the City of Virginia Beach.

Management - John F. Grook

Staff - Bernard “Bunk” Abey, Jane Draper,

Joyce McElmurry

Legal - Mark Stiles, Christopher Boynton,

Natalie Mann, Terry Jenkins

Technical Review - Eric Lagstrom, Ocean City, MD.,

Karen Russell, Chesterfield Co., VA

Support Staff - Loretta Brown, Sandy MacKay,

Susan Marziani

Occupational Health – Melissa Farrar, RN, COHN-S/CM

Sedgwick CMS - James Stewart, Account Manager

It is also appropriate to thank the City Manager, Mayor and Members of City Council for

making possible an environment receptive to the planning and execution of risk

management functions within the city.

Sincerely,

Patricia A. Phillips, Director

Department of Finance

Table of Contents PAGE NO.

Transmittal Letter .......................................................................................................... 1

Executive Summary ...................................................................................................... 3

Industry Outlook............................................................................................................ 7

Risk Management Division ......................................................................................... 11

Workers’ Compensation Program .............................................................................. 12

Workers’ Compensation Claims and Costs ................................................................ 13

Insurance Procurement and Related Services ........................................................... 18

General Liability Claims ............................................................................................. 19

Automobile Liability Claims ........................................................................................ 20

Organizational Breakdown ......................................................................................... 23

Departmental Analysis…….……………..………………………………………..……...30

Significant Activities ................................................................................................... 47

Return-To-Work ........................................................................................................... 51

Future Direction........................................................................................................... 59

Operational Benchmarking ........................................................................................ 65

Tables ........................................................................................................................... 71

Financial Statements .......................................................................................... 71

Risk Management Expenditures Detail ……………………………………………..75

Insurance Program ............................................................................................. 77

Organizational Structure ..................................................................................... 79

General Liability Claims ...................................................................................... 80

Automobile Liability Claims ................................................................................. 81

Workers Comp Claims Frequency ...................................................................... 82

Workers Comp Claims Severity .......................................................................... 83

Internal Service Fund ......................................................................................... 84

Public Entity Risk Institute Survey ...................................................................... 85

Terms and Definitions ................................................................................................. 93

(This Page Intentionally Left Blank)

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December 14, 2010

Mr. James K. Spore, City Manager

Municipal Center

Virginia Beach, Virginia 23456

Dear Mr. Spore:

The Risk Management Financial Report of the City of Virginia Beach, Virginia for the

fiscal year ended June 30, 2010, is hereby submitted. Responsibility for the accuracy of

the data and the completeness and fairness of presentation, including all disclosures,

rests with the Department of Finance. To the best of our knowledge and belief, the

enclosed data are accurate in all material respects and are reported to present fairly the

results of risk management operations for the City.

The Risk Management Report is presented in ten sections: Executive Summary;

Industry Outlook; Risk Management Division; Organizational Breakdown; Significant

Activities; Return-To-Work; Future Directions; Operational Benchmarking; Supporting

Data; and Terms and Definitions.

The Risk Management Division had actual expenses of $10.1 million in FY10,

representing the costs of paying and processing claims, defending those claims, and

providing excess insurance. Workers’ Compensation continues to be a significant

portion of the Division’s activities, with costs of $6.7 million or 66% of total expenses.

It is also important to note that the Risk Management Division has $25.0 million in

outstanding actuarial liabilities for claims through June 30, 2010: of this amount $6.7

million is currently funded with cash. As a result, the fund has a deficit in net assets of

$18.3 million.

2

Mr. James K. Spore

December 14, 2010

Page -2-

Several new measures of Risk Management have been identified which will, over time,

provide trend information:

• Cost of Risk per FTE $ 1,453

• Cost of Risk per 1,000 population $22,539

Both of these measures are lower for FY10 than for FY06, FY07 and FY09, but slightly

up from FY08.

In addition, benchmarking Virginia Beach indicates that the City’s costs per $1,000

revenue are favorable when compared to other organizations. Virginia Beach’s Cost of

Risk per $1,000 in revenue is $7.67, compared to an overall average for all

organizations of $14.92 (this figure is from 2009, the latest data available).

During the year, the staff of the Risk Management Division rendered professional and

knowledgeable services to the City primarily in the administration of the City’s Risk

Management Internal Service Fund. This fund accounts for the self-insured portion of

workers compensation, general liability and automobile liability claims as well as the

premiums associated with purchased insurance. We are most appreciative of these

efforts and take this opportunity to recognize these outstanding public servants.

Respectively,

Patricia A. Phillips

Director of Finance

John F. Grook

Risk Management Administrator

Executive Summary

The purpose of this financialunderstanding of the City’s insurance program, both insured and selfthe costs associated with injuries and damages to private and public prreport outlines claims history by the main types: automobile liability, general liability, and workers’ compensation as well as the insured portion of the program. The 2010 Risk Management Financial Report is a snapreported on a fiscal year basis from July 1 Risk Management is the Insurance Company Workers’ Compensation benefits to its approximately 7,000 members, protecting the almost $1 billion in real property assets and settlement of liability claims due to the operation of the largest city in Virginia. This review process begins with benchmarking the Total Cost of Risk per Full Time Employee (FTE), the Total Cost of Risk per 1,000 Population, aper $1,000 Revenue.

$0

$500

$1,000

$1,500

$2,000

$2,500

FY06

$1,764

$374

Total Cost of Risk per FTE

Cash Basis Cost

3

financial report is to share information to enable better understanding of the City’s insurance program, both insured and self-insured, including the costs associated with injuries and damages to private and public prreport outlines claims history by the main types: automobile liability, general liability, and workers’ compensation as well as the insured portion of the program. The 2010 Risk

Report is a snap-shot as of June 30, 2010. Areported on a fiscal year basis from July 1st through June 30th.

Insurance Company to the city government Workers’ Compensation benefits to its approximately 7,000 members, protecting

real property assets and settlement of liability claims due to the operation of the largest city in Virginia.

This review process begins with benchmarking the Total Cost of Risk per Full Time Employee (FTE), the Total Cost of Risk per 1,000 Population, and the Total Cost of Risk

FY07 FY08 FY09 FY10

$1,881

$1,328 $1,549 $1,453

$172

$0

$244 $768

Total Cost of Risk per FTE

Cash Basis Cost Unfunded Acturial Cost

report is to share information to enable better insured, including

the costs associated with injuries and damages to private and public property. This report outlines claims history by the main types: automobile liability, general liability, and workers’ compensation as well as the insured portion of the program. The 2010 Risk

shot as of June 30, 2010. All years are

government offering Workers’ Compensation benefits to its approximately 7,000 members, protecting

real property assets and settlement of liability claims due

This review process begins with benchmarking the Total Cost of Risk per Full Time nd the Total Cost of Risk

FY10

$1,453

$768

During 2010 the Total Cash Cost of Risk (TCOR) wasFY09, and less than FY06 and FY07more than 3 fold. While insurancehas risen over 10% a year for the past several years.Return–To-Work Program and the efforts of the Disability Steering Committee helpoff-set these increases in the Co

A second indicator is a widely accepted measure of the Total Cost of Risk per 1,000 Population. The 2010 cash cost isFY07 and FY06, however the unfunded The challenge is to hold the line on raising costs or lower the cost per 1,000 A third indicator that is a widely accepted measure is the Total Cost of Risk per $1,000 in Revenue. The 2010 cost average cost for governments and nonprofits $10.68 for all organizational types. Data not yet available.

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

FY06

$27,907

$5,915

Total Cost of Risk per 1,000

Cash Basis Cost

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Cost of Risk (TCOR) was $10,093,900, down slightly from and less than FY06 and FY07, however the unfunded actuarial cost increased

While insurance premiums were basically flat, cost of medical care has risen over 10% a year for the past several years. Proactive measures such as the

Work Program and the efforts of the Disability Steering Committee helpset these increases in the Cost of Risk per Full Time Employee (FTE).

A second indicator is a widely accepted measure of the Total Cost of Risk per 1,000 cost is down slightly from FY09, and down significantly from

, however the unfunded actuarial cost has increased more than 3 foldThe challenge is to hold the line on raising costs or lower the cost per 1,000

A third indicator that is a widely accepted measure is the Total Cost of Risk per $1,000 cost for Virginia Beach was $767, considerably less than the

average cost for governments and nonprofits of $14.92, as well as the average of $10.68 for all organizational types. Data for other organizations is for 2009, 2010 data

FY07 FY08 FY09 FY10

$30,154

$21,491 $24,924 $22,539

$2,752

$0

$3,929 $11,912

Total Cost of Risk per 1,000-Population

Cash Basis Cost Unfunded Acturial Cost

down slightly from , however the unfunded actuarial cost increased

premiums were basically flat, cost of medical care Proactive measures such as the

Work Program and the efforts of the Disability Steering Committee helped to st of Risk per Full Time Employee (FTE).

A second indicator is a widely accepted measure of the Total Cost of Risk per 1,000 down slightly from FY09, and down significantly from

actuarial cost has increased more than 3 fold. The challenge is to hold the line on raising costs or lower the cost per 1,000-population.

A third indicator that is a widely accepted measure is the Total Cost of Risk per $1,000 considerably less than the

$14.92, as well as the average of for other organizations is for 2009, 2010 data is

FY10

$22,539

$11,912

The total cost of maintaining the Risk Management function was approximately $million for the past fiscal year. This amount representsrate. Of the total $10.1 million 66% of the total FY10 Risk Management budget.

The graph below demonstrates how the expenses of the Risk Management Division are distributed.

$0.00 $2.00 $4.00

$6.00 $8.00

$10.00

$12.00 $14.00 $16.00

City of Virginia Beach

$7.67

Total Cost of Risk Per $1,000 Revenue

$83,944 $373,979

$130,930

$19,440

$5,334,091

Total Cost of the 2010 Risk Management Function

Workers' Compensation

Legal Suppot & Services

Salaries

Unfunded Acturial Cost

5

al cost of maintaining the Risk Management function was approximately $

million for the past fiscal year. This amount represents $0.02 on the Real Estate Tmillion expenditure, workers compensation expenses amount to

the total FY10 Risk Management budget.

The graph below demonstrates how the expenses of the Risk Management Division are

City of Virginia Beach Average Government &

Non Profit

Average All

Organizations

$7.67

$14.92

$10.68

Total Cost of Risk Per $1,000 Revenue

$6,704,605

$1,117,692

$334,273 $38,551

$1,290,486

$83,944

$5,334,091


Property Insurance Premiums Other Insurance Premiums

Liability Expenses Broker Fees/Actuarial Study

Benefits Other Administrative Costs

al cost of maintaining the Risk Management function was approximately $10.1 Real Estate Tax

expenditure, workers compensation expenses amount to

The graph below demonstrates how the expenses of the Risk Management Division are


Other Insurance Premiums

Broker Fees/Actuarial Study

Other Administrative Costs

6

In summary, Risk Program associated costs are down from the prior fiscal year for the Cash Cost of Risk per FTE and per 1,000 Population. Both of these figures are internal comparisons to prior years and are below the highs of FY07 and FY06. For the Cost of Risk per $1,000 Revenue, which is a national comparison, the Risk Management Division compares very favorably to all industries and to other government and non-profit entities. In a Public Entity Risk Institute Workers’ Compensation survey of twelve cities, Virginia Beach ranked lowest in percentage of open claims, fifth lowest in total paid losses, and sixth lowest in budgeted reserves, all favorable indicators of the Risk Program, when compared to the twelve similar national cities. This report is organized to first highlight the insurance industry outlook, major activity during the fiscal year, and then provide statistical data associated with the key functions of the Risk Management Division.

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Industry Outlook

Managing government operations has become an extremely risky business. The erosion of sovereign immunity has made local governments the target of a growing number of lawsuits. Furthermore, the complexity of providing a wide range of services within ever tightening budget constraints has made governments vulnerable to an ever-growing number of risks. Risk Management has come to be recognized as an effective means of conserving resources and avoiding unnecessary waste arising out of accidental loss.

For 2010, intense competition among insurers, increased capacity, and fewer insured catastrophe losses all played key roles in keeping insurance markets generally stable. A recent report from Marsh, Mercer, Kroll, Guy Carpenter, and Oliver Wyman1 , had the following to say about the 2010 insurance market:

Workers’ Compensation The cost of workers’ compensation remains a top concern for virtually every employer; most employers’ costs have been rising since 2001. Workers’ compensation has attracted extensive attention in state legislatures, with thousands of bills aimed at various aspects of the program introduced in recent years. Medical costs continue to increase faster than wages. The National Council on Compensation Insurance (NCCI) reports that medical losses continued to be more than half of total losses, at 59% in 2007 compared to 46% in 1989. The Insurance Information Institute projects that in 2017 the medical loss portion will be 70%. This is creating an increase in demand for medical data to analyze the medical cost drivers. NCCI’s latest review (July 2009) of claim frequency and severity shows that claim frequency is continuing to drop. Preliminary results indicate a decline of 4.0% for 2008, which is slightly higher than the 2.5% decrease measured in 2007. And, there are economic factors that suggest further reductions in claim frequency likely occurred in 2009.

As in prior years, the indemnity and medical severities continued to rise. In fact, the 2008 wage inflation was being outpaced by the WC indemnity inflation, and medical inflation was still growing faster than the Medical Consumer Price Index. The estimated growth for 2008 in average medical costs per claim is 6% and, as in prior years, can be largely attributed to the utilization of medical services.

A new development seen by NCCI in their 2009 study is a rise in the number and frequency of permanent-total disability claims over the last four years. This is being driven primarily by workers age 50 and under, and all major injury types are contributing

1 “Competition Nets Rewards, U.S. Insurance Market Report 2010, It’s About Your Risk”, MMC, January 2010

<https://www.insurancemarketreport.com >

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to the rise. Further, all major industries, geographic regions, and employer sizes have experienced an increase.

Property and Casualty Insurance The P/C industry faced continued challenges in 2010. Although the financial markets continued to stabilize in 2010 and investment returns generally were improving, they remained modest as interest rates remained low. In the past, insurers relied heavily on investment earnings to support their business. In 2009, it became clear that investment earnings could not be viewed as a consistently reliable source of significant earnings. Insurers will be forced to return to basics and manage their businesses with the intentions of achieving underwriting profitability each year. Overall, the P/C insurance industry remains quite strong, both financially and fundamentally. It is important to be aware that the investment world is extremely volatile and that large-scale catastrophic events can change the outlook for the industry quickly and dramatically. P/C insurers’ concern and attention in 2010 generally focused on efforts to protect their balance sheets, including pricing adequacy and underwriting discipline, and capturing catastrophe exposures in preparation for the possibility of large-scale catastrophe losses. It is likely that property insurance markets will continue to experience a stabilization and moderation of premium rates, barring a large catastrophic (CAT) event. Capacity is likely to remain stable and, generally, more clients are likely to see rate decreases. The risk-adjusted catastrophe prices in the United States decreased by an average of 6% at January 1, 2010, renewals. By applying the 2010 modeling assumptions retrospectively to 2009, the revised impact is a reduction of as much as 11 percent on average. Legislation and Regulation Employers and insurers are keeping a close watch on developments in employment regulation and litigation. Recently, there have been significant employee-friendly United States Supreme Court decisions; employment-related legislation, such as the Lilly Ledbetter Fair Pay Act, the ADA Amendments Acts, and the Genetic Information Non-Discrimination Act; and an overall increase in discrimination charge filings with the Equal Employment Opportunity Commission (EEOC).

Public Entity – Trends and Developments

Renewal rates in the public entity casualty insurance marketplace generally ranged from flat to 5% increases through the last quarter of 2009, with some exceptions. Insurers are being especially diligent in underwriting, and are typically requiring more information from public entity clients.

Risks with an acceptable loss history, moderate changes in exposures, and a reasonable program structure around retentions and limits were likely to see little-to-no change in underlying rates and program structures. Decreases in rates were unusual and minimal, generally ranging from about 2% to 4%. Increases, where warranted, ranged generally from about 5% to 10%. To avoid rate increases, some insurers

9

increased retentions where they saw negative trending in losses. In unusual situations where losses have deteriorated significantly since the last renewal, increases were as high as 25%.

Budget deficits and decreased revenues continued to pressure public entities and their risk management teams in 2010. Public entities continued to retire and lay off employees. This is expected to contribute to increases in workers’ compensation and employment practices claims, which have the potential to harden pricing.

The Risk and Insurance Management Society, Inc. (RIMS)2 benchmark survey found

that the average total cost of risk per $1,000 revenue in 2009 fell more than 3% due to

lower insurance costs and lower risk management administrative costs. This followed a

9.4% drop in the average total cost of risk per $1,000 of revenue for 2008. Data is not

yet available for the average total cost of risk per $1,000 of revenue for 2010.

For 2009, in the Government and Nonprofit segments of the industry the average Total

Cost Of Risk was $14.92 per $1,000 revenue as compared to $10.68 for all organization

types; a 2.1% increase was attributable to rise in total property, liability, and workers’

compensation costs; increases in average workers’ compensation cost per $1,000

revenue was due to higher retained losses; for the second straight year. Governments

experienced a TCOR increase; this was the third highest average TCOR of any industry

group; despite the material increase in retained losses, total workers’ compensation

premiums fell; premiums and retained loss costs per employee and workers

compensation costs per employee rose while workers’ compensation costs as a

percentage of payroll decreased; the average statutory workers’ compensation premium

per $1,000 of revenue increased about 1% between 2007 and 2008. The City’s Total

Cost of Risk per $1,000 revenue was $6.22 for 2009, considerably less than the

average cost for governments and nonprofits as well as the average for all

organizational types.

An April 2010 study by Conning3, predicts that property and casualty insurance sectors

will begin to firm up in 2011. There will be larger underwriting losses in 2010 and over

the next few years results will be driven by the economic recovery and a return to a

modest inflationary environment. The overall forecast in the report this year is for a net

premium growth near 2%. More robust growth for the property-casualty industry in 2011

and 2012 will result from increases in both exposures and premium rates.

2 RIMS Benchmark Survey, 2009, Risk and Insurance Management Society, Inc.

3 “United States: Insurance Prices Will Rise In 2011”, www.thefreelibrary.com

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What does all of this mean for the City?

We can expect insurance rates to remain stable in 2011. Workers’ compensation

premiums are likely to drift higher in 2011. Property insurance prices will likely remain

soft in the near future. Dramatic shifts to higher insurance rates are unlikely in the near

future. However, due to the uncertainty of the insurance market, 2012 may bring

increases from 5% to 10%.

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Risk Management Division and its Role

Risk Management is a division of the Finance Department and serves as the insurance company for the City. The Risk Management Division was established to provide risk prevention and mitigation services aimed at reducing the City’s overall losses, in a manner which supports the City’s strategic mission and objectives. Additionally, the Risk Management Division strives to continuously improve the delivery of such services. Risk Management works with Occupational Health and Safety in identifying areas for training or prevention.

The many services provided by Risk Management include the adjustment of liability claims, which include property damage, bodily injury and physical damage. In addition, Risk Management is responsible for “Employee Honesty” bonds covering all employees. Risk Management in 2010 administered vehicle titles for 750 purchased/sold/ seized/auctioned vehicles. Risk Management, in concert with Occupational Safety and Health, is now working with the operating departments via the Risk Management and Safety Committee to assist in making the workplace a safe one for all employees. There are two Claims Adjusters for liability and one Claims Adjuster handling workers’ compensation claims for City employees who are injured on the job. Risk Management also provides insurance coverage for all City-owned buildings and, vehicles as well as all City-owned property. The stated mission of the Risk Management Division is: to “actively protect the present and future assets of the City of Virginia Beach government while providing the services to maintain a high quality of life for its citizens.”

The goal of risk management is threefold: to create a safe workplace; to prevent catastrophic financial losses that have the potential to bankrupt a government; and to provide budgetary stability. Risk management eliminates or reduces the detrimental effects of those risks that cannot be avoided, and protects the government and its employees from unnecessary loss. The City is exposed to a variety of accidental losses and has established a risk management strategy that attempts to manage and minimize the cost of risk. Risk control techniques have been established to reasonably assure City employees are aware of their responsibilities regarding loss exposures related to their duties. In addition, these techniques have been established to reduce possible losses to property owned or under the control of the City. The following programs provide specific details of each area.

∗ Self Insured Claims Administration – Workers’ Compensation, General Liability, and Auto Liability in accordance with legal requirements

∗ Insurance Procurement ∗ Vehicle Titling ∗ Payment of Legal and other Costs in Defending Claims

Risk Management is generally defined as exposure identification; risk evaluation; risk control; risk funding; and risk management administration, all aimed at minimizing the City’s Total Cost of Risk.

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The Risk Management Division accounts for all costs through the Risk Management Internal Service Fund. The table on the following page summarizes the actual expenses of the Risk Management Division for July 1, 2009 through June 30, 2010.

Risk Management Division 2010 Actual Expenses

Program Expense Amount % of Total Expenses Workers’ Compensation $6,704,605 66.42% Property Insurance Premiums $1,117,692 11.07% Other Insurance Premiums $334,273 3.31% Legal Support & Services $38,551 0.38% GL and Auto Liability Expenses $1,290,486 12.78% Broker Fees/Actuarial Study $83,944 0.83% Salaries $373,979 3.70% Benefits $130,930 1.30% Other Administrative Expenses $19,440 0.19% Total $10,093,900 100.00% Actual expenses for Risk Management for FY10 were $10,093,900. Of this amount, $6,704,605 was spent for workers’ compensation expenses, representing 66% of total expenses. Included in the Supporting Data Section on pages 71-74 are the financial statements for Risk Management for FY10. These include the Combining Statement of Net Assets, the Combining Statement of Revenues, Expenses and Changes in Net Assets, the Combining Statement of Cash Flows, and a detailed breakdown of 2010 Risk Management costs by line item. It is important to note that the Risk Management Division has $24.6 million in outstanding actuarial liability. Of this amount, $6.7 million is currently funded, resulting in a deficit in net assets of $17.9 million. Workers Compensation Program

Workers’ compensation is the highest priority for Risk Management focus due to its financial impact. As stated earlier, workers compensation accounts for 66% of the entire Risk Management costs. The workers’ compensation program is the mechanism by which statutory benefits prescribed by Virginia state law are provided to an employee due to a job-related injury (including death) resulting from an accident or occupational disease.

There are two major types of benefits paid by the City for workers’ compensation related injuries. Medical benefits include payment for medical treatment, causally related to the compensable accident. The treatment must be provided for as long as necessary. Treatment is generally provided by a physician chosen from a panel of at least three physicians provided by the City. The second type of benefit is indemnity benefits. When incapacity from work is total, the City must pay 66 2/3% of the employee’s average weekly wages for up to 500 weeks.

The workers’ compensation program includes a claims management function. This function entails the management of the City’s third-party liability and workers’

13

compensation claims. The Risk Management Division employs a Third Party Administrator (TPA), Sedgwick CMS, to assist with the implementation of the Workers’ Compensation program. Services provided by the TPA include claims investigation, establishing loss reserves, claims adjusting, and claims payment processing.

Data is provided on the following pages to provide a historical perspective. All information is reported by fiscal year even though the City’s policy periods do not correlate to the fiscal year.

Workers’ Compensation Claims and Costs

The largest portion of workers compensation expense is due to medical costs as well as the severity of injuries. Closely related to workers’ compensation costs is the cost of job-related disability retirements. Years 2009 and 2010 are still maturing and as better data is available, the numbers will increase.

A brief analysis of workers’ compensation activity for the City during FY10 resulted in the following findings:

• There were 1,183 total claims filed • FY2010 experienced a 1% increase in the number claims (23 claims) • In FY2010, indemnity claims increased by 16%, however medical-only claims

decreased by 13.5% • Fiscal Years 2008 ($6.6 Million) and 2006 ($6.8 Million) have the highest paid

and highest incurred amounts • Overall program reserves increased 18.5%

o Outstanding reserves 06/30/2009 = $14,543,787 o Outstanding reserves 06/30/2010 = $17,845,782 o Increase 06/30/2009 to 06/30/2010 = $3,301,995

• There were 43 open claims with subrogation potential • There were 17 open litigated claims for the fiscal years 2004-2010. Litigation has

been resolved on the majority of these losses but the claims remain open. • There were 10 open claims that have been reported to the excess carrier. One

of these claims has pierced the SIR. Reimbursement is being requested from the excess carrier.

• There have been 131 claims denied for the period 07/01/2009-06/30/2010. Reserves on these denied claims total $89,083

• There are 36 open presumption claims with a total incurred of $12,049,307. These claims represent 34% of the entire program. The incurred for all open claims is $35 Million.

o The Virginia Workers’ Compensation Act, Section 65.2-402 pertains to the “Presumption as to death or disability from respiratory disease, hypertension or heart disease, cancer.” Respiratory diseases that cause (i.) the death of volunteer or salaried firefighters or Department of Emergency Management hazardous materials officers or (ii) any health condition or impairment of such firefighters or Department of Emergency Management hazardous materials officers resulting in total or partial

14

disability shall be presumed to be occupational diseases, suffered in the line of duty, that are covered by this title unless such presumption is overcome by a preponderance of competent evidence to the contrary.

• The top five departments in terms of loss experience are:

Department Claim Count Incurred % of Program Police 240 $868,341 38.30% Public Works 151 $402,297 17.75% Fire 103 $354,953 15.65% Parks & Recreation 209 $225,761 9.96% Human Services 89 $106,468 4.70%

• Cost containment results netted a total savings of $1,286,982.41 • The medical bill average turnaround time (01/01/2010 – 03/31/2010) = 18 days • The closure ratio from 2006 -2010 is 92.77% • The top five losses by accident type for 2010:

Accident Type Claim Count

Incurred (Paid plus Unfunded Obligation)

Overexertion 56 $218,057 Lifting 87 $214,090 Twisting 28 $187,694 Collision with Another Vehicle 22 $180,090 Pushing or Pulling 39 $155,819

• The City incurred an average of $2,896 per claim. The Sedgwick comparison group incurred an average of $3,735 per claim.

• Incurred and open claims o City: 368 open, $35M incurred o Police: 133 open ( down 17%); $15M incurred o Public Works: 52 open (up 3%); $3.5M incurred o Fire: 46 open (down 14%); $6.4M incurred o Parks & Recreation: 41 open (down 3%); $2.2M incurred o Human Services: 21 open (up 15%); $619K incurred

The table on the next page summarizes the number of open workers’ compensation claims and future reserves by fiscal year. Claims mature over time, so the number of claims open decline over time. Past years have fewer open claims than current years. The current number of open claims is 367. Reserves increased from 2009 to 2010 by $3,301,995.

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Open Workers’ Compensation Claims by Fiscal Year

Claim Year Open as of 6/30/2009

Open as of 6/30/2010

Unfunded Obligations as of 6/30/2009

Unfunded Obligations as of 6/30/2010

FY91 3 2 $357,364 $136,948 FY92 0 1 $0 $334,253 FY93 0 1 $0 $21,024 FY94 2 2 $119,352 $196,688 FY95 0 0 $0 $0 FY96 1 1 $12,273 $39,610 FY97 2 2 $170,844 $198,192 FY98 0 0 $0 $0 FY99 1 2 $30,655 $17,911 FY00 2 2 $34,546 $45,738 FY01 3 5 $81,810 $174,112 FY02 5 5 $786,732 $813,952 FY03 5 2 $128,698 $78,322 FY04 12 12 $1,249,457 $1,316,457 FY05 21 22 $2,539,170 $3,183,806 FY06 21 18 $2,464,823 $2,906,458 FY07 23 18 $1,399,683 $1,760,895 FY08 53 30 $2,815,943 $3,045,673 FY09 177 51 $2,352,438 $2,577,309 FY10 191 $998,434 Total 333 367 $14,543,787 $17,845,782

The table below summarizes the number of workers’ compensation claims filed, incidents only and the resulting expenses incurred over the last five fiscal years. Years 2009 and 2010 are still maturing and as better data is available, the numbers will increase. (See above).

Workers’ Compensation Claims – Medical & Indemnity Claim Type 2006 2007 2008 2009 2010 Indemnity 105 122 128 169 201

Incident Only 105 537 409 314 397 Medical Only 843 756 674 677 585

Total 1,383 1,415 1,211 1,160 1,183

The data in the above table show that for the period 2006 thru 2010, the number of medical claims filed has decreased by 31%, while the number of indemnity claims in 2010 has increased by 91%, the overall number of claims filed and incidents from 2006 to 2010 has decreased by 15%.

Workers’ Compensation Paid Fiscal Year of Origin 2006Medical Only Paid $500,859Indemnity with Medical Paid

$2,970,026

Reserves $2,464,823Incurred $5,935,708

∗ Note: Amounts represent payments made against claim in originating year and all subsequent years.

Medical only claims include medical costs for minor injuries with less than 7 days of lost time. Indemnity claims include wage payments for lost time compensthe injured worker’s average weekly wage tax free up to a maximum of 500 weeks and medical payments as long as needed.

The data in the above table show that for the period 2006 thru 2010, the total paid for medical claims has decreased bclaims has decreased by 70%percentage of the claims costs for 2010 have not yet been paid. As the outstanding payments are made the cost for 2010 will likely meet or exceed the cost for 2009. The data also shows that total reservclaims in the most recent fiscal years have not matured. Because of the complex nature of indemnity claims, in some cases it can take two years from the date of injury to accurately establish the reservreceived concerning diagnoses and treatment plans that the reserves for 2009 and 2010 will be adjusted upward.

The graph below demonstrates the cost associated with medical claims, indemnity claims and reserves for the period 2006 through 2010.

$0.00

$2,000,000.00

$4,000,000.00

$6,000,000.00

2006

2010 Workers' Compensation Paid To Date &

Unfunded Obligations

Indemnity

16

Workers’ Compensation Paid – Medical, Indemnity & Reserves2006 2007 2008 2009 $500,859 $542,289 $522,193 $386,815

$2,970,026 $2,484,016 $2,314,080 $1,047,509

$2,464,823 $1,399,683 $2,815,943 $2,352,682$5,935,708 $4,425,987 $5,652,216 $3,787,006

Note: Amounts represent payments made against claim in originating year and all subsequent years.

Medical only claims include medical costs for minor injuries with less than 7 days of lost time. Indemnity claims include wage payments for lost time compensated at 66 2/3% of the injured worker’s average weekly wage tax free up to a maximum of 500 weeks and medical payments as long as needed.

The data in the above table show that for the period 2006 thru 2010, the total paid for medical claims has decreased by 11%, while the total paid for indemnity claims has decreased by 70%. It is important to note however, that a significant percentage of the claims costs for 2010 have not yet been paid. As the outstanding payments are made the cost for 2010 will likely meet or exceed the cost for 2009. The data also shows that total reserves have decreased by 60%. It should be noted that the claims in the most recent fiscal years have not matured. Because of the complex nature of indemnity claims, in some cases it can take two years from the date of injury to accurately establish the reserve. It is expected that as more detailed information is received concerning diagnoses and treatment plans that the reserves for 2009 and 2010 will be adjusted upward.

The graph below demonstrates the cost associated with medical claims, indemnity reserves for the period 2006 through 2010.

2007 2008 2009 2010


Unfunded Obligations

Indemnity Medical Only Unfunded Obligations

Medical, Indemnity & Reserves 2010

$386,815 $447,355 $1,047,509 $880,285

$2,352,682 $998,434 $3,787,006 $2,326,074

Note: Amounts represent payments made against claim in originating year

Medical only claims include medical costs for minor injuries with less than 7 days of lost ated at 66 2/3% of

the injured worker’s average weekly wage tax free up to a maximum of 500 weeks and

The data in the above table show that for the period 2006 thru 2010, the total paid %, while the total paid for indemnity

. It is important to note however, that a significant percentage of the claims costs for 2010 have not yet been paid. As the outstanding payments are made the cost for 2010 will likely meet or exceed the cost for 2009. The

%. It should be noted that the claims in the most recent fiscal years have not matured. Because of the complex nature of indemnity claims, in some cases it can take two years from the date of injury to

e. It is expected that as more detailed information is received concerning diagnoses and treatment plans that the reserves for 2009 and

The graph below demonstrates the cost associated with medical claims, indemnity

2010


An analysis of claims occurring in FY06, FY07, and FY08 and the changing total incurred for these claims in the following years vividly demonstrates the dynamic increase in total incurred (including future res

The chart below clearly shows that claims occurring in FY06 have increased to over six times their original value in four years. Claims occurring in FY07 have increased to over four times their original value in three years. And claimincreased to over three times their original value in two years. Based on this analysis, the total incurred for FY09 and FY10 can be expected to increase to as much as six times their current value.

Workers’ Compensation LimitsWorkers’ Compensation Commission as selfbenefits. Workers’ compensation losses are paid from the Risk Management Fund up to the Self-Insured Retention amount. The cclaim. Excess Coverage provides a Stopcompulsory coverage for the medical costs, lost wages and other compensation for all work-related employee injuries and coverage dis

The City of Virginia Beach is a municipality that retains a significant portion of its workers’ compensation exposure.1985, rising to $850,000 in 2007

$0.00

$1,000,000.00

$2,000,000.00

$3,000,000.00

$4,000,000.00

$5,000,000.00

$6,000,000.00

$7,000,000.00

FY06

FY06 Claims

17

An analysis of claims occurring in FY06, FY07, and FY08 and the changing total incurred for these claims in the following years vividly demonstrates the dynamic increase in total incurred (including future reserves) as claims age.

The chart below clearly shows that claims occurring in FY06 have increased to over six times their original value in four years. Claims occurring in FY07 have increased to over four times their original value in three years. And claims occurring in FY08 have increased to over three times their original value in two years. Based on this analysis, the total incurred for FY09 and FY10 can be expected to increase to as much as six

Workers’ Compensation Limits The City of Virginia Beach is certified by the Virginia Workers’ Compensation Commission as self-insured for workers’ compensation benefits. Workers’ compensation losses are paid from the Risk Management Fund up to

Insured Retention amount. The current Self Insured Retention is $850,000 per claim. Excess Coverage provides a Stop-Loss at $850,000 up to $25,000,000 for compulsory coverage for the medical costs, lost wages and other compensation for all

related employee injuries and coverage diseases.

The City of Virginia Beach is a municipality that retains a significant portion of its workers’ compensation exposure. The retained limits of liability range from $200,000 in 1985, rising to $850,000 in 2007-10.

FY07 FY08 FY09

Claims Maturation

FY06 Claims FY07 Claims FY08 Claims

An analysis of claims occurring in FY06, FY07, and FY08 and the changing total incurred for these claims in the following years vividly demonstrates the dynamic

The chart below clearly shows that claims occurring in FY06 have increased to over six times their original value in four years. Claims occurring in FY07 have increased to over

s occurring in FY08 have increased to over three times their original value in two years. Based on this analysis, the total incurred for FY09 and FY10 can be expected to increase to as much as six

The City of Virginia Beach is certified by the Virginia insured for workers’ compensation

benefits. Workers’ compensation losses are paid from the Risk Management Fund up to urrent Self Insured Retention is $850,000 per Loss at $850,000 up to $25,000,000 for

compulsory coverage for the medical costs, lost wages and other compensation for all

The City of Virginia Beach is a municipality that retains a significant portion of its The retained limits of liability range from $200,000 in

FY10

18

Historical Program Retentions

Policy Period Excess Workers’ Compensation Coverage SIR 07/01/1985 – 06/30/1987 $200,000 07/01/1987 – 06/30/1988 $250,000 07/01/1988 – 06/30/1989 $300,000 07/01/1989 – 06/30/1990 $400,000 07/01/1990 – 06/30/1992 $450,000 07/01/1992 – 06/30/2005 $500,000 07/01/2005 – 06/30/2006 $750,000 07/01/2006 – 06/30/2007 $750,000 07/01/2007 – 06/30/2010 $850,000

During soft markets the entry of new carriers may allow opportunities to lower SIR’s or stop-loss. Analysis of premium cost, actuarial benefit and recoveries are several factors that should be taken into account when changing retention levels.

Insurance Procurement and Related Services

Insurance procurement is another of the key functions within the Risk Management Division. This function consists of the procurement of the City’s property insurance policies, insurance verification for vendors and contractors, and contractual review of insurance and indemnification provisions for the various contracts and agreements entered into by the City. It includes first party insurance that indemnifies the owner or user of property for its loss when the damage is caused by a covered peril such as fire or explosion. Also covers the financial loss due to business interruption. Current policy limits are $1 Billion with $50,000 deductible (peril coverage). In 2010, Risk Management reviewed approximately 275 contracts for insurance requirements.

Property Limits – The Risk Management Fund will pay property losses such as wind, fire, flood, earthquake, explosion, etc. which are in excess of $1,000. The department experiencing a self-insured property loss will be responsible for the first $1,000 of any such loss. The total amount of any loss payable from the Risk Management Fund shall not exceed the actual cost to repair, restore, or replace property in like kind and quality.

Table I in the Supporting Data Section lists information related to the property insurance program.

The City purchases several lines of excess insurance to protect its assets and operations. These include general liability, automobile liability, property, and workers’ compensation. The City procures these lines of coverage to supplement its self-insurance program detailed in Table I in the Tables and Supporting Data Section. The Self-Insurance Internal Service Fund finances the City’s liability losses up to the $2,000,000 and purchases excess liability coverage up to $10,000,000 per occurrence and $20,000,000 in aggregate. Once the Self-Insured Retention (SIR) has been exceeded, the additional loss expenses are reimbursed to the City by the excess insurer.

19

General Liability Claims

General liability insurance protects the City from most liability exposures other than automobile and professional liability. The City self insures for claims of $2 million or less. General liability claims manifest themselves soon after an incident and liability determinations are made quickly. All claims are thoroughly investigated with a prompt response in the way of either payment or denial.

The table on the next page outlines the number of general liability claims filed and the resulting expenses incurred over the last five fiscal years.

Citywide General Liability Losses

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 Claim Count 468 498 448 343 347 Paid $509,266 $349,226 $1,275,884 $275,999 $301,964 Reserves (as of 6/30/2010) $6,845 $7,646 $32,444 $636,892 $125,738 Incurred $516,111 $356,872 $1,308,328 $912,891 $427,702 Avg. Per Claim $1,103 $717 $2,920 $2,661 $1,233 * The increase in 2008 is due to the fact that the City paid over $900,000 to outside counsel who was successful in defending the City against a lawsuit which set the ground work for defense of two similar lawsuits.

The data in the above table show that for the period 2006 through 2010, the number of claims filed has decreased by 26%, the amount paid has decreased by 41%, reserves have increased by 1,737%, incurred has decreased by 17%, and the average amount paid per claim has increased by 12%. One possible explanation for the increase is that claim counts are down, thus fewer claims cause the average to go up.

In the last three years the City has been promptly investigating, paying or denying claims within 30 to 60 days. Statistics will support the facts that the longer a claim is open, the more expensive it will become. Additionally, the City has aggressively applied depreciation to property damage claim settlements when applicable further reducing payment amounts. All general liability claims have been adjusted in-house with no outside assignments other than appraisal services. Finally, we do not solicit claims and rarely open a claim file until the written notice of claim is actually received.

General Liability and Public Official’s Liability Limits – General liability and public official’s liability losses are paid from the Risk Management Fund; either wholly or to the extent of the self insured retention amount of any general liability or public official’s liability insurance maintained by the City. The City’s excess liability policy with States Self Insured Risk Retention Group (STATES) also covers general liability and public officials’ liability claims.

20

Automobile Liability Claims

There are many factors that affect the adjustment of automobile liability claims. There are often issues of contributory negligence, immunity and personal injuries. They can sometimes settle quickly when liability can be clearly established although some claims can take years to litigate when there are multiple parties involved and issues that can only be resolved through the court system. Many small claims are easy to assess and settle. A small number of claims can result in some high payouts for severe injuries.

The table below outlines the number of automobile liability claims filed and the resulting expenses incurred over the last five fiscal years.

Citywide Automobile Losses

FY 2006 FY 2007 FY 2008 FY 2009 FY 2010 Claim Count 155 170 132 98 73 Paid $725,117 $504,989 $345,200 $321,170 $170,268 Reserves $25,065 $0 $14,968 $68,305 $117,965 Incurred $750,182 $504,989 $360,168 $389,475 $288,233 Avg. Per Claim $4,840 $2,971 $2,729 $3,974 $3,948

The data in the above table show that for the period 2006 thru 2010, the number of claims filed has decreased by 53%, the amount paid has decreased by 77%, reserves have increased by 371%, incurred has decreased by 74%, and the average amount paid per claim has decreased by 18%.

Typically, except with bodily injury, an automobile liability claim file is opened when a written notice of claim is received. All automobile claims have been investigated and handled within the Risk Management division versus being sent to an independent adjustment company. Bodily injury claims are negotiated either directly with the claimant or with their attorneys. Outside appraisers are used to inspect and provide written repair estimates assuring that we pay for only accident related damages, use aftermarket parts when available and pay prevailing labor rates.

Automobile Liability Limits - The Commonwealth of Virginia, Department of Motor Vehicles as a self-insurer for automobile liability, certifies the City of Virginia Beach. Automobile liability losses are paid from the Risk Management Fund either wholly or to the extent of the self insured retention amount (currently at $2,000,000) of any automobile liability insurance program maintained by the City. The excess policy with States provides an additional $10,000,000 for any one occurrence and up to $20,000,000 for claims in any one year period.

Disaster Recovery/Public Assistance Services

An important function of Risk Management is the recovery of City assets after a disaster. The Stafford Act authorizes financial assistance to State and local governments following Presidentially declared major disasters and emergencies. The Stafford Act describes the declaration process, the types and extent of assistance that

21

may be provided, and fundamental eligibility requirements. Threshold for eligibility for 2010 was an incurred loss of $3.23 per citizen or approximately $1.39 million in damages. Reimbursement is based on a formula assigned to each locality based on a number of factors. The City of Virginia Beach was reimbursed 75% from FEMA, 18% from the State and 7% from local funds for each disaster. On November 11 thru the 16th, 2009, the City experienced the remnants of a hurricane in the form of a November Nor’-Easter. The damages resulted in $2.5 million in damages to City and school facilities. Risk Management coordinated the reporting and recovery of losses of 51 small projects, those costing $61,900 or less each and nine larger projects costing over $61,900 each. The largest dollar project was debris removal that topped approximately $900,000. The remainder of the projects involved restoration of facilities which suffered damage. Restoration projects are divided into two categories: repairs done when the damage amounts to less than 50% of the replacement costs, and replacement when damages amount to more than 50% of the replacement costs. Insurance proceeds are deducted from eligible costs. To-date $832,520 has been recovered and additional efforts continue.

Subrogation Services

Subrogation is the process of seeking reimbursement from the responsible party and/or an insurance company when the damages are caused by the negligence of others. Risk Management acts as the insurance company for the City and subrogates against the responsible parties or their insurance companies for damages to City property to include vehicles, buildings, trees, etc. We vigorously pursue subrogation claims against the responsible party or their insurance companies and work with the City Attorney’s office when legal action becomes necessary.

Subrogation Recoveries

2006 2007 2008 2009 2010 Recoveries $277,240 $329,424 $170,439 $306,886 $262,563

The above table reflects subrogation collections based on the year the damage occurred, not the year the monies were collected. On occasion, it can take several months to get payment for damages from either the insurance company or the responsible individual. Other times, we make payment plans with the responsible party and have them sign stipulation agreements agreeing to regular monthly payments. Collections in 2009-2010 have taken a slight downturn possibly due to the economic climate and unemployment rate. On a whole though, our collection efforts have remained fairly strong.

Risk Management attempts to collect money owed to City departments from responsible parties for damages to City vehicles. When money is recovered, Risk Management reimburses Public Works/Automobile Services for amounts less than $1,000 and the Insurance Recovery Fund for amounts over $1,000. It is understood that departments with the larger number of vehicles on the road and with the most mileage incurred tend to have a greater frequency of accidents.

22


23

Organizational Breakdown

For purposes of reporting, an organizational structure has been defined where all budget units have been assigned to one of four organizational units. The organizational units have been defined as:

∗ Administration & Public Safety ∗ Health and Human Services ∗ Infrastructure ∗ Economic Development/Vitality

Table II in the Supporting Data Section of this report reflects the details of the budget unit assignments as well as the Administrator responsible for each area.

For local governments, risk is ordinarily associated with the delivery of public services. This is generally classified as operational risk. Risk encountered in the course of delivering governmental services – risk that include potential property loss, worker injury, and lawsuits can also be viewed as pure risks. With pure risks, there is no upside; either the government incurs a loss or there is no loss at all.

Workers’ Compensation Analysis - Data for the current fiscal year and four prior fiscal years has been compiled for workers’ compensation losses. The table below outlines the total Workers’ Compensation loss for each organization unit for the past five fiscal years.

Total Workers’ Compensation Losses by Organizational Category

Organizational Unit 2006 2007 2008 2009 2010 Admin/Public Safety $2,428,249 $1,967,696 $1,808,044 $857,763 $769,268 Health $ 211,902 $ 441,347 $ 489,239 $216,066 $252,331 Infrastructure $ 641,499 $ 561,384 $ 295,143 $214,221 $262,776 Economic Dev $ 189,235 $ 55,877 $ 243,846 $146,274 $ 43,265 Organizational Unit Salary % Total Salary FTEs % Total FTs Admin/Public Safety $137,171,809 43.58% 2,620.61 38.30% Health $ 87,495,914 27.80% 2,273.80 33.23% Infrastructure $ 73,071,762 23.21% 1,541.68 22.53% Economic Dev $ 17,043,648 5.41% 406.95 5.95% Total $314,783,133 100.00% 6,843.04 100.00% The data in the above table show that for the period 2006 thru 2010, the loss for Administration has decreased by 73%, for Health have decreased by 68%, for Infrastructure has decreased by 59%, for Economic Development has decreased by 77% and for Health has increased by 19%. Administration accounts for 38% of the total FTEs and 44% of the budgeted salaries, Health accounts for 33% of the total FTEs and 28% of the budgeted salaries, Infrastructure accounts for 23% of the total FTEs and 23% of the budgeted salaries, and Economic Development accounts for 6% of the total FTEs and 5% of the budgeted salaries.

An analysis of losses by accident type for 2010 was conducted. The top 10 accident types are detailed below: Cause Description

Overexertion Total Lifting Total Twisting Total Collision with Another Vehicle Total Pushing or Pulling Total

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

Admin

2010 Workers' Compensation Total Paid

24

An analysis of losses by accident type for 2010 was conducted. The top 10 accident

Claim Type Claim Count Incurred

Indemnity 20 $67,58Incident Only 9 $0Medical Only 27 $150,469 56 $218,05Indemnity 26 $167,00Incident Only 16 $0Medical Only 45 $47,088 87 $214,090Indemnity 7 $178,070Incident Only 9 $0Medical Only 12 $9,62 28 $187,694Indemnity 14 $172,57Incident Only 2 $0Medical Only 6 $7,51 22 $180,090Indemnity 8 $148,75Incident Only 11 $0Medical Only 20 $7,063 39 $155,819

Health Infrastructure Economic Dev

2010 Workers' Compensation Total Paid

FY06 FY07 FY08 FY09 FY10

An analysis of losses by accident type for 2010 was conducted. The top 10 accident

Average Incurred

$67,588 $3,379 $0 $0

$150,469 $5,573 $218,057 $3,894 $167,002 $6,423

$0 $0 $47,088 $1,046 $214,090 $2,461 $178,070 $25,439

$0 $0 $9,624 $802

$187,694 $6,703 $172,578 $12,327

$0 $0 $7,513 $1,252

$180,090 $8,186 $148,756 $18,594

$0 $0 $7,063 $353

$155,819 $3,995

Economic Dev

25

Cause Description Claim Type Claim Count Incurred Average Incurred

Altercation Indemnity 2 $110,249 $55,124 Incident Only 34 $0 $0 Medical Only 23 $35,190 $1,530 Total 59 $145,439 $2,465 Fall/Slip on Ice or Snow Indemnity 8 $98,398 $12,300 Incident Only 15 $0 $0 Medical Only 24 $37,440 $1,560 Total 47 $135,838 $2,890 Person in Act of Crime Indemnity 2 $133,845 $66,923 Incident Only 5 $0 $0 Medical Only 1 $759 $759 Total 8 $134,604 $16,826 Fall/Slip From a Different Indemnity 8 $80,439 $10,055 Level Incident Only 12 $0 $0 Medical Only 21 $34,670 $1,651 Total 41 $115,109 $2,808 Running and Training Indemnity 8 $75,869 $9,484 Incident Only 15 $0 $0 Medical Only 26 $31,761 $1,222 Total 49 $107,629 $2,197 Sedgwick Claims Management provided an analysis of workers’ compensation claims for 2010. The information is broken down by frequency (percent of total claims) and severity (percent of total incurred) by department. The results of this analysis are contained in Tables IV and V in the Supporting Data Section of this report. Automobile/General Liability Analysis - Data for the current fiscal year and four prior fiscal years has been compiled for general and automobile liability losses. Table III in the Supporting Data Section shows the detailed information for general and automobile liability losses for FY 2006 through FY 2010. In summary, the information in this table reveals the following analysis: Overall analysis of general liability claim count shows a decrease of approximately 26% between 2006 and 2010. The largest decrease in claims occurred in the Infrastructure area where claims were down approximately 22%. The smallest change occurred in Health and Human Services where claims were down 4%. Typically, during an economic downturn, claims tend to increase but that does not appear to be the case here. The difference may be explained by a difference in how claims are established and handled. In prior years when a claimant telephoned and inquired as to how to file a claim, one was automatically set up. Currently, a claim is not set up until an actual written notice of claim is received. The difference between phone calls and actual claims received can be as much as 30 to 40%.

Overall analysis of general liability payments shows that payments have decreased approximately 41% between 2006 and 2010. claims occurred in the Economic Development/Vitality area where claims were down to $0. In the Infrastructure area, payments have idue to the fact that the City paid over $900,000 to outside counsel who was successful in defending the City against a lawsuit which set the ground work for defense of two similar lawsuits.

Overall analysis of general liability reserves shows that reserves have increased approximately 1737% between 2006 and 2010.

0

50

100

150

200

250

300

2006 2007

2010 General Liability by Organization

Admin

$0.00

$200,000.00

$400,000.00

$600,000.00

$800,000.00

$1,000,000.00

$1,200,000.00

2006

2010 General Liability

Admin

26

neral liability payments shows that payments have decreased approximately 41% between 2006 and 2010. The largest decrease in claims occurred in the Economic Development/Vitality area where claims were down to $0. In the Infrastructure area, payments have increased by 6%. The increase in 2008 is due to the fact that the City paid over $900,000 to outside counsel who was successful in defending the City against a lawsuit which set the ground work for defense of two

Overall analysis of general liability reserves shows that reserves have increased approximately 1737% between 2006 and 2010. Reserves have decreased by 73% in

2007 2008 2009 2010

2010 General Liability by Organization-Claim

Count


2007 2008 2009

2010 General Liability-Paid


neral liability payments shows that payments have The largest decrease in

claims occurred in the Economic Development/Vitality area where claims were down to ncreased by 6%. The increase in 2008 is

due to the fact that the City paid over $900,000 to outside counsel who was successful in defending the City against a lawsuit which set the ground work for defense of two

Overall analysis of general liability reserves shows that reserves have increased Reserves have decreased by 73% in

2010

Claim

2010

Administration & Public Safety. There has been aInfrastructure and Health and Human Services areas over the past two years. Development has seen a slight Services has increased by an insignificant amount in 2010.

Overall analysis of general liability incurredapproximately 17% between 2006 and 2010. in the Economic Development/Vitality area where amounts were down approximately 99%. In the Infrastructure area, payments have increased by

Overall analysis of automobile liability claim count shows that claim counts have decreased approximately 53% between 2006 and 2010.

$0.00

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

$700,000.00

2006


Admin

$0.00

$500,000.00

$1,000,000.00

$1,500,000.00

2006


Admin

27

Administration & Public Safety. There has been a significant increase in the ealth and Human Services areas over the past two years.

has seen a slight increase over the past two years. Health and Human Services has increased by an insignificant amount in 2010.

Overall analysis of general liability incurred shows that amounts have decreased approximately 17% between 2006 and 2010. The largest decrease in claims occurred in the Economic Development/Vitality area where amounts were down approximately 99%. In the Infrastructure area, payments have increased by approximately 14%.

Overall analysis of automobile liability claim count shows that claim counts have decreased approximately 53% between 2006 and 2010. The largest decrease in

2007 2008 2009

2010 General Liability-Reserves


2007 2008 2009

2010 General Liability-Incurred

Health Infrastructure Economic Development

increase in the ealth and Human Services areas over the past two years. Economic

increase over the past two years. Health and Human

shows that amounts have decreased The largest decrease in claims occurred

in the Economic Development/Vitality area where amounts were down approximately approximately 14%.

Overall analysis of automobile liability claim count shows that claim counts have The largest decrease in

2010

2010

claims occurred in the Administration & Public Safety area where claims wereapproximately 67%. The smallest change occurred in Infrastructure where claims were down 31%.

Overall analysis of automobile liability payments shows that payments have decreased approximately 77% between 2006 and 2010. payments occurred in the Administration & Public Safety area where payments were down approximately 94%. Health and Human Services experienced an increase in payments of 103%.

Overall analysis of automobile reserves showed that reserves have increased approximately 436% between 2006 and 2010.

0

10

20

30

40

50

60

70

80

90

2006 2007

2010 Auto Liability

Admin

$0.00

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

2006

2010 Auto Liability

Admin

28

claims occurred in the Administration & Public Safety area where claims wereapproximately 67%. The smallest change occurred in Infrastructure where claims were

Overall analysis of automobile liability payments shows that payments have decreased approximately 77% between 2006 and 2010. The largest decrease in payments occurred in the Administration & Public Safety area where payments were down approximately 94%. Health and Human Services experienced an increase in

Overall analysis of automobile reserves showed that reserves have increased approximately 436% between 2006 and 2010. Increases occurred in Infrastructure,

2007 2008 2009

2010 Auto Liability-Claim Count

Admin Health Infrastructure Economic Dev

2007 2008 2009

2010 Auto Liability-Paid


claims occurred in the Administration & Public Safety area where claims were down approximately 67%. The smallest change occurred in Infrastructure where claims were

Overall analysis of automobile liability payments shows that payments have The largest decrease in

payments occurred in the Administration & Public Safety area where payments were down approximately 94%. Health and Human Services experienced an increase in

Overall analysis of automobile reserves showed that reserves have increased Increases occurred in Infrastructure,

2010

2010

Health and Human Services and Economic Development. Infrastructure accounted for the largest increase in reserves.

Overall analysis of automobile liability incurred shows a decrease of approximately 62% between 2006 and 2010. Administration & Public Safety area where incurred is down approximately 68%. Infrastructure showed an incre

Administration accounts for 32.96% of assigned vehicles and 38.19% of all vehicle values, Health accounts for 22.91% of assigned vehicles and 12.45% of all vehicle

$0.00

$20,000.00

$40,000.00

$60,000.00

$80,000.00

$100,000.00

$120,000.00

2006

2010 Auto Liability

Admin

$0.00

$100,000.00

$200,000.00

$300,000.00

$400,000.00

$500,000.00

$600,000.00

2006

2010 Auto Liability

Admin

29

Health and Human Services and Economic Development. Infrastructure accounted for the largest increase in reserves.

Overall analysis of automobile liability incurred shows a decrease of approximately 62% between 2006 and 2010. The largest decrease occurred in the Administration & Public Safety area where incurred is down approximately 68%. Infrastructure showed an increase of 130%.


2007 2008 2009

2010 Auto Liability-Reserves


2007 2008 2009

2010 Auto Liability-Incurred


Health and Human Services and Economic Development. Infrastructure accounted for

Overall analysis of automobile liability incurred shows a decrease of The largest decrease occurred in the

Administration & Public Safety area where incurred is down approximately 68%.


2010

2010

30

values, Infrastructure accounts for 40.47% of assigned vehicles and 47.77% of all vehicle values, and Economic Development accounts for 3.66% of assigned vehicles and 1.60% of all vehicle values, Departmental Analysis Individual departments were analyzed to determine the highest frequency and severity of claims. Departments which incurred 5% or more of the total claims (frequency) and 5% or more of the incurred costs (severity) were analyzed. Also included in the analysis were those departments who experienced a low level of frequency and severity. The table below summarizes the frequency of claims information.

Departments with Highest Workers’ Comp Claims Frequency FY10 Department Claim Count % of Frequency Lag Time Police 240 20.29% 14.12 days Parks & Recreation 209 17.67% 8.91 days Public Works 151 12.76% 12.52 days Sheriff 140 11.83% 4.34 days Fire 103 8.71% 1.48 days Human Services 89 7.52% 7.53 days Emergency Medical Service 62 5.24% 2.95 days All Others 189 15.98% Grand Total 1,183 100.00% 8.66 days

∗ Grand Total includes incident only claims

Departments with Low Workers’ Comp Claims Frequency FY10 Department Claim Count % of Frequency Lag Time Public Utilities 49 4.14% 11.58 days For the frequency analysis, Police experienced the highest frequency of 20.29% (240 claims out of 1,183); Parks and Recreation experienced the second highest frequency of 17.67% (209 claims out of 1,183); Public Works experienced the third highest frequency of 12.76% (151 claims out of 1,183); Sheriff’s Office experienced the fourth highest frequency of 11.83% (140 claims out of 1,183); Fire experienced the fifth highest frequency of 8.71% (103 claims out of 1,183); Human Services experienced the sixth highest frequency of 7.52% (89 claims out of 1,183); and Emergency Medical Services experienced a frequency of 5.24% (62 claims out of 1,183). All remaining departments experienced a frequency of 15.96% (189 claims out of 1,183). Performing well on the frequency scale, Public Utilities experienced a favorable frequency rate. These seven departments accounted for 84% of all the workers’ compensation claims (frequency). The table on the next page summarizes the severity of claims information.

31

Department with Highest Workers’ Comp Severity FY10 Department Incurred (Paid plus

Unfunded Liability) % of Incurred (Severity)

Police $ 868,341 37.33% Public Works $ 402,297 17.30% Fire $ 354,953 15.26% Parks and Recreation $ 225,761 9.71% Human Services $ 106,468 4.58% Emergency Medical Services $ 97,213 4.18% All Others $ 271,041 11.64% Grand Total $2,326,074 100.00%

Departments with Low Workers’ Comp Severity FY10 Department Incurred (Paid plus

Unfunded Liability) % of Incurred (Severity)

Sheriff $81,834 3.52% Public Utilities $60,507 2.60% For the severity analysis, Police experienced the highest severity of 37.33% ($868,341.44 incurred out of $2,326,074.00); Public Works experienced the second highest severity of 17.30% ($402,297.10 incurred out of $2,326,074.00); Fire experienced the third highest severity of 15.26% ($354,952.51 incurred out of $2,326,074.00); Parks and Recreation experienced the fourth highest severity of 9.71% ($225,761.26 incurred out of $2,326,074.00); Human Services experienced the fifth highest severity of 4.58% ($106,468.23 incurred out of $2,326,074.00); EMS experienced sixth highest severity of 4.18% ($97,212.78 incurred out of $2,326,074.00). All remaining departments experienced a severity of 11.64% ($271,040.68 incurred out of $2,326,074.00). Performing well on the severity scale, Sheriff’s Office 3.52%, and Public Utilities 2.60% experienced a favorable severity rate. It should be noted that due to the nature of Police operations, it is expected that they will be in the top five in Frequency and Severity of claims. These six departments accounted for 88% of the total cost (severity).

The graphs on the follow page reflect the distribution of severity cost and percent to the highest performing departments.

32

Each of these departments is discussed in detail on the following pages.

$868,341

$402,297

$354,953

$225,761

$106,468 $97,213

2010 Departmental WC Incurred (Paid and

Unfunded Liability)

Police Public Works Fire Parks & Rec Human Services EMS

37.33%

17.30%

15.26%

9.71%

4.58%

4.18% 11.64%

2010 Departmental % of WC Incurred (Severity)

Police Public Works Fire Parks & Rec Human Services EMS Other

33

Police

The purpose of the Virginia Beach Police Department is to respond to crime and traffic- related concerns; investigate criminal and traffic incidents, apprehend criminal and traffic offenders; and initiate problem solving strategies to reduce crime and traffic incidents. The department examines the types of calls for service and utilizes various information systems to obtain accurate, timely information, identify crime and traffic trends, deploy resources, and analyze results. The focus of the department is to use a systematic approach involving all divisions within the department and coordinating with other agencies in an effort to effectively interact with the community, to prevent crime and traffic concerns, and to remove the criminal element from our neighborhoods. The Police Department is one of four departments involved in providing for public safety. Public safety activities are inherently high risk and involve the potential for financial loss. The department consists of seven divisions: Bureau of Animal Control; Detective Bureau; Investigative Division; Operations Division; Special Operations; Special Investigations; and the Support Division. Together these divisions account for over 1000 FTEs as specified in the 2011 budget. The probability of experiencing incidents increases in direct proportion to the number of people involved (exposed). Also the risks involved in providing for public safety are inherently high. At the close of FY10, the department had a total of 113 open claims (86 indemnity claims and 27 medical) with an incurred cost of $15,979,725 ($15,670,557 in indemnity claims and $309,168 in medical claims). By way of comparison, the department experienced a total of 150 claims in FY10, with a total paid of $453,700 and an incurred amount of $868,341 compared to 181 claims in FY09, with a total paid of $673,595 and an incurred cost of $2,043,060. While it is good news that the number of claims has decreased, it is to early to determine if paid and incurred has likewise decreased as these amounts generally increase as claims mature.

The major cause, nature and body part making up these claims is detailed below:

Greatest Frequency Greatest Severity Cause Altercation

Claims=20 Incurred = $110,313

Overexertion Claims = 17 Incurred = $176,853

Nature/Result Strain Claims = 57 Incurred = $264,394

Strain Claims = 57 Incurred = $264,394

Part/Target Multiple Body Parts Claims = 24 Incurred = $72,088

Shoulder (s) Claims = 18 Incurred = $252,070

The table on the next page documents the top five injury types resulting in claims by frequency and severity experienced by the department in FY10.

34

Top 5 Claims by Workers’ Comp Frequency/Severity FY10 Cause Frequency

Count Expected Total Cost

Severity Count

Expected Total Cost

Altercation 20 $18,052 20 $18,052 Bitten 20 $1,729 0 $0 Fall On the Same Level 19 $26,513 0 $0 Running and Training 18 $51,038 18 $51,038 Overexertion 17 $72,265 17 $72,265 Person in Act of Crime 0 $0 7 $70,856 Collision with Another Vehicle 0 $0 11 $74,271 All Others 147 $284,103 168 $167,219 Total 241 $453,700 241 $453,700 Lag Time Analysis Lag time is an important indicator in controlling workers’ compensation expenses. The City has chosen to utilize a measure of lag time which measures the difference between the date a claim is reported to Sedgwick and the date the incident is reported to the City. The City’s goal for lag time is 2days or less. The FY10 average lag time for the entire City was 8.66 days. Statistic shows that the sooner a claim is reported and claims management is initiated, the better chance the city has to control the total cost of the claim. For FY10, the Police Department experience 41 indemnity claims with an average lag time of 51.34 days; 119 medical claims with an average lag time of 9.85 days; and 90 incidents only with an average lag time of 2.81 days. The overall average lag time for all incidents and claims was 14.12 days. By comparison, for FY09, the City-wide average lag time was 8.21 days. Police experienced 44 indemnity claims with an average lag time of 6.55 days; 145 medical claims with an average lag time of 6.46 days; and 60 incidents only with an average lag time of 2.60 days. The chart on the following page displays the distribution of claims lag time reporting for Police in FY10. It can be seen on the chart that the largest number of claims are reported with 3 days. Within 3 days over 80% of all claims had been recorded. To improve its lag time statistic, Police needs to concentrate on the “outliers”, i.e. those claims requiring 10 or more days for reporting. While there may be legitimate reasons why a claim is not promptly reported, a large number of outliers may indicate a deficiency in the reporting process being used within the department.

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Parks and Recreation

The mission of the Parks and Recreation Department is to deliver parks, recreation programs and public spaces that reflect the priorities of the community; to support tiered levels of service that recognize the diverse needs of the community; and to focus on sustainability of core programs, services and facilities through efficient and effective business practices. Parks and Recreation Department is one of the larger operational departments in the city. The department consists of eight divisions: Director’s Office; Business Systems; Human Resources; Golf Administration; Landscape Management; Planning, Design, and Development; Programming and Operations; and Resource Development. Together these divisions account for over 850 FTEs as specified in the 2011 budget. The probability of experiencing incidents increases in direct proportion to the number of people involved (exposed). Also the type of work performed by a number of these divisions exposes the employees to a large number of risks. It is difficult to manage the risks in Parks and Recreation’s activities because of the scope involved. The footprint of the City included government property, parks, and right-of-ways making it one of the largest landowners in the jurisdiction.

At the close of FY10, the department had a total of 41 open claims (29 indemnity claims and 12 medical) with paid expenses of $1,299,970 ($1,286,439 indemnity and $13,531 medical) an incurred cost of $2,237,801 ($2,207,557 in indemnity claims and $30,244 in medical claims).

By way of comparison, the department experienced a total of 142 claims in FY10, with a total paid of $162,605 and an incurred amount of $225,761 compared to 147 claims in FY09, with a total paid of $121,710 and an incurred cost of $222,082. While the number of claims has decreased slightly, both paid and incurred have likewise increased and are likely to go even higher as these claims mature.


Greatest Frequency Greatest Severity Cause Lifting

Claims = 15 Incurred = $46,623

Lifting Claims = 15 Incurred = $46,623

Nature/Result Contusion (Bruise, Skin Sur Claims = 72 Incurred = $48,960

Sprain Claims = 44 Incurred = $77,529

Part/Target Ankle Claims = 16 Incurred = $22,861

Back (All Other) Claims = 10 Incurred = $41,766

37

Lag Time Analysis Lag time is an important indicator in controlling workers’ compensation expenses. The City has chosen to utilize a measure of lag time which measures the difference between the date a claim is reported to Sedgwick and the date the incident is reported to the City. The City’s goal for lag time is 2days or less. The FY10 average lag time for the entire City was 8.66 days. Statistic shows that the sooner a claim is reported and claims management is initiated, the better chance the city has to control the total cost of the claim. For FY10, Parks and Recreation experience 32 indemnity claims with an average lag time of 9.06 days; 120 medical claims with an average lag time of 9.24 days; and 69 incidents only with an average lag time of 8.26 days. The overall average lag time for all incidents and claims was 8.91 days. By comparison, for FY09, the City-wide average lag time was 8.21 days. Parks and Recreation experienced 15 indemnity claims with an average lag time of 15.07 days; 139 medical claims with an average lag time of 12.83 days; and 51 incidents only with an average lag time of 4.14 days. The chart below displays the distribution of claims lag time reporting for Parks and Recreation in FY10. It can be seen on the chart that the largest number of claims are reported with 3 days. Within 10 days over 80% of all claims had been recorded. To improve its lag time statistic, Parks and Recreation needs to concentrate on the “outliers”, i.e. those claims requiring 15 or more days for reporting. While there may be legitimate reasons why a claim is not promptly reported, a large number of outliers may indicate a deficiency in the reporting process being used within the department.

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Public Works The Department of Public Works exists to sustain and improve the physical and environmental quality of the City for the benefit of its citizens. To this end, we plan for, acquire, build and maintain public infrastructure; manage the automotive fleet; manage residential solid waste; and provide mosquito control services. Public Works is one of the larger operational departments in the city. The department consists of three major divisions and fourteen sub-divisions. These divisions are: Operations Support Administration; Operations Engineering; and City Engineer. The sub-divisions of Operations and Support are: Administration; Contracts; Real Estate; Storm-water Customer Office; Waste Management Division; and Automotive Services. The sub-divisions of Operations Engineering are: Operations Management; Highway Divisions; and Building Maintenance. The sub-divisions of City Engineering are: Engineering Services Division; Traffic Engineering Division; Transportation Management Division; Surface Water Resources Division; and Facilities Design and Construction. Together these divisions account for over 870 FTEs as specified in the 2011 budget. The probability of experiencing incidents increases in direct proportion to the number of people involved (exposed). Also the type of work performed by a number of these divisions exposes the employees to a large number of risks. In the Public Works Department, it is difficult to manage risks because critical activities such as road maintenance cannot be avoided. At the close of FY10, the department had a total of 45 open claims (45 indemnity claims and 7 medical) with paid expenses of $2,166,488 ($2,147,883 indemnity and $18,606 medical) an incurred cost of $3,559,232 ($3,531,834 in indemnity claims and $27,398 in medical claims).

By way of comparison, the department experienced a total of 126 claims in FY10, with a total paid of $214,701 and an incurred amount of $2,166,488 compared to 122 claims in FY09, with a total paid of $164,438 and an incurred cost of $345,236. While the number of claims has increased, both paid and incurred have decreased slightly. However, both are likely to increase as these claims mature.

The major cause, nature and body part making up these claims is detailed below: Greatest Frequency Greatest Severity Cause Lifting


Twisting Claims = 4 Incurred = $74,109

Nature/Result Contusion (bruise, Skin Su Claims = 42 Incurred = $147,432

Contusion (Bruise, Skin Sur Claims = 42 Incurred = $147,432

Part/Target Low Back Area Claims = 17 Incurred = $30,519

Knee Claims = 13 Incurred = $111,240

39

Lag Time Analysis Lag time is an important indicator in controlling workers’ compensation expenses. The City has chosen to utilize a measure of lag time which measures the difference between the date a claim is reported to Sedgwick and the date the incident is reported to the City. The City’s goal for lag time is 2 days or less. The FY10 average lag time for the entire City was 8.66 days. Statistic shows that the sooner a claim is reported and claims management is initiated, the better chance the city has to control the total cost of the claim. For FY10, the Public Works Department experience 37 indemnity claims with an average lag time of 27.41 days; 97 medical claims with an average lag time of 8.15 days; and 25 incidents only with an average lag time of 7.44 days. The overall average lag time for all incidents and claims was 12.52 days. By comparison, for FY09, the City-wide average lag time was 8.21 days. Public Works experienced 19 indemnity claims with an average lag time of 5.79 days; 113 medical claims with an average lag time of 21.84 days; and 18 incidents only with an average lag time of 5.89 days. The chart below displays the distribution of claims lag time reporting for Public Works in FY10. It can be seen on the chart that the largest number of claims are reported with 3 days. Within 10 days over 80% of all claims had been recorded. To improve its lag time statistic, Public Works needs to concentrate on the “outliers”, i.e. those claims requiring 15 or more days for reporting. While there may be legitimate reasons why a claim is not promptly reported, a large number of outliers may indicate a deficiency in the reporting process being used within the department .

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Sheriff’s Office The Sheriff Office’s primary responsibility is to be the custodian of the city jail and to serve as the process server and bailiff for the local courts. The Sheriff’s Department is one of four departments involved in providing public safety. Public safety activities are inherently high risk and involve the potential for financial loss. The department consists of two major divisions; Community Services and Correctional Services. Together these divisions account for over 520 FTEs as specified in the 2011 budget. The risks involved in providing for public safety are inherently high.


By way of comparison, the department experienced a total of 68 claims in FY10, with a total paid of $56,993 and an incurred amount of $81,834 compared to 73 claims in FY09, with a total paid of $43,458 and an incurred cost of $65,824. While the number of claims has decreased slightly, both paid and incurred have increased and are likely to go even higher as these claims mature.


Greatest Frequency Greatest Severity Cause Altercation


Altercation Claims = 38 Incurred = $35,126


Contusion (Bruise, Skin Sur Claims = 60 Incurred = $35,243

Part/Target Finger(s) Claims = 26 Incurred = $18,817

Finger(s) Claims = 26 Incurred = $18,817

41

Fire The Virginia Beach Fire Department is a metropolitan sized organization that provides an all-hazard response that includes: Fire Suppression, Emergency Management, Hazardous Materials, Technical Rescue, Marine, Fire Inspections, Fire Investigations, Life Safety Education, Fire Training, Safety, Health and Wellness and disaster response from Virginia Task Force 2, FEMA Urban Search and Rescue Team. In addition, the department is a member of the Virginia Beach Emergency Response System and provides emergency medical technicians and paramedics to assist the Department of Emergency Medical Services with providing Advanced Life Support response to the community. The Virginia Beach Fire Department has established itself as a local, regional, state and national leader in numerous areas and continues to strive for excellence in delivering services to the city.

The Fire Department is one of four departments involved in providing for public safety. Public safety activities are inherently high risk and involve the potential for financial loss. The department consists of four major divisions; Administration; Personnel and Development; Office of Emergency Management; and Operations. Together these divisions account for over 460 FTEs as specified in the 2011 budget. The risks involved in providing for public safety are inherently high.


By way of comparison, the department experienced a total of 63 claims in FY10, with a total paid of $193,917 and an incurred amount of $354,953 compared to 74 claims in FY09, with a total paid of $56,685 and an incurred cost of $196,042. While the number of claims has decreased slightly, both paid and incurred have increased and are likely to go even higher as these claims mature.




Twisting Claims = 3 Incurred = $92,973


Strain Claims = 36 Incurred = $99,135

Part/Target Low Back Area Claims = 12 Incurred = $2,475

Shoulder (s) Claims = 8 Incurred = $150,291

42

Human Services The Human Services Department is responsible for aiding citizens in meeting their fundamental needs during times of temporary economic and social crisis, to protect our children and vulnerable adults from abuse and neglect, to administer a range of services to help maintain families in the least restrictive and intrusive manner possible, and to assist in preparing citizens to find and retain employment. The department consists of eight major divisions; Mental Health and Substance Abuse; Financial Assistance; Quality assurance; Adult and Family Services; Juvenile Detention Center; Central Administration; Development Services; and Pendleton Child Services Center. Together these divisions account for over 1050 FTEs as specified in the 2011 budget. The probability of experiencing incidents increases in direct proportion to the number of people involved (exposed). At the close of FY10, the department had a total of 21 open claims (16 indemnity claims and 5 medical) with paid expenses of $344,290 ($343,438 indemnity and $851 medical) and an incurred cost of $619,624 ($615,741 in indemnity claims and $3,883 in medical claims). By way of comparison, the department experienced a total of 64 claims in FY10, with a total paid of $59,704 and an incurred amount of $106,468 compared to 54 claims in FY09, with a total paid of $84,608 and an incurred cost of $232,223. The number of claims has increased, while both paid and incurred have decreased but are likely to go even higher as these claims mature.


Greatest Frequency Greatest Severity Cause Fall/Slip on Ice or Snow


Recreational Activity Claims = 2 Incurred = $48,406


Sprain Claims = 9 Incurred = $55,261

Part/Target Knee Claims = 10 Incurred = $4,348

Ankle Claims = 5 Incurred = $48,963

Lag Time Analysis Lag time is an important indicator in controlling workers’ compensation expenses. The City has chosen to utilize a measure of lag time which measures the difference between the date a claim is reported to Sedgwick and the date the incident is reported to the City. The City’s goal for lag time is 2 days or less. The FY10 average lag time for the entire City was 8.66 days. Statistic shows that the sooner a claim is reported and claims management is initiated, the better chance the city has to control the total cost of the claim. For FY10, Human Services experience 19 indemnity claims with an average lag time of 6.26 days; 45

43

medical claims with an average lag time of 9.69 days; and 25 incidents only with an average lag time of 4.60 days. The overall average lag time for all incidents and claims was 7.53 days. By comparison, for FY09, the City-wide average lag time was 8.21 days. Human Services experienced 13 indemnity claims with an average lag time of 19.38 days; 46 medical claims with an average lag time of 9.96 days; and 15 incidents only with an average lag time of 7.73 days. The chart below displays the distribution of claims lag time reporting for Human Services in FY10. It can be seen on the chart that the largest number of claims are reported within 3 days. Within 10 days over 80% of all claims had been recorded. To improve its lag time statistic, Human Services needs to concentrate on the “outliers”, i.e. those claims requiring 15 or more days for reporting. While there may be legitimate reasons why a claim is not promptly reported, a large number of outliers may indicate a deficiency in the reporting process being used within the department.

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Emergency Medical Services oversees 10 volunteer rescue squads, which are housed in local fire stations. Volunteers provide basic and advanced life support through the use of a crash truck, bike team, and boat and dive team services. It is one of four departments involved in providing for public safety. Public safety activities are inherently high risk and involve the potential for financial loss. The department consists of four major divisions; Administration; Operations; Training; Regulation and Enforcement. Together these divisions account for over 55 FTEs as specified in the 2011 budget. The risks involved in providing for public safety are inherently high.

At the close of FY10, the department had a total of 18 open claims (12 indemnity claims and 6 medical) with paid expenses of $122,325 ($120,538 indemnity and $1,787 medical) an incurred cost of $297,786 ($288,598 in indemnity claims and $9,187 in medical claims).

By way of comparison, the department experienced a total of 38 claims in FY10, with a total paid of $43,665 and an incurred amount of $97,213 compared to 37 claims in FY09, with a total paid of $64,731 and an incurred cost of $131,830. While the number of claims has remaining virtually unchanged, both paid and incurred have increased and are likely to go even higher as these claims mature.




Fall/Slip on Ice or Snow Claims = 2Incurred = $43,122

Nature/Result Contusion (Bruise, Skin Claims = 19 Incurred = $49,199

Contusion (Bruise, Skin Claims = 19 Incurred = $49,199

Part/Target Finger(s) Claims = 8 Incurred = $1,285

Knee Claims = 3 Incurred = $41,869

The Department of Public Utilities experienced an extremely low severity (4.14%) and an extremely low severity (2.60%) based on a department of its size and the nature of work done by the department and the types of risks its employees are subject too.

45

Public Utilities

The Department of Public Utilities provides water and sanitary sewer services to Virginia Beach citizens. The department consists of four major divisions; Business; Engineering; Operations; and Special Projects. Together these divisions account for over 412 FTEs as specified in the 2011 budget.

At the close of FY10, the department had a total of 16 open claims (11 indemnity claims and 5 medical) with paid expenses of $235,295 ($235,023 indemnity and $271 medical) an incurred cost of $817,489 ($810,514 in indemnity claims and $6,975 in medical claims).

By way of comparison, the department experienced a total of 44 claims in FY10, with a total paid of $41,627 and an incurred amount of $60,507 compared to 35 claims in FY09, with a total paid of $43,011 and an incurred cost of $69,336. While the number of claims has increased, both paid and incurred have decreased slightly, but are likely to increase as these claims mature.



Claims = 5 Incurred = $758

Strain or Injury By, NOC Claims = 2 Incurred = $17,215


Hernia (Rupture) Claims = 1 Incurred = $16,933

Part/Target Back (All Other) Claims = 7 Incurred = $16,532

Abdomen Including Groin Claims = 1 Incurred = $16,933

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47

Significant Activities

Among the significant activities that Risk Management engaged in for 2010 are the following:

• Actuarial Analysis

The City contracted with Oliver Wyman to produce an Actuarial Study of

the Risk Management Function as of June 30th. The link to this document

is: http://beachnet.vbgov.com/file_source/dept/finance/BEACHnet/ Risk

Management/Documents/actuarial_study_analysis_6_30_10.pdf

Key elements of this document include:

o Estimates of net retained unpaid losses and Allocated Loss Adjustment Expense (ALAE), including amounts for Incurred But Not reported (IBNR) claims.

o Prospective year loss projections for the next five fiscal years, 2010/11 through 2014/15, for workers’ compensation, automobile and general liability.

o Cash Flow projections of expected payments for budgeting purposes.

• Changes in the City’s Risk Management Internal Service Fund, Total Net Assets from Fiscal Year 06 to 10.

As of June 30, 2010, Deficit Total Net assets-Ending was ($18,327,228) compared to ($13,511,281) for 2009, a net 36% increase in deficit. In the Supporting Data Section Table VI details the net assets ending balances for the past five years.

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• Collaborative Efforts achieved:

Working with the City Attorney’s Office, Occupational Health and Safety, Payroll and others

o Revision of the Workers’ Compensation workflow process o Development of the Disability Retirement Steering Committee Work

Plan for 2010-11 o Drafted guidelines for making workers’ compensation settlements o Advanced the Return-To-Work Program which will be discussed in the

Return-To-Work Section. • Disability Steering Committee – The Disability Steering Committee continued

its work to improve accountability at all levels for job-related disability retirements in the City. The committee meets regularly on a monthly basis to consider all aspects of disability related retirement issues.

• Collaborative efforts are ongoing as opportunities for cost savings and process improvements can be implemented. As an example of these efforts, the Disability Steering Committee has begun a study of disability related retirements. The committee will continue its analysis of disability retirements in an effort to improve on the number of disability related retirements.

• TPA Cost Containment Efforts

Working with the City’s TPA, Risk Management implemented procedures to begin a medical cost containment effort. To date there have been some significant savings achieved. A medical bill review process has resulted in the following savings (excluding pharmacy payments):

Total Number of Bills 6,855 Total Provider Charges $4,252,430 Total Savings $1,190,605 Total Fees $283,946 Net Savings $906,659 Gross % of Savings * 28.00% Net % of Savings 21.32% Average Net Savings per Bill $132.26

∗ The average for this geographical area is 22-28%

A summary of savings including pharmacy for various provider types is shown in the table below.

Description Savings % of Total Savings PPO $861,113 66.91% PCR $243,246 18.90% Pharmacy Network $96,377 7.49% Inpatient PCR Savings $85,436 6.64% Out of Network Negotiated Savings $810 0.06% Grand Total $1,286,982 100.00%

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Medical bill review turnaround resulted in the following statistics for the current contract year thru June 30, 2010:

• Overall turnaround time – 18 days • Percent paid under 21 days – 78% • Percent paid beyond 21 days – 22%

The graph below represents the savings by type.

$861,113

$243,246

$96,377

$85,436 $810

Cost Containment Savings

PPO PCR Pharmacy Network Inpatient PCR Out of Network Negotiated

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51

Return-To-Work Program

The Return-to-Work Program is a team approach to managing disability within our City

departments. It is a collaborative program that is managed by Human

Resources/Occupational Safety and Health and Finance/Risk Management and

involves an entire team of stakeholders and advisors that are committed to ensuring the

success of the program. There is a full-time registered nurse assigned to the program

as the Return-to-Work Coordinator. It assists in cost reduction and is a benefit to our

injured/ill members. It is an innovative process that ensures our injured/ill members are

provided the best medical services possible. The program shows our members that

they are valued and involves them in the recovery process. The Return-to-Work

Program assists all members with either job related or personal illness/disability

concerns.

There are several goals of the Return-to-Work Program. Our first and primary goal is to

retain our valued, experienced members. Our second goal is to work with providers to

provide enhanced benefits and exceptional medical treatment to our injured/ill

members. Our third goal is to ensure safe, timely return of our injured/ill members to

the workforce. Finally, to reduce the costs related to disability both directly and

indirectly.

Key components of the Return-to-Work Program include promoting a change in how we

perceive individuals who have a temporary or permanent impairment and are able to

continue to be productive members of the workforce. It also includes training, both in

person and by video, for supervisors and members about the program and how to

proactively respond to injuries and/or illness. The training is provided by the Return-to-

Work Coordinator and the Workers Compensation Adjuster who play an integral role in

the program. The Coordinator communicates with the treating physicians and provides

them with all the information necessary to return the member back to work. They also

maintain continuous communication between the injured/ill member, the physician and

the supervisor to preserve a good working relationship and attempt to avoid any

potentially negative implications. The Coordinator also assists in finding transitional

employment that is appropriate for the member’s abilities. Medical research has shown

that people recover more quickly if they remain active and return to their normal routine

as soon as possible, thereby limiting isolation and allowing continuous employer and

employee connectivity. As participants in the Return-to-Work Program, members

become an active part of the recovery process.

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Several committees work in conjunction with the Return-to-Work Program, Disability Retirements and Safety Issues. The Disability Steering Committee has developed a work plan through 2010 to address key issues surrounding disability management. The Committee has identified a number of disability retirement issues.

The DIPCOM Committee meets bi-monthly to discuss relevant issues with representatives from key Departments. The Central Safety and Health Committee has been established and meets monthly to discuss safety and health related issues. This committee is responsible for the development of safety and health plans for each department, the completion of the JSA (Job Safety Analysis) for each job within the City, as well as other related OSHA issues. Necessary corrective actions are indentified and recommended for improvement of safety performance.

Since its formal inception on January 1, 2008, the Return-to-Work Program has assisted

121 employees. The RTW Coordinator also completed 116 onsite visits with

physicians/worksite evaluations during FY2009. The program has been successful in

assisting departments find reasonable accommodations for employees with permanent

impairments from on-the-job injuries, as well as finding permanent alternate jobs for

those individuals who were unable to continue in their original position. The program

has also been successfully placed employees with temporary restrictions in alternate

locations within the City when their employing department was unable to provide light

duty. This facilitates a reduction in the number of lost time days for workers’

compensation claims.

Lost Time Analysis

It is the Policy of the City to provide compensation and leave to employees who have

sustained a job-related injury or illness. These employees are unable to perform

essential job functions. Employees covered under this policy are placed in a “Lost Time”

status. The employee continues to be paid while unable to work. The volume of lost

time continues to be an issue for the City. An analysis of injury leave status for FY10

shows that the City incurred a total of 16,990.80 hours of injury leave. The cost for these

lost hours was $367,146.04. The Table below details how the injury leave hours and

costs were distributed over the various departments.

Department YTD Hours YTD Cost Police 4,315.50 $109,692.68 Fire 2,378.55 $ 95,838.56 Public Works 3,464.75 $ 54,281.78 Parks and Recreation 2,006.25 $ 29,288.47 Human Services 1,469.25 $ 29,200.57 Sheriff’s Department 351.25 $ 6,594.93 Emergency Response System (EMS) 214.00 $ 5,286.16 All Others 2,791.25 $ 36,962.89 Total 16,990.80 $367,146.04

The chart below shows the distribution of lost time cost by department.

Much of the success of the Return

collaboration that occurs between HR/Occupational Safety and Health, HR/Staffing and

Compensation, HR/Employee Relations,

Office and Finance/Risk Management. In addition, this collaboration has assisted in

identifying several policies that required modification in order to ensure success of the

program, including the Injury Leave Polic

Separation/Administrative Termination Policy.

The chart on the next page outlines the steps for both job

workers’ compensation processing.

14.8%

8.0%

8.0%

1.8%

1.4%

% Lost Time Cost

Police Fire Public Works

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the distribution of lost time cost by department.

Much of the success of the Return-to-Work Program is contributed to the ongoing


Compensation, HR/Employee Relations, HR/EEO and ADA Advisor, City Attorney’s



program, including the Injury Leave Policy, the Temporary Limited Duty Policy and the

Separation/Administrative Termination Policy.

The chart on the next page outlines the steps for both job-related and non job

workers’ compensation processing.

29.9%

26.1%

10.0%

% Lost Time Cost

Parks & Rec Human Services Sheriff EMS All Others

Work Program is contributed to the ongoing


HR/EEO and ADA Advisor, City Attorney’s



y, the Temporary Limited Duty Policy and the

related and non job-related

All Others

54

55

Temporary Total and Temporary Partial disability payments continue to be significant for

the City. The chart below demonstrates some of the impact of these payments for the

last three fiscal years.

FY2008 FY2009 FY2010 Number of Claims 127 119 118 Days Paid 16,658 16,534 15,159 Amount Paid $1,172,446 $1,058,659 $1,073,918

While the number of claims as well as days paid has decline over the last three years,

the amount paid, which decreased in FY2009 has climbed again in FY2010.

Job-Related Disability Retirements

The Disability Steering Committee is considering a number of facts related to disability

retirements. These include:

• The City’s annual VRS contribution is estimated to be $51.4 million in FY-2010. The annual VRS contribution rate is 16.48% of payroll.

• According to a JLARC Study, Virginia Beach has the highest rate of job-related disability retirements in VRS, and the majority of such retirements are in the public safety (LEO) departments.

• Job related disability retirees receive 66 2/3% of their salary tax free as their pension until death, as well as refund of contributions, health care, and enhanced life insurance.

• 35% of the City’s LEOs retirements were work-related disability retirements, the highest when compared to five other VRS-participating localities that share the same public safety structure as Virginia Beach: Chesapeake 28%; Chesterfield Co 8%; Henrico Co 9%; Portsmouth 0%; Roanoke Co 10%.

• About 32% of Virginia Beach’s LEOs work-related disability retirements were heart related (heart-lung presumption).

• 68% of the LEO’s job-related disability retirements were for reasons such as ankle, shoulder, or other similar injury that made it difficult for them to meet stringent physical demands but could easily be placed in other less strenuous jobs. These retirees often find other work after retiring from the City and are often in good health despite the injury.

• JLARC concludes that it may be possible for some people to effectively perform the vast majority of their job requirements even if they suffer a physically debilitating injury, and that localities should be allowed to establish managed disability programs.

• The current standard for disability retirement under VRS is that the employee must be able to do the job for which they were hired. There is no requirement to accept or be trained for other positions.

• According to actuarial data, between 27.8% and 33.5% of Virginia Beach retiree pension costs are for disability retirements. This compares to 5.5% for

56

VaLORS, 12.5% for State Police, and 18.7% for Chesapeake. In effect, this disproportionate impact is costing the City an additional $2.5 million dollars annually to fund. These costs are expected to increase, and are unsustainable.

• One solution is to amend State Code §51.1-156 Disability Retirement to

provide that VRS could deny a disability retirement to an employee who is

determined to be medically capable of performing an alternative position that

is available and at a comparable level and salary.

The charts below document retirement statistics for the past 10 fiscal years.

0

5

10

15

20

25

0

50

100

150

200

250

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 Fy05 FY06 FY07 FY08 FY09 FY10

Total Retirements All Departments

Job Related Disability Non-Job Related Disability Service Retirements

Total Retirements Per Cent Job Related

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

0

5

10

15

20

25

30

35

40

45

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Total Retirements - Police Department



57

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

0

5

10

15

20

25

30

FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10

Total Retirements - Fire Department



58


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Future Direction

In the coming year, the Risk Management Division will be working on a number of

initiatives. Among these are:

GASB 10 - The Government Accounting Standards Board through the issuance of

Statement No. 10 “Accounting and Financial Reporting for Risk Financing and Related

Insurance Issues” which became effective June 15, 1990, has established guidelines for

accounting and financial reporting of risk financing. In compliance with this statement

(GASB 10), an annual review of risk management fund activities is required and must

be completed annually in the form of an annual Actuarial Study and a plan to reduce

and eliminate the unfunded liability. The City is in compliance with this requirement. It

contracts with Oliver Wyman to review the risk management fund as of June 30th

annually to estimate unpaid losses and provide funding needs for budgeting purposes.

A plan will be drafted during Fiscal Year 2010-11 recommending actions prior to GASB

deadline.

Workers’ Compensation Gap Analysis – An analysis will be conducted to identify and

mutually explore the root causes of the City of Virginia Beach’s workers’ compensation

costs. The scope of this project includes conducting a workers’ compensation gap

analysis for departments to identify workers’ compensation cost drivers and

corresponding opportunities for cost reduction. This project is focused solely on the

safety and loss prevention practices of the specific departments and the claim

processes in place to manage claims.

The workers’ compensation gap analysis will determine the level of workers’

compensation improvement opportunities within the City of Virginia Beach. Moreover,

the analysis tool will identify root causes of under-performance and lay the foundation

for prioritizing the systematic solutions to enhance processes.

The gap analysis consists of two primary components, financial analysis and process

analysis. Marsh will be assessing both process factors and outcome results from a pre-

loss (safety management) and post-loss (claim and disability management) perspective.

The financial component of the gap analysis uses Marsh’s Dimensions™ benchmarking

database to compare loss experience to a sample of peers with the same Standard

Industrial Classification (SIC). This provides a baseline for evaluating how the City

compares to its peers, which becomes critical information when establishing realistic

goals for future progress.

The process component compares current workers’ compensation management

practices to Marsh’s “World-Class” management practices to identify opportunities for

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improvement. This creates a benchmark for the process components as well. This

section will assess processes to identify and prioritize potential gap solutions. The

“World-Class” practices are organized into six categories that influence workers'

compensation loss costs:

1. Culture and Management Involvement

2. Safety and Prevention

3. Training and Education

4. Claim Management

5. Injury Management

6. Continuous Improvement

The gap analysis project will be conducted in four phases. The steps in the work plan will be:

o Divide the risk pool into phases:

o Phase I - Public Utilities, Public Works FY 09-10 o Phase II - Parks and Recreation FY 10-11 o Phase III - Fire and Police 11-12 o Phase IV – TBD

The Department of Public Utilities is scheduled to begin its gap analysis on July 29, 2010.

Quarterly Reports - The Risk Management Division developed a reporting format of

departmental risk management activities and provided feedback to all city departments

on a quarterly basis. The object of providing these quarterly reports is to:

1. Encouraging a mind set with all employees that begins with Departmental Directors that dollars saved in managing their risk allows dollars to be spent on other areas that are currently unfunded.

2. Provide management with useful reports, training and assistance that fosters reduction in dollars spent on risk and accountability at the departmental level.

The quarterly reports include:

1. Loss information from prior FY in order for Departmental Directors to monitor costs from one year to another.

2. Narrative information on how to reduce a trend that appears in their scope of operations working closely with Health and Safety, being mindful of the human factor.

The reports also included an Executive Summary that highlights significant data in an easy to understand format. In addition, reports are available electronically and

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eliminated paper copies being produced for the Deputy City Managers and the City Manager. Third quarter reports were produced and distributed during the month of April. Outreach Efforts – Risk Management, in 2010, began an outreach program to raise awareness of the costs of risk, specifically in the larger operating departments of the city. This effort involved formal presentations to a number of departments and other management groups. Among the groups presented were:

• Finance – approximately 50 participants • Police – approximately 40 participants • Fire – approximately 20 participants • Division Leadership Meeting – approximately 150 participants • Disability Steering Committee – approximately 10 participants

In addition, awareness presentations were given at the city-wide supervisor training course approximately 3 times. . SCHIP Extension Act of 2007 - The Medicare, Medicaid, and SCHIP Extension Act of 2007 creates reporting requirements for TPAs, insurance carriers and other claims administrators with an effective date of July 1, 2009. The new requirements specify that:

• The administrator must make a specific determination for each claimant under a workers’ compensation, liability or PIP (personal injury protection)/no-fault program as to whether the party is a Medicare beneficiary.

• When a claimant is found to be a Medicare beneficiary, information regarding the claimant and claim must be reported to the Secretary of Health and Human Services (the Secretary) so that a determination can be made regarding coordination of benefits and applicable recoveries.

• A penalty of $1,000 per claim day will be assessed against any applicable plan for cases of non-compliance, in addition to all other remedies (conditional payment recovery and damages) allowable under the law.

This action significantly escalates administrative requirements designed to protect the Medicare system from inheriting medical expenses considered to be the primary obligation of a group health plan, which under the Act includes insured and self-insured workers’ compensation, liability and no fault plans. This will increase the oversight responsibility of Risk Management. Reporting under this program began in January, 2010. Cost Allocation Model – The Risk Management Division developed an enhanced cost allocation model to allocate the costs associated with risk management administration to the City’s operating departments. The model is designed so that over time, the critical costs drivers can be identified to support a more equitable allocation of costs to all departments. The cost drivers currently being used are: claims account for 50% of the allocation; number of FTEs account for 25% of the allocation; number of vehicles account for 12.5% of the allocation; and vehicle cost account for 12.5% of the allocation.

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Software Review – The City currently relies on a number of sources to collect and analyze risk data. Sedgwick CMS, the City’s Third Party Administrator, manages the workers’ compensation program. Services provided by the TPA include claims investigation, establishing loss reserves, claims adjusting, and claims payment processing. Data is collected and maintained in Sedgwick’s proprietary data system. Reports are provided on a routine basis to the City.

Automobile and property-related liability loss data are maintained by the City in the RiskMaster® system.

The Risk Management Division conducted an analysis of the information systems currently utilized for risk-related data management. After a thorough review of the RiskMaster system and a review of other products on the market, the decision was made to upgrade to Version X6 of the RiskMaster system. This upgrade will be accomplished in 2011. This will ensure that RiskMaster and TPA software interact with the most up-to-date capabilities, allows data to be used to make critical decisions as quickly as possible to identify trends, implement changes and support City leadership.

A CIP project request was submitted to move the RiskMaster application and database from a City-owned server to a CSC hosted environment. Having the system hosted will provide a positive ROI for the City. By transferring the technical duties of maintaining the system, highly skilled technical resources will become available for other City projects, resulting in increased performance. The overall quality of the RISKMASTER X applications will be improved as maintenance and upgrades are performed more rapidly and routinely by highly experienced Data Center staff. Customer Service will be increased for all users as problems are resolved more quickly and new functionality provided more frequently. By letting CSC manage RISKMASTR X in a hosted environment, will ensure automatic security patching and performance monitoring 24x7x365, disaster recovery services, and other benefits that would be either impossible or cost prohibitive for the City to achieve alone. Enterprise Risk Management- Enterprise Risk Management (ERM) is defined by the Committee of Sponsoring Organizations (COSO) as “a process, affected by an entity’s board of directors, management and other personnel, applied in strategy-setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.” Enterprise risk management marries both operational and financial risk. It assesses historical patterns of losses in both areas, potentially to broaden the portfolio of risks. Traditionally, the focus of risk management has been on the risk encountered in the course of government operations to deliver services. The Risk Management Division has undertaken an effort to evaluate ERM for the purpose of examining the City’s complete portfolio of risks, considering how individual risks interrelate, and develop an appropriate risk mitigation approach to address risks in a manner that is consistent with the City’s long term strategy and overall risk appetite. Risk Management has established a relationship with the Business Recovery Association of Virginia (BRAV). BRAV is an independent professional

63

association located in Richmond, of those involved in Business Continuity/Recovery and Contingency Planning. This organization is in the forefront of ERM research in the Commonwealth of Virginia.

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65

Operational Benchmarking

Benchmarking is defined as the act of comparing a measurement to a standard. It shows you where you are and helps you decide where you want to go. Benchmarking has become a popular tool for assessing the effectiveness of risk management programs. The Risk Management Division has chosen to utilize this industry practice to evaluate current performance in light of historical activity and to evaluate performance against other similar organizations. The challenge lies in obtaining reliable data and in using relevant benchmarks so that meaningful comparisons can be made over time.

The Risk and Insurance Management Society (RIMS) has been conducting benchmarking surveys for over two decades. The primary benchmark used by RIMS is the “Cost of Risk”. The cost of risk accounts for the total costs associated with an organization’s risk management functions, and reports the cost of risk as a percentage of revenues, employees, or other indicator associated with the size of an organization. The Risk Management Division has chosen to report the Cost of Risk in association with total FTEs and population served. The cost of risk per FTE provides an overview of the effectiveness of the risk management function. The cost of risk per 1,000-population gives an indication of the burden placed upon the City’s population to deal with the risks associated with providing government services. The table below summarizes the costs for the current fiscal year as well as the prior four fiscal years.

Analysis of Total Cost of Risk

FY FTEs Population (1000)

Total Risk Expenses

Cost per FTE Cost per 1,000 Pop

2005 6480 433.5 $ 9,570,601 $1,455 $22,078 2006 6831 431.8 $12,050,357 $1,764 $27,907 2007 6898 430.3 $12,975,468 $1,881 $30,154 2008 6881 431.5 $9,273,411 $1,328 $21,491 2009 6943 431.5 $10,754,492 $1,549 $24,924 2010 6946 447.8 $10,093,900 $1,453 $22,539

The City’s total cost of risk for fiscal year 2010 was $10.1 million. This figure encompasses the year-end total expenditures for all of the Risk Management Division’s functions. Utilizing this figure, the Total Costs of Risk per FTE for 2010 was $1,453 and the total cost of risk per 1000 population was $22,924. It is important to note that cost per FTE has decreased by 17.6% since 2006 while the number of FTEs has increased by 1.7%. The cost of risk per 1,000-population has decreased by 19.2% since 2006 while population has increased by 3.72%. The overall cost of risk has decreased by 16.2% since 2006 and has decreased by 6.1% over the last fiscal year. This compares with the results of the RIMS survey, which found the Total Cost of Risk went down by 9.4% for all industries.

The City continues to participate in the Public Entity Risk Institute’s benchmarking

study. The benchmarking group consists of 13 cities including Virginia Beach, similar in

66

size to compare cost per claim, exposure cost per FTE, frequency rate, percent open

claims, percent paid losses, and paid losses. Table VII in the Supporting Data Section

displays the detailed benchmark data.

Of the thirteen cities included in the survey, the City of Virginia Beach compared very

favorably with the other jurisdictions. The results of the survey revealed the following

ranking based on the five year average in each category:

Jurisdiction Cost Per Claim Paid

Exposure Cost Per FTE

Frequency Rate

% Open Claims

% Paid Losses

Paid Losses

Budgeted Reserves

City & County of San Francisco

11 11 7 11 6 13 11

City & County of Denver

4 4 5 5 10 7 4

City of Atlanta 10 10 9 1 1 6 3 City of Austin 2 3 12 - 3 4 10 City of Kansas City

8 6 7 6 12 9 7

City of Las Vegas

9 8 2 3 8 2 2

City of Long Beach

5 2 4 12 8 3 5

City of Oakland 13 5 1 8 7 10 8 City of Virginia Beach

7 7 5 1 5 5 6

Montgomery County

1 1 2 6 13 12 9

Oklahoma City 12 12 11 9 4 11 - Sacramento County

6 9 9 9 2 8 12

City of Tamarac 3 - - 4 11 1 1

Overall, the City of Virginia Beach performed well comparing current performance to

historical data as well as favorable comparisons to both the RIMS benchmarking data

and the Public Entity Risk Institute survey. It should be noted that differences in state

workers compensation laws many materially affect the reported results.

The City also participated for the first time in a benchmarking study conducted by

Sedgwick, the City’s TPA. Benchmarking data was collected for other municipalities in

Virginia. The other cities in the survey consisted of City of Richmond, City of Norfolk,

City of Danville, and the City of Charlottesville.

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The comparisons presented consists of an analysis of claim type, average incurred

payments, payment category, denial, litigation, subrogation, and presumption for FY10.

The results of this analysis are presented below.

Summary by Claim Type

Indemnity Claims

Medical Only Claims

Total

City of Virginia Beach % Total Claims 25.22% 74.78% 100.00% Average Incurred $8,352 $1,057 $2,896 Other Jurisdictions % Total Claims 23.82% 76.18% 100.00% Average Incurred $12,266 $1,037 $3,735 While the City has a slightly higher percentage of indemnity claims, its average incurred cost per claim is considerably lower than the rest of the group.

Average Incurred by Payment Category

Average Indemnity Incurred

Average Medical Incurred

Average Expense Incurred

Average Total Incurred

City of Virginia Beach $412 $2,181 $302 $2,896 Other Jurisdictions $513 $3,861 $362 $3,735 The City experienced a lower average incurred cost in all payment categories.

Payment Category as Percent of Total Incurred

City of Virginia Beach Other Jurisdictions Percent Indemnity 14.24% 13.72% Percent Medical 75.32% 76.59% Percent Expense 10.44% 9.69% The City experienced a slightly higher percent of payment for medical and expense categories.

Denial Status

Denied (No) Denied (Yes) Total City of Virginia Beach 88.75% 11.25% 100.00% Other Jurisdiction 89.36% 10.64% 100.00% The City experienced a slightly higher percent of denied claims.

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Medical Payment Comparison 07/01/2009 – 06/30/2010 vs. 07/01/2008-06/30/2009

Payment Type 06/30/2010 % of Program 06/30/2009 % of Program Doctor $701,696 20.69% $1,007,776 28.46% Physical Therapy $431,085 12.71% $303,505 8.57% Pharmacy $377,515 11.13% $255,857 7.22% Hospital Outpatient $309,528 9.12% $262,836 7.42% Hospital $260,509 7.68% $685,761 19.36%

• 162 employees received an indemnity benefit for the period 07/01/2009-

06/30/210

• Open Presumption Claims: There are 36 open presumption claims with a total

incurred of $12,049,307.08. These claims represent 34% of the entire program.

• Lag Report: For new losses reported 01/01/2010 – 03/31/2010 the lag time,

defined as: Date Reported to Employer/Date Reported to Sedgwick = 8.66 days.

The national average lag time is 2.0 days.

Additional Benchmarking Data

Benchmarking data can generally be categorized into one of three types of performance

measures: workload, efficiency, and effectiveness indicators. The following table

illustrates workers’ compensation performance measures used by some localities.

Workload

Number of workers’ comp claims processed Number of employees with multiple workers’ comp claims in one year Number of lost workdays

Efficiency

Average cost per claim Average handling cost per claim Percent of claims processed within 30 days

Effectiveness

Percentage reduction in lost workdays Employee accidents per (million) hours worked Workers’ comp cost per $100 in payroll (by department)

In addition, there are several other industry standard measures that can be used to

evaluate program effectiveness. Among these are the recordable injury rate and the

experience modification rate (e-mod).

Recordable Injury Rate - In all OSHA states (Virginia is one), employers are required to

keep an OSHA 300 log of recordable injuries and illnesses. This report is sent out

annually by the Manager, Occupational Safety and Health (Human Resources).

Departments that wish to get a feel for how they are doing on injuries can compare their

rate against like entities per 100 FTEs.

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Experience Modification Rate (e-mod) Experience Mod rating compares the City’s

workers’ compensation claims experience to other employers of similar size operating

the same type of business. Most employers who have an annual premium in excess of

$3,000 will receive an Experience Mod. The process is used to modify the published

rates for rating classifications by taking into account the actual reported losses and

payrolls. It is a financial incentive to minimize the financial cost of workplace injuries.

Experience Mod is used to reward organizations that practice effective safety and

claims management techniques.

As an example of how the Experience Mod affects premium consider the following

example:

• An organization has $800,000 in payroll for a labor class code of 5183

• The established rate per $100 payroll dollars is $8.25

• The company’ premium would be (800,000/100) x $8.25 = $66,000

• With an Experience Mod of 0.80, the company’s premium would be ).80 x

$66,000 = $52,800 (a savings of $13,200)

Consider the same company with an Experience Mod of 1.20

• The company’s premium would be $66,000 x 1.20 = $79,200 ( a penalty of

$13,200)

Insurers begin with a ‘manual rate’ that would reflect pricing if the e-mod is 1.0

(experience equals expected losses). A number less than 1 equates to a favorable

claims experience while a number greater than 1 indicates a worse than normal claims

experience.

Public entities in Virginia are not required to report experience modification rates to the

NCCI (the official repository of rate data). The insurance actuary for the City does

calculate an experience modification rate utilizing the same methodology and formulae

as the NCCI. The most recent rate for the City was 1.782.

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71

CITY OF VIRGINIA BEACH, VIRGINIA

RISK MANAGEMENT INTERNAL SERVICE FUND

COMBINING STATEMENT OF NET ASSETS

JUNE 30, 2010

ASSETS

Current Assets:

Cash and Investments 6,704,262$

Total Current Assets 6,232,378$

Noncurrent Assets:

Capital Assets:

Site Improvements -$

Machinery and Equipment 293,215

Total Property, Plant and Equipment 293,215$

Less Accumulated Depreciation (293,215)$

Net Property, Plant and Equipment -$

Total Assets 6,704,262$

LIABILITIES

Current Liabilities:

Vouchers and Accounts Payable 316,010$

Deposits Payable -

Current Portion of Long-term Liabilities 5,896,352$

Total Current Liabilities 6,212,362$

Noncurrent Liabilities:

Long-term Liabilities (less current portion) 18,819,128$

Total Noncurrent Liabilities 18,819,128$

Total Liabilities 25,031,490$

NET ASSETS

Invested in Capital Assets, net of related debt -$

Unrestricted (18,327,228)$

Total Net Assets (18,327,228)$

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COMBINING STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS

FOR THE YEAR ENDED JUNE 30, 2010

OPERATING REVENUES

Billings to Departments 9,157,020$

Insurance Recovery 22,390$

Miscellaneous -

Total Operating Revenues 9,179,410$

OPERATING EXPENSES

Personal Services 348,901$

Fringe Benefits 122,859$

Contractual Services 538,457$

Internal Services 10,331$

Other Charges 14,487,704$

Total Operating Expenses 15,508,252$

OPERATING INCOME (LOSS) 6,328,842$

NONOPERATING REVENUES (EXPENSES)

Interest Income 52,348$

Transfers In 1,460,547$

Gain (Loss) on Disposition of Assets -

Total Nonoperating Revenues (Expenses) 1,512,895$

INCREASE (DECREASE) IN NET ASSETS (4,815,947)$

TOTAL NET ASSETS - BEGINNING (13,511,281)$

TOTAL NET ASSETS - ENDING (18,327,228)$

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COMBINING STATEMENT OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIES

Receipts from Customers and Users 9,157,020$

Receipts from (Payments for) Interfund Services Provided -

Other Operating Cash Receipts 22,390$

Cash Payments to Suppliers of Goods and Services (9,723,582)$

Cash Payments to Employees for Services (496,839)$

Net Cash Provided (Used) By Operating Activities (1,041,011)$

CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES

Receipts from (Payments to) Other Funds 1,460,547$

Net Cash Provided By Noncapital Financing Activities 1,460,547$

CASH FLOWS FROM CAPITAL AND RELATED

FINANCING ACTIVITIES

Acquisition and Construction of Capital Assets -$

Proceeds from Sale of Salvage -$

Net Cash Provided (Used) By Capital and Related

Financing Activities -$

CASH FLOWS FROM INVESTING ACTIVITIES

Interest and Dividends Received 52,348$

Net Cash Provided By Investing Activities 52,348$

Net Increase (Decrease) in Cash and Temporary Investments 471,884$

Cash and Temporary Investments, July 1 6,232,378

Cash and Temporary Investments, June 30 6,704,262$

74



COMBINING STATEMENT OF CASH FLOWS


RECONCILIATION OF OPERATING INCOME (LOSS) TO

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES:

Operating Income (Loss) (6,328,842)$

Adjustments to Reconcile Operating Income (Loss) to

Net Cash Provided (Used) By Operating Activities:

Depreciation Expense -$

Increase (Decrease) in Vouchers and Accounts Payable (8,280)$

Increase (Decrease) in Deposits Payable (12,901)$

Increase (Decrease) in Deferred Revenue -

Increase (Decrease) in Estimated Claims and Judgments 5,334,091$

Increase (Decrease) in Accrued Compensated Leave (25,079)$

Total Adjustments 5,287,831$

Net Cash Provided (Used) By Operating Activities (1,041,011)$

75

FY10 Expenditures for Risk Management Budget Unit

Object Code

Description Expenditures

WORKERS’ COMPENSATION 04035 603407 Other Contractual Services $441,341 04035 605310 Workers’ Comp Insurance Premiums $454,800 04035 605311 Self-Insured Paid Losses-WC $5,891,659 04036 605311 Self-Insured Paid Losses-WC $749 Workers’ Compensation Total $6,704,605

PROPERTY INSURANCE PREMIUMS 04035 605302 Fire and Property Insurance $1,117,692 Property Insurance Premium Total $1,117,692

OTHER INSURANCE PREMIUMS 04035 605306 Surety Bonds $36,558 04035 605307 Public Officials Liability Insurance $37,071 04035 605399 Miscellaneous Insurance $260,307 04036 605399 Miscellaneous Insurance $337 Other Insurance Premiums Total $334,273

LEGAL SUPPORT AND SERVICES 04035 603102 Legal Service $10,527 04035 603107 Legal Support Charges $25,599 04036 603102 Legal Services $2,425 Legal Support and Services Total $38,551

GENERAL AND AUTO LIABILITY EXPENSES 04035 605305 Motor Vehicle Insurance $185,362 04035 605308 General Liability Insurance $240,971 04035 605312 Self-Insured Paid Losses-Auto Liability $305,887 04035 605313 Self-Insured Paid Losses-GL $373,526 04035 605314 Self-Insured Paid Losses-City Property $116,231 04035 605315 Self-Insured Losses-Miscellaneous $21,771 04036 605313 Self-Insured Paid Losses-GL $355 General and Auto Liability Expenses Total $1,290,486

Broker Fees/Actuarial Study (Included in Other Contractual Services)

$83,944

SALARIES 04036 601111 Salaries-Unspecified $373,807 04036 601211 Overtime $172 Salaries Total $373,979

BENEFITS 04035 605501 Professional Improvement $1,150 04035 605502 Travel-Routine $199 04035 606439 License Plates $35 04036 602101 FICA $22,463 04036 602104 FICA Medicare $5,254 04036 602201 Retirement $57,009

76

FY10 Expenditures for Risk Management Budget Unit

Object Code

Description Expenditures

04036 602301 Health Insurance $35,100 04036 602302 Life Insurance $2,117 04036 602309 Flexible Benefits Program $108 04036 602403 Employee Service $100 04036 602950 Cell Phone Stipend $600 04036 605501 Professional Improvement $5,698 04036 605502 Travel-Routine $1,392 04036 605801 Dues and Associations Membership $1,089 Benefits Total $130,930

OTHER ADMINISTRATIVE EXPENSES 04035 605201 Postal Services $49 04036 603104 Independent Audit $600 04036 603204 Software Support and Maintenance $46,383 04036 604103 Telecommunications $3,987 04036 604401 Print Shop Charges $5,028 04036 604402 Print Shop Credit ($80) 04036 604501 Risk Management Charges $1,048 04036 605201 Postal Services $1,186 04036 605203 Telecommunications ($42) 04036 605999 Cash Deps Overs $25 04036 606001 Office Supplies $3,327 04036 606111 Computer Software <$5,000 $240 04036 606412 Books and Subscriptions $2,384 04036 606439 License Plates $304 Other Administrative Expenses Total $19,440

04035 Sub-Total $9,520,735 04036 Sub-Total $573,165 Division Total $10,093,900

77


Insurance Program

TABLE I

Coverage

Type of Policy

Policy

Term

Policy Number

Carrier

Limits

Deductible

Aviation

(Other Ins)

Insurance for:

1989 Bell 206B III Helicopter

2006 Bell 407 Helicopter

08/01/2009

08/01/2010

AV 1854515-07

Chartis Aerospace

$25,000,000 Per Incident

$10,000 in motion

$1,000 not in motion

Medical

Prof.

Liability

(Other Ins)

Professional Liability insurance coverage

for doctors working part time for the Dept

of HS

Schoenfield, Renee B.

04/17/2009

04/17/2010

VAD-0078457-03

Professional’s

Advocate Ins Co.

$1,000,000 Occurrence

$3,000,000 Aggregate

N/A

Kadakkal, Sreeja

06/01/2009

06/01/2010

VAD-0079948-02

Professional’s

Advocate Ins Co.



N/A

Griswald, James

01/23/2010

01/23/2011

VAD-0067749-08

Professional’s

Advocate Ins Co.



N/A

Laster, James M.

01/23/2010

01/23/2011

VAD-0067748-08

Professional’s

Advocate Ins Co.



N/A

Rosen, David

08/01/2009

08/01/2010

VAD 0081636-01

Professional’s

Advocate Ins Co.



Karpov, Vladimir

07/01/2010

07/01/2011

VAD-0082708-1

Professional’s

Advocate Ins Co.



Freeman, Rudolph

06/29/2010

06/29/2011

VAD-0073405-3

Professional’s

Advocate Ins Co.



Excess

Workers’

Comp

Compulsory coverage for the medical

costs, lost wages and other compensation

for all work-related employee injuries and

diseases

03/01/2010

03/01/2011

SP-4041711

Safety National

$25,000,000

$850,000

Property

First party insurance that indemnifies the

owner or user of property for its loss when

the damage is caused by a covered peril

such as fire or explosion. Also covers the

financial loss due to business interruption.

03/01/2010

03/01/2011

84144045

Lexington

$1,000,000,000

$50,000

Excess

3rd Party Liability Coverage excess the

self-insured retention

03/01/2010

03/01/2011

SEL 3000422

States Self Insurers

Risk Retention Group

$10,000,000

$20,000,000

$2,000,000

Automobile Liability

“ “

“ “

“

78


Insurance Program

TABLE I

Coverage

Type of Policy

Policy

Term

Policy Number

Carrier

Limits

Deductible

General Liability

“ “

“ “

“ Other Ins

Public Officials Liability

“ “

“ “

“

Police Professional Excess

“ “

“ “

“ Other Ins

Terrorist

“ “

“ “

“’’

Crime

Employee Dishonesty/Public Officials

03/01/2010

03/01/2011

103038683

Travelers Commercial

Crime

$1,000,000 – form O

$100,000 – Form B,&C

$1,000,000 – Comp Fraud-

form F

Form O $25,000

Form B $2,500

Form C1 $25,000

Form C2 $25,000

Form F $25,000

Crime

(Other Ins)

Deferred Compensation Plan/Fiduciary

03/01/2010

03/01/2011

103008317


Crime

$5,000,000

N/A

Crime

Employee Dishonesty/Development

Authority (Eco Dev pays premiums)

03/01/2010

03/01/2013

103038761


Crime

$2,000,000

$5000,000

$100,000

$20,000/$5,000

$2,500

Farmers

Market

(Other Ins)

General Liability

03/01/2010

03/01/2011

WS023261

Travelers/St. Paul

Travelers/Northfield

$1,000,000

$2,000,000

N/A

Hull (Other

Ins)

Direct property damage to the vessels hull

and machinery (dredges & police boats)

03/01/2010

03/01/2011

N5JH11156

Northern Assurance

Insurance Company of

America

$1,000,000 Per Incident

N/A

Marina

Liability

(Other Ins)

Legal liability of the insured for the loss or

damage to vessels in our care (Lynnhaven

Marina)

03/01/2010

03/01/2011

N5JH1157

International Marine

Underwriters

$1,000,000

N/A

Nurses

(Other Ins)

Misc. Medical Professional Liability

03/01/2010

03/01/2011

HPG0255847734

American Casualty

Company of Reading

PA/HPSO

$1,000,000 ea claim


N/A

TULIP

(Other Ins)

Tenant Users Liability for events held on

city property

03/01/2010

03/01/2011

GL00505-01

Employers Fire

Insurance Co

N/A

Volunteer-

Non

Uniform

(Other Ins)

A person who is a registered volunteer

worker in a city activity sponsored by the

policy holder

03/01/2010

03/01/2011

10-SR-129030

Hartford

$10,000

N/A

79


Organizational Structure for Risk Management Breakdown

TABLE II

Organizational Category

Department

Administration & Public Safety

Municipal Council

City Clerk

City Attorney

Commissioner of the Revenue

City Real Estate Assessor

City Treasurer

Circuit Court

Commonwealth’s Attorney

Sheriff

General Registrar

Audit Services

City Manager’s Office

Organizational Development

Volunteer Resources

Media and Communications Group

Clerk of the Circuit Court

Police

Fire

Economic Development/Vitality

Planning

Agriculture

Economic Development

Convention & Visitor Development

Housing

Museums

Health & Human Services

Human Resource

Parks & Recreation

Libraries

Human Services

Infrastructure

Finance

Public Works

Public Utilities

Communications and Information Technology

Management and Budget s

Facilities Management

80


General Liability and Automobile Liability Claims

TABLE III

General Liability Losses

Claim Count

Paid

Reserves

Incurred

2006

Administration & Public Safety/Constitutional Offices

84

$35,011

$6,845

$41,856

Health and Human Services

100

$23,553

$0

$23,553

Infrastructure

267

$262,753

$0

$262,753


17

$187,949

$0

$187,949

Total

468

$509,266

$6,845

$516,111

2007


108

$77105

$7,646

$84,751


93

$69,532

$0

$69,532

Infrastructure

285

$200,955

$0

$200,955


12

$1,633

$0

$1,633

Total

498

$349,225

$7,646

$356,871

2008


103

$1,001,416

$6,000

$1,007,416


81

$20,089

$0

$20,089

Infrastructure

257

$254,183

$26,444

$280,627


7

$196

$0

$196

Total

448

$1,275,884

$32,444

$1,308,328

2009


57

$10258

$4,275

$10,683


62

$17,961

$7,500

$25,461

Infrastructure

218

$268,546

$623,967

$892,513


7

$1,005

$5,000

$6,005

Total

344

$297,770

$640,742

$934,662

2010


77

$7,014

$1,850

$8,864


60

$15,139

$105,200

$120,340

Infrastructure

209

$279,811

$18,588

$298,399


1

$0

$100

$100

81


General Liability and Automobile Liability Claims

TABLE III

Total

347

$301,964

$125,738

$427,703

Automobile Liability Losses

Claim Count

Paid

Reserves

Incurred

2006


76

$540,702

$25,065

$565,767


22

$13,580

$0

$13,580

Infrastructure

54

$165,058

$0

$165,058


3

$5,777

$0

$5,777

Total *Note: Includes EMS Intersection accident (Fatality)

155

$725,117

$25,065

$750,182

2007


81

$209,562

$0

$209,562


32

$138,261

$0

$138,261

Infrastructure

51

$149,059

$0

$149,058


6

$8,108

$0

$8,108

Total

170

$504,989

$0

$504,989

2008


62

$83,065

$14, 968

$98,033


16

$60,748

$0

$60,748

Infrastructure

46

$197,098

$0

$197,098


8

$4,289

$0

$4,289

Total

132

$345,200

$14,968

$360,168

2009


38

$92,902

$1,330

$94,232


20

$79,672

$66,876

$146,548

Infrastructure

35

$141,708

$100

$141,808


5

$6,888

$0

$6,888

Total

98

$321,170

$68,306

$389,476

2010


25

$32,159

$11,449

$43,609


11

$27,681

$2,500

$30,181

Infrastructure

37

$110,428

$104,016

$214,443


0

$0

$0

$0

Total

73

$170,268

$117,965

$288,233

82


Departments with the highest percentage of the number of workers’ compensation claims (frequency) in 2010

TABLE IV

Department

Claim Type

Claim

Count

Total Paid

Reserves

Incurred

% of Freq

% of

Cost

Police

Indemnity

40

$316,088

305,470

$621,559

2.38

26.72

Incident Only

90

$0

$0

$0

7.61

0.00

Medical Only

110

$137,612

$109,171

$246,783

9.30

10.61

Total

240

$453,700

$414,641

$868,341

20.29

37.33

Parks & Recreation

Indemnity

31

$85,600

$46,443

$132,044

2.62

5.68

Incident Only

67

$0

$0

$0

5.66

0.00

Medical Only

111

$77,005

$16,713

$93,718

9.38

4.03

Total

209

$162,605

$63,156

$225,761

17.67

9.71

Public Works

Indemnity

35

$148,748

$178,803

$327,551

2.96

14.08

Incident Only

25

$0

$0

$0

2.11

0.00

Medical Only

91

$65,954

$8,792

$74,746

7.69

3.21

Total

151

$214,702

$187,595

$402,297

12.76

17.30

Sheriff

Indemnity

14

$26,135

$11,953

$38,087

1.18

1.64

Incident Only

72

$0

$0

$0

6.09

0.00

Medical Only

54

$30,858

$12,889

$43,747

4.56

1.88

Total

140

$56,993

$24,841

$81,834

11.83

3.52

Fire

Indemnity

19

$177,914

$157,335

$335,249

1.61

14.41

Incident Only

40

$0

$0

$0

3.38

0.00

Medical Only

44

$16,004

$3,700

$19,704

3.72

0.85

Total

103

$193,917

$161,035

$354,953

8.71

15.26

Human Services

Indemnity

19

$36,386

$43,733

$80,118

1.61

3.44

Incident Only

25

$0

$0

$0

2.11

0.00

Medical Only

45

$23,318

$3,032

$26,350

3.80

1.13

Total

89

$59,704

$46,764

$106,468

7.52

4.58

All Others

Indemnity

44

$89,414

$84,561

$173,976

3.63

7.46

Incident Only

78

$0

$0

$0

6.58

0.00

Medical Only

130

$96,604

$15,840

$112,444

10.98

4.83

Total

252

$186,019

$100,401

$286,420

21.19

12.29

Grand Total

1,183

$1,327,640

$998,434

$2,326,074

100.00

100.00

Departments with the lowest percentage of the number of workers’ compensation claims (frequency) in 2010

Public Utilities

Indemnity

11

$25,137

$12,177

$37,314

0.93

1.60

Incident Only

5

$0

$0

$0

0.42

0.00

Medical Only

33

$16,489

$6,704

$23,193

2.79

1.00

Total

49

$41,627

$18,880

$60,607

4.14

2.60

83


Departments with the highest percentage of workers’ compensation incurred expenses (severity) in 2010

TABLE V

Department

Claim Type

Claim

Count

Total Paid

Reserves

Incurred

% of Freq

% of

Cost

Police

Indemnity

40

$316,088

$305,470

$621,559

2.38

26.72

Incident Only

90

$0

$0

$0

7.61

0.00

Medical Only

110

$137,612

$109,171

$246,783

9.30

10.61

Total

240

$453,700

$414,641

$868,341

20.29

37.33

Public Works

Indemnity

35

$148,748

$178,803

$327,551

2.96

14.08

Incident Only

25

$0

$0

$0

2.11

0.00

Medical Only

91

$65,954

$8,792

$74,746

7.69

3.21

Total

151

$214,702

$187,595

$402,297

12.76

17.30

Fire

Indemnity

19

$177,914

$157,335

$335,249

1.61

14.41

Incident Only

40

$0

$0

$0

3.38

0.00

Medical Only

44

$16,004

$3,700

$19,704

3.72

0.85

Total

103

$193,917

$161,035

$354,953

8.71

15.26

Parks and Recreation

Indemnity

31

$85,600

$46,443

$132,044

2.62

5.68

Incident Only

67

$0

$0

$0

5.66

0.00

Medical Only

111

$77,005

$16,713

$93,718

9.38

4.03

Total

209

$162,605

$63,156

$225,761

17.67

9.71

Human Services

Indemnity

19

$36,386

$43,733

$80,118

1.61

3.44

Incident Only

25

$0

$0

$0

2.11

0.00

Medical Only

45

$23,318

$3,032

$26,350

3.80

1.13

Total

89

$59,704

$46,764

$106,468

7.52

4.58

Sheriff

Indemnity

14

$26,135

$11,953

$38,087

1.18

1.64

Incident Only

72

$0

$0

$0

6.09

0.00

Medical Only

54

$30,858

$12,889

$43,747

4.56

1.88

Total

140

$56,993

$24,841

$81,834

11.83

3.52

All Others

Indemnity

44

$89,414

$84,561

$173,976

3.63

7.46

Incident Only

78

$0

$0

$0

6.58

0.00

Medical Only

130

$96,604

$15,840

$112,444

10.98

4.83

Total

252

$186,019

$100,401

$286,420

21.19

12.29

Grand Total

1,183

$1,327,640

$998,434

$2,326,074

100

100

Departments with the lowest percentage of workers’ compensation incurred expenses (severity) in 2010

Public Utilities

Indemnity

11

$25,137

$12,177

$37,314

0.93

1.60

Incident Only

5

$0

$0

$0

0.42

0.00

Medical Only

33

$16,489

$6,704

$23,193

2.79

1.00

Total

49

$41,627

$18,880

$60,607

4.14

2.60

84


Internal Service Fund – Risk Management

TABLE VI

Fiscal Year

Total Net Assets-Ending

Dollar Change

Per Cent age change

2006

($11,994,365)

$2,494,504

26%

2007

($13,433,030)

$1,438,665

12%

2008

($12,732,220)

($700,810)

(5.3%) Improvement

2009

($13,511,281)

($779,061)

6%

2010

($18,327,228)

($4,815,947)

36%

85

Total gross incurred (TGI) costs for all compensable workers’ compensation claims which occurred during the identified period of time. The

TGI cost (paid value plus reserves minus recoveries) is divided by the total number of WC claims incurred during the selected period of time.

Claims are tracked by date of loss (DOL).

Public Entity Risk Institute Survey

TABLE VII

Average Cost per Claim

Jurisdiction

State

2005

2006

2007

2008

2009

5-Yr

Avg.

Rank on 5-

Yr Avg.


CA

$28,742

$17,252

$14,201

$12,535

$18,183

11


CO

$6,180

$6,382

$5,198

$4,757

$5,660

$5,635

4

City of Atlanta

GA

$13,465

$13,093

$16,470

$16,972

$15,000

10

City of Austin

TX

$3,903

$3,053

$2,637

$2,540

$3,033

2

City of Kansas City

MO

$19,033

$11,954

$5,143

$4,697

$10,207

8

City of Las Vegas

NV

$14,891

$7,976

$14,812

$13,668

$12,836

9

City of Long Beach

CA

$5,753

$4,665

$4,862

$10,955

$6,559

5

City of Oakland

CA

$22,901

$21,034

$21,845

$19,161 $24,057

$22,000

13


VA

$10,111

$8,596

$5,834

$7,028

$6,524

$7,619

7

Montgomery County

MD

$2,083

$2,549

$2,629

$1,936

$2,299

1

Oklahoma City

OK

$7,166

$27,233

$28,169

$22,698

$21,316

12

Sacramento County

CA

$9,461

$7,186

$6,468

$6,106

$7,305

6

City of Tamarac

FL

$2,461

$4,089

$2,518

$5,026

$4,313

$3,681

3

Average

$11,319

$10,389

$10,060

$9,852 $10,139

$10,436

.

86

Total gross incurred cost (paid plus reserves minus recoveries) of workers’ compensation claims during the identified period of time,

divided by the total number of Full-Time Equivalent (FTE) Employees. The FTE value is the figure reported in the FTE Field for the

identified period of time.


TABLE VII

Exposure Cost per FTE

Jurisdiction

State

2005

2006

2007

2008

2009

5-Yr

Avg.

Rank on

5-Yr Avg.


CA

$2,333

$2,353

$2,082

$1,823

$2,148

11


CO

$840

$785

$616

$525

$442

$642

4

City of Atlanta

GA

$1,969

$1,966

$2,282

$2,013

$2,058

10

City of Austin

TX

$677

$539

$518

$442

$544

3

City of Kansas City

MO

$506

$770

$1,051

$966

$824

6

City of Las Vegas

NV

$1,248

$543

$1,106

$875

$943

8

City of Long Beach

CA

$723

$642

$631

$334

$466

2

City of Oakland

CA

$777

$777

5


VA

$1,224

$988

$734

$954

$776

$935

7

Montgomery County

MD

$169

$195

$218

$155

$184

1

Oklahoma City

OK

$1,178

$4,316

$4,475

$3,293

$3,315

12

Sacramento County

CA

$1,391

$993

$936

$885

$1,051

9

City of Tamarac

FL

- Average

$1,086

$1,281

$1,332

$1,115

$609

$1,157

87

Total number of workers’ compensation claims reported during the identified period of time divided by the total number of Full-Time

Equivalent (FTE) Employees covered under workers’ compensation expressed as a percentage. The FTE is the figure reported in the

FTE Field for the identified period of time.


TABLE VII

Frequency Rate

Jurisdiction

State

2005

2006

2007

2008

2009

5-Yr

Avg.

Rank on 5-

Yr Avg.


CA

8%

14%

15%

15%

13%

7


CO

13%

12%

12%

11%

11%

12%

5

City of Atlanta

GA

15%

15%

14%

12%

14%

9

City of Austin

TX

17%

18%

20%

17%

18%

12

City of Kansas City

MO

3%

6%

20%

21%

13%

7

City of Las Vegas

NV

8%

7%

7%

6%

8%

2

City of Long Beach

CA

13%

14%

13%

3%

11%

4

City of Oakland

CA

3%

3%

1


VA

12%

11%

13%

14%

12%

12%

5

Montgomery County

MD

8%

8%

8%

8%

8%

2

Oklahoma City

OK

16%

16%

16%

15%

16%

11

Sacramento County

CA

15%

14%

14%

14%

14%

9

City of Tamarac

FL

- Average

11%

12%

14%

12% 11.5%

12%

88

The total number of workers’ compensation claims marked as open and active for the identified period of time, divided by total

number of workers’ compensation claims reported during the selected period of time expressed as a percentage.


TABLE VII

% Open Claims

Jurisdiction

State

2005

2006

2007

2008

2009

5-Yr

Avg.

Rank on 5-

Yr Avg.


CA

22%

17%

19%

27%

21%

11


CO

1%

2%

3%

5%

30%

8%

5

City of Atlanta

GA

1%

1%

3%

4%

3%

1

City of Austin

TX

-

City of Kansas City

MO

10%

8%

4%

13%

9%

6

City of Las Vegas

NV

2%

3%

4%

9%

5%

3

City of Long Beach

CA

19%

24%

31%

69%

36%

12

City of Oakland

CA

8%

9%

12%

16%

26%

14%

8


VA

6%

4%

2%

2%

2%

3%

1

Montgomery County

MD

3%

5%

9%

17%

9%

6

Oklahoma City

OK

2%

3%

6%

47%

15%

9

Sacramento County

CA

7%

10%

12%

30%

15%

9

City of Tamarac

FL

4%

7%

6%

6%

4

Average

7%

8%

10%

22%

16%

12%

89

Total payments issued for workers’ compensation claims in the selected period of time divided by the total gross incurred cost

(paid value plus reserves minus recoveries) for all workers’ compensation claims reported during the same time frame expressed

as a percentage.


TABLE VII

% Paid Losses

Jurisdiction

State

2005

2006

2007

2008

2009

5-Yr Avg.

Rank on 5-Yr

Avg.


CA

75%

71%

66%

52%

66%

6


CO

77%

80%

91%

84%

59%

78%

10

City of Atlanta

GA

35%

28%

21%

16%

25%

1

City of Austin

TX

50%

56%

58%

37%

50%

3

City of Kansas City

MO

135%

138%

154%

144%

143%

12

City of Las Vegas

NV

71%

92%

48%

58%

68%

8

City of Long Beach

CA

109%

104%

50%

7%

68%

8

City of Oakland

CA

73%

84%

68%

67%

42%

67%

7


VA

62%

56%

65%

53%

50%

57%

5

Montgomery County

MD

202%

161%

141%

116%

155%

13

Oklahoma City

OK

94%

28%

38%

56%

54%

4

Sacramento County

CA

52%

56%

49%

4%

40%

2

City of Tamarac

FL

100%

100%

100%

100%

100%

100%

11

Average

87%

81%

73%

61%

63%

75%

90

The sum of all workers’ compensation claim payments issued during the identified period of time. These payments would

include expenses, indemnity, legal fees, and medical costs.


TABLE

VII

Paid Losses

Jurisdiction

State

2005

2006

2007

2008

2009

5-Yr Avg.

Rank

on

5-Yr

Avg.

City & County of San

Francisco

CA

$40,804,100 $39,027,134 $31,764,644 $21,938,514

$33,383,598

13


CO

$7,266,305

$7,142,048

$6,386,995

$5,079,985 $4,187,565

$6,012,580

7

City of Atlanta

GA

$6,688,264

$5,398,066

$4,682,525

$3,199,094

$4,991,988

6

City of Austin

TX

$4,083,082

$3,690,015

$3,670,579

$1,971,530

$3,353,801

4

City of Kansas City

MO

$3,892,308

$6,078,047

$9,237,845

$7,974,021

$6,795,555

9

City of Las Vegas

NV

$3,490,041

$1,974,422

$2,084,442

$2,011,544

$2,390,113

2

City of Long Beach

CA

$4,639,785

$3,923,635

$1,859,469

$128,930

$2,637,955

3

City of Oakland

CA

$11,348,988 $13,064,677 $10,303,210

$8,700,712 $6,845,988 $10,052,715

10


VA

$5,283,933

$3,879,089

$3,325,495

$3,510,862 $2,727,216

$3,745,319

5

Montgomery County

MD

$16,988,406 $15,661,623 $15,288,766

$8,959,142

$14,224,484

12

Oklahoma City

OK

$5,895,888

$6,388,379

$9,078,732

$9,777,730

$7,785,183

11

Sacramento County

CA

$10,905,076

$8,244,512

$6,916,815

$568,189

$6,658,648

8

City of Tamarac

FL

$123,051

$229,011

$148,569

$341,762

$288,986

$226,276

1

Average

$9,338,402

$8,861,589

$8,057,545

$5,704,774 $3,512,439

$7,866,016

91

Budgeted reserves is the actual dollar value set aside by the entity for the payments of anticipated workers’ compensation

costs, such as medical, indemnity, claim expenses, pending litigation and deductible amounts.


TABLE

VII

Budgeted Reserves

Jurisdiction

State

2005

2006

2007

2008

2009

5-Yr Avg.

Rank on

5-Yr Avg.

City & County of San

Francisco

CA

$13,490,072

$15,713,680

$16,674,666

$20,479,793

$16,589,553

11

City & County of

Denver

CO

$2,183,122

$1,786,827

$656,697

$985,035 $2,949,065

$1,712,149

4

City of Atlanta

GA

$1,531,466

$1,151,571

$1,611,521

$2,162,112

$1,614,168

3

City of Austin

TX

$9,959,000

$9,965,000

$12,193,031

$13,817,000

$11,483,508

10

City of Kansas City

MO

$1,340,512

$2,219,246

$4,562,540

$5,272,129

$3,348,606

7

City of Las Vegas

NV

$1,438,719

$171,057

$2,285,121

$1,446,535

$1,335,358

2

City of Long Beach

CA

$1,862,030

$3,426,768

$2,387,768

$976,890

$2,163,239

5

City of Oakland

CA

$4,234,673

$2,458,394

$4,857,540

$4,271,226 $9,368,550

$5,038,077

8

City of Virginia

Beach

VA

$3,260,039

$3,014,806

$1,796,411

$3,151,578 $2,687,837

$2,782,184

6

Montgomery County

MD

$2,050,542

$3,348,750

$6,131,883

$10,507,492

$5,509,666

9

Oklahoma City

OK

- Sacramento County

CA

$27,957,000

$22,583,000

$23,512,000

$21,676,000

$23,432,200

12

City of Tamarac

FL

$7,509

$100,928

$77,881

$62,106

1

Average

$

$

$

$

92


93

Terms and Definitions

actuarial report

Result of an actuary's study of an organization's loss experience, using probability theory and other methods of statistical analysis. Can be used to determine an insured's projected losses, a self-insured's liability accruals, the adequacy of a property and casualty insurer's statutory loss reserves, or a life insurer's unearned premium (technical) reserves.

automobile liability insurance

Insurance that protects the insured against financial loss because of legal liability for automobile-related injuries to others or damage to their property by an auto.

average weekly wage (AWW)

An employee's pre-injury earning capacity, based on earnings in the 12 month period directly preceding a work-related injury or illness. The formula for calculating average weekly wage in Virginia equals earnings of the injured employee in the capacity in which he was working at the time of the injury, for the 52 weeks preceding the injury divided by the number of weeks worked.

benchmarking

The act of comparing a measurement to a standard. It shows you where you are and helps you decide where you want to go.

bodily injury

Liability insurance term that includes bodily harm, sickness, or disease, including resulting death.

bond

A three-party contract in which one party, the surety, guarantees the performance or honesty of a second party, the principal (obligor), to the third party (obligee) to whom the performance or debt is owed.

claim

A demand by an individual or corporation to recover, under a policy of insurance, for loss which may come within that policy (first party claim). A demand brought by persons allegedly injured or harmed by the insured (third party claim).

claimant

The person making a claim. Use of the word "claimant" usually denotes that the person has not yet filed a lawsuit. Upon filing a lawsuit, claimant becomes a plaintiff, but the terms are often used interchangeably.

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compensable

An injury or illness that meets the statutory standard and qualifies an employee to receive workers compensation benefits.

contributory negligence

Negligence of a plaintiff or claimant constituting a partial cause or aggravation of his or her injury. This doctrine bars relief to the plaintiff in a lawsuit if the plaintiff's own negligence contributed to the damage. Contributory negligence has been superseded in some states by other methods of apportioning liability.

deductible

A portion of covered loss that is not paid by the insurer. Most property insurance policies contain a per-occurrence deductible provision that stipulates that the deductible amount specified in the policy declarations will be subtracted from each covered loss in determining the amount of the insured's loss recovery.

depreciation

The decrease in the value of property over a period of time, usually as result of age, wear and tear from use, or economic obsolescence. Actual physical depreciation (wear and tear from use) is subtracted from the replacement cost of insured property in determining its actual cash value. Courts in some jurisdictions have allowed insurers to deduct depreciation due to economic obsolescence as well.

disability for workers compensation

A condition that incapacitates a person in some way so that he or she cannot carry on normal duties. Disability may be total, partial, permanent, or temporary, or a combination of these.

excess insurance

A policy or bond covering the insured against certain hazards, and applying only to loss or damage in excess of a stated amount, or specified primary or self-insurance. That portion of the amount insured that exceeds the amount retained (self insured) by an entity for its own account.

excess workers compensation insurance

A type of coverage available for risks that choose to self-insure the majority of workers compensation loss exposures. Two categories of coverage are available: specific, which controls loss severity by placing a cap on losses the insured must pay arising out of a single occurrence; and aggregate, which addresses loss frequency by providing coverage once a cumulative per occurrence loss limit is breached.

fiduciary liability

The responsibility on trustees, employers, fiduciaries, professional administrators, and the plan itself with respect to errors and omissions in the administration of employee

95

benefit programs as imposed by the Employee Retirement Income Security Act (ERISA).

frequency

The likelihood that a loss will occur. Expressed as low frequency (meaning the loss event is possible but the event has rarely happened in the past and is not likely to occur in the future), moderate frequency (meaning the loss event has happened once in a while and can be expected to occur sometime in the future), or high frequency (meaning the loss event happens regularly and can be expected to occur regularly in the future). Workers compensation losses normally have a high frequency as do automobile collision losses. General liability losses are usually of a moderate frequency, and property losses often have a low frequency

general liability-insurance

Insurance protecting commercial insured from most liability exposures other than automobile and professional liability.

gross negligence

Willful and wanton misconduct.

hard market

One side of the insurance market cycle that is characterized by high rates, low limits, and restricted coverage.

incurred losses

The total amount of paid claims and loss reserves associated with a particular period of time, usually a policy year. Incurred losses are customarily computed in accordance with the following formula: loss occurring and paid during the period, plus outstanding losses reserved at the end of the period. This does not ordinarily include incurred but not reported (IBNR) losses.

incurred but not reported (IBNR) losses

An estimate of the amount of an insurer's (or self-insurer's) liability for claim-generating events that have taken place but have not yet been reported to the insurer or self-insurer. The sum of IBNR losses plus incurred losses provides an estimate of the insurer's eventual liabilities for losses during a given period.

indemnity payments

The losses paid or expected to be paid directly to an insured by an insurer for first-party (e.g., property) coverage or on behalf of an insured for third-party (e.g., liability) coverage. The losses paid or expected to be paid directly to an insured by an insurer for coverage. Restoration to the victim of a loss up to the amount of the loss.

96

insurance

A contractual relationship that exists when one party (the insurer) for a consideration (the premium) agrees to reimburse another party (the insured) for loss to a specified subject (the risk) caused by designated contingencies (hazards or perils) up to predetermined limits.

insurance policy

In broad terms, the entire printed insurance contract. Generally, an insurance policy is assembled with a combination of various standard forms, including a declarations page, coverage form, and endorsements. Sometimes a cause of loss form is also required. Together these forms delineate the coverage term, the insurance policy limits, the grant of coverage, exclusions and other limitations of coverage, and the duties and responsibilities of the insured in the event of a loss.

insurance recovery fund

This fund was created in Fiscal Year 08-09 to track recoveries or subrogation. Automobile insurance claim recoveries under $1,000 go back into the Automotive Services parts line item. Recoveries over $1,000 go into the General Fund-Insurance Recovery Fund Revenue account. Automobile Services may ask City Council to appropriate these funds. This action will not artificially inflate expenditures and provide an audit trail.

insurance requirements

The part of a commercial contract in which the types and minimum amounts of insurance the parties agree to provide in connection with their performance of the contract are specified.

liability

Any legally enforceable obligation. Within the context of insurance, the obligation to pay a monetary award for injury or damage caused by one's negligent or statutorily prohibited action.

liability limits

The stipulated sum or sums beyond which an insurance company is not liable for payments due to a third party. The insured remains legally liable above the limits.

loss control

A risk management technique that seeks to reduce the possibility that a loss will occur and/or reduce the severity of those that do occur. Also known as risk control or safety. Driver training programs are loss control programs that seek to reduce the likelihood of accidents occurring. Sprinkler systems are loss control devices that reduce the severity of loss by fire.

97

loss reserve

An estimate of the value of a claim or group of claims not yet paid. A case reserve is an estimate of the amount for which a particular claim will ultimately be settled or adjudicated. Insurers will also set reserves for their entire books of business to estimate their future liabilities. Expenses of adjusting claims, e.g., allocated claim expenses; court costs, fees, and expenses of independent adjusters, lawyers, witnesses, and other expenses that can be charged to specific claims; and unallocated claim expenses which represent salaries and other overhead expenses that are incurred in adjusting and recording claims but which cannot be charged against specific claims.

occupational disease

Any abnormal condition or disorder, other than one resulting from an occupational injury, that is caused by, or alleged to be caused by, exposure to environmental factors associated with employment, including acute and chronic illnesses or diseases that may be caused by inhalation, absorption, ingestion, or direct contact. State workers compensation laws vary as to whether coverage is afforded for occupational disease.

occupational injury

An injury arising in the course and scope of employment that is caused by factors associated with the work undertaken.

occurrence year

The time period defined by a body of losses composed of all claims occurring during a particular 12 month period.

paid losses

That portion of incurred losses actually paid out by an insurer or self insured entity.

permanent partial disability

A workers compensation disability level in which the injured employee is still able to work but not with the skill and efficiency demonstrated prior to the injury. As a result, the earning capability of the worker is affected. Workers compensation statute provides for scheduled benefits based on the percentage of disability.

permanent total disability

A class of workers compensation disability in which the injured employee is incapable of ever working again at any employment. It becomes a lifetime award without the 500 week imitation.

premium

The amount of money an insurer charges to provide the coverage described in the policy or bond.

98

property damage

As defined in the general liability policy, physical injury to tangible property including resulting loss of use and loss of use of tangible property that has not been physically injured.

reserves

The amount of funds necessary to meet all future costs related to an insurance claim. Reserves are the “best” estimate of the additional amount that will need to be paid out against a claim. Reserves are an unfunded liability, that must be paid as costs are incurred.

return-to-work program

A post-injury program that returns injured employees to some type of work as soon as medically possible. Even if the injured workers are impaired, temporary or modified duties can be assigned that take into consideration the impairments. The end result is the reduction of indemnity costs associated with the claims and a greater chance for recovery.

risk management

The practice of identifying and analyzing loss exposures and taking steps to minimize the financial impact of the risks they impose.

risk management techniques

Methods for treating risks. Traditional risk management techniques for handling event risks include risk retention, contractual or noninsurance risk transfer, risk control, risk avoidance, and insurance transfer.

risk retention

Planned acceptance of losses by deductibles, deliberate non-insurance and loss-sensitive plans where some, but not all, risk is consciously retained rather than transferred.

risk retention group (RRG)

A group self-insurance plan or group captive insurer operating under the auspices of the Federal Liability Risk Retention Act (RRA) of 1986 that can cover all the liability exposures, other than workers compensation exposures, of its owners. Risk retention groups are not subject to the individual state laws that would otherwise prohibit the formation of group captives or make it difficult to form or operate them.

self-insurance

A system whereby a firm sets aside an amount of its monies to provide for any losses that occur—losses that could ordinarily be covered under an insurance program. The monies that would normally be used for premium payments are added to this special fund for payment of losses incurred. Self-insurance is a means of capturing the cash

99

flow benefits of unpaid loss reserves and also offers the possibility of reducing expenses typically incorporated within a traditional insurance program. It involves a formal decision to retain risk rather than insure it and is distinguished from noninsurance or retention of risks through deductibles, by a formalized plan or system to pay losses as they occur.

severity

The amount of damage that is (or that may be) inflicted by a loss or catastrophe. Sometimes quantified as a severity rate, which is a ratio relating the amount of loss to values exposed to loss during a specified period of time.

soft market

One side of the insurance market cycle that is characterized by low rates, high limits, flexible contracts, and high availability of coverage.

temporary partial disability

A workers compensation disability level in which the injured worker is temporarily precluded from performing a certain set of job skills but who can still work at a reduced level. Since the condition is temporary, compensation is based on the difference between the two earning levels, AWW before the injury and the amount after the injury. This is subject to the 500 week limitation.

temporary total disability

One of the four divisions of disability compensable under workers compensation. This level of disability reflects an injury that has rendered the employee completely unable to perform any job functions on a temporary basis. The employee is expected to make a full recovery and return to work. In the interim, compensation paid is 66 2/3% of weekly wages until the worker returns to the job.

third-party administrator (TPA)

A firm that handles various types of administrative responsibilities, on a fee-for-services basis, for organizations involved in self insured programs. These responsibilities typically include claims administration, loss control, risk management information systems, and risk management consulting.

total cost of risk

Total cost of risk is the sum of all aspects of an organization’s operations that relate to risk, including retained (uninsured) losses and related loss adjustment expenses, risk control costs, insurance premiums, and administrative costs.

workers compensation

The system by which no-fault statutory benefits prescribed in state law are provided by

an employer to an employee (or the employee's family) due to a job-related injury

(including death) resulting from an accident or occupational disease.

100
