April 5, 2006
TO: RISK COORDINATORS,
AND BUSINESS MANAGERS
FROM: David Hartwig, Administrator
State Services Division
SUBJ: 2007-09 Budgeted Risk Charges
DAS recently released the Price List. It includes budgeted risk charges for state-
owned property, tort liability and worker’s compensation. The charges fund the
state’s Self-Insurance Fund, administered by DAS-Risk Management (RM).
Agency claim payments are primary cost drivers of each charge. In property,
commercial insurance also plays a major role.
Statewide, budgeted charges increased 31 percent compared to 2005-07 charges.
By coverage, here are the highlights.
•Property – 30% increase. Commercial premiums now make up 38% of total
cost versus 17% ten years ago. After two good loss years, we expected little
increase. Then last August and September, the gulf coast states got hit by
Katrina, Rita and Wilma, a $66 billion insured loss. Like all large property
owners in the nation, we were impacted by large premium increases.
•Liability – 10% increase. Though frequency of claims is flat or decreasing,
cost continues to rise. Legal expense alone now makes up 48% of total cost.
Claims are more expensive, partly due to claimant “dual filing” in both Federal
and State courts. Employment, child abuse/neglect, and civil rights claims
remain at the top. More than before, the fund is impacted by litigation
challenging ballot measures and laws (e.g., PERS reform).
•Workers’ Compensation – 55% increase. Though claim numbers remain
stable, costs are climbing – especially medical. The latest actuarial study
indicates cost for older claims are up. Terrorist Coverage was mandated by the
federal government two years ago. Now Domestic Terrorism Coverage is too.
The two together add another $1.3M per biennium.
WHAT WE ASK OF YOU
We rely heavily on a network of agency Safety Advisors and Risk Coordinators
appointed by Agency Heads. They are our first line of information and contact.
Risk Coordinators have direct access to your agency’s tort and property loss data
through ALIAS. Safety Advisors have access to work comp data through SAIF On-
line. They are rich sources of information and advice for your line managers,
supervisors and employees. Through them, we leverage the relatively few Risk
and Safety Consulting staff here in DAS. Agency Head support for their roles and
their active leadership assures the state is successful in managing these costs.
To help you better understand the risk charges, we have prepared the following:
• Risk charge for each coverage. (Shown are your agency’s base period loss
amounts with notes on how the charges are determined.) View the charges
on Risk Management’s Risk Finance web page.
• Work sessions to understand your agency risk charges.
• Overview of Loss Control activities.
UNDERSTAND YOUR RISK CHARGES
Bob Nies, RM-Finance Analyst, is meeting with key agency staff in April and May.
During two-hour sessions, he reviews the development of statewide charges. Bob
shares insights and responds to questions. Under his guidance, participants learn
the basis of the allocation plan and calculate their agency’s own risk charges.
They take with them hard copies of their agency’s property and liability loss data.
Meetings are at:
DAS East (General Services Building)
1225 Ferry Street SE
Risk Management Conference Room - First Floor
Call Barbara Hamilton at 503-378-4706 to make your reservation or e-mail her at
Bob is available to answer questions. Contact him at Robert.A.Nies@state.or.us or
call him directly at 503-378-5521. For purposes of agency internal allocation,
electronic copies of loss data are available upon request.
WHAT WE ARE DOING
We expect the commercial insurance market to remain hard for the next few years.
We intend to take steps to ensure the state account will be attractive and receive
preferential pricing from commercial insurers.
• Now: DAS is moving forward with an Adverse Risk Analysis. State agencies
are identifying personal property valued at more than $1,000,000 at a single
location. Agencies will asses their properties’ potential loss exposures,
identify mitigation strategies and prepare written loss control plan by March,
2007. DAS Risk Management Consultants are facilitating this process.
• New: Quarterly training seminars for State Agency Risk Coordinators are
currently being scheduled. These seminars will focus on pertinent and
timely topics ranging from covering state assets (including tips for
completing the Annual Risk Report) to identifying property and risks within
their agency that need to be a priority for executive management attention.
• This year: The Safety and Risk Unit will work to enhance risk management
training. One new tool, a web-based training component, addresses topics
relating to state agency risk management. Follow-up to the training include
face to face meetings with DAS Risk Management Consultants. Information
will focus on topics such as how to identify risk exposure and how to
prepare loss control plans. One tool is the electronic Risk Assessment
Roadmap. It provides guidance on evaluating contract or operational risk
and produces a plan which lists the exposure, the steps needed to mitigate
and to identify staff responsibilities.
• An annual Risk Report is prepared by agencies. The automated system
enables agencies to update exposures and property values. The
information provided through this system will identify adverse exposures,
look at the big picture of agency’s assets, and develop loss control plans to
address potential risk exposures.
Employment Practice Liability, Child Abuse, and Civil Rights continue to be the
• Now: DAS will promote more effective working relationships between HR
staff and state agency Risk Coordinators. A joint emphasis will be placed
on the need to discuss personnel issues that occur within state agencies
with HR staff to encourage agencies to review personnel practices and
affirm managers’ leadership role to prevent violations of policy.
• Now: DAS will push for more face to face communication regarding matters
in liability litigation, or potential litigation.
• Now: DAS will partner with DOJ to conduct active early review of legal
strategy aimed at cost containment.
• Now: DAS will stress the need for agencies to give risk managers a higher
profile and their opinion on potential liability issues more of a priority. The
proactive stand will help minimize issues before they get to the litigation
• This year: Enhanced risk management training, including a web-based
component on topics like the latest methods to oversee risk functions and
loss control plans. That will be followed up with face to face meetings with
DAS risk assessment staff. Another electronic tool is the Risk Roadmap.
This automated tool is available to any manager or staff person. It provides
structured guidance on evaluating contract or operational risk and will
produce a plan which lists the exposure, the steps needed to mitigate and
identify staff responsibilities. Agencies continue to have access to data
regarding claim status and to perform analysis.
Actuaries tell us costs of open claims are rising higher and faster than prior
• Now: The Department of Administrative Services Risk Management will
devote more resources to agency employee safety programs. Two Safety
Management Consultants are now exclusively available to assist state
agencies. One consultant will focus on worker’s compensation post injury
claims management. The other one will work with agency staff to develop
loss prevention and reduction strategies. They will take aim at more
effectively managing cost.
• Now: The Department of Administrative Services will increase
communication with state agency executive management, HR and Safety
Management personnel within state agencies to promote collaborative
strategies that address workers’ compensation matters. Training is planned
to focus on ergonomics, lifting/overexertion, indoor air quality and driver
• Now: Through SAIF’s “State Agency Online,” agencies will now have
access to workers’ compensation claims information on the same web-
based access system (ALIAS) that contains agency property and liability
claims. This enhances claim coordination, tracking and provides the
opportunity to analyze claim occurrence and institute mitigation strategies.
FREQUENTLY ASKED QUESTIONS ABOUT RISK CHARGES
1. How are our risk charges determined?
The allocation plan is not insurance. It is a financing plan to pay the cost of
exposures and maintain an actuarially sound Insurance Fund. Risk charges, in a
self-insurance plan, are allocations of estimated future costs. No single agency’s
losses are large enough to accurately forecast future costs. Therefore, outside
actuaries pool statewide losses to forecast next biennium’s cost. We adjust the
actuaries’ forecast for expected earnings, funds on-hand, and any new expenses
of which we are aware. The adjusted amount is then largely allocated to agencies,
prorated on their share of statewide costs.
Agencies are charged separately for each coverage. Each self-insured coverage
has a minimum charge. Each minimum charge allows your agency certain
deductions to help flatten natural variations in claim experience. Claims
experience, particularly for small agencies, can be infrequent and difficult to
predict. Some go for years without a claim. Likewise, a “shock loss” claim – one
with very high costs – is also expected to be infrequent and unpredictable. To be
fair, we allow each agency some protection from such claims. Depending on
coverage, we may waive the cost of an average statewide claim and/or cap costs
on “shock loss” claims. The cost of waived claims is pooled and spread among all
The bulk of individual charges are based primarily on each agency’s own paid
losses under that particular coverage. We use a rolling base period designed to
capture a representation of each agency’s losses. Agencies with higher losses will
2. Why are our risk charges larger than our paid losses?
First, we use only losses paid so far. For example, in the liability base period
nearly half of ultimate losses are yet to be paid. Second, your risk charges are
your share of statewide future losses, not a recovery of your own past losses. If
your agency paid two percent of state losses in the past, we assume your agency
will account for two percent of next biennium’s losses. However, if state losses are
rising, your two percent of the risk charge is more dollars than two percent of the
past. We use your past to allocate the future like a tax assessor uses property
values to allocate property tax. Your best way to control future charges is through
good loss control. If all agencies manage their risk and keep losses to a minimum,
we all benefit.
3. But our loss was a one-time event. It won’t happen again . . .
It is important to remember that the state is heavily self-insured. We cannot lower
one agency’s charge without raising the charge of others. But as we discussed in
item #1, the cost of an average, occasional “one time event” is waived, pooled and
spread. For liability, no agency is assigned more than $500,000 per loss. For
property, no agency is assigned more than $300,000 per loss.
Some large losses hit the state every year. Just as you did not see yours coming,
no one knows who may be hit by the next one. Your charge decreases once your
losses again decline.
4. If we bought commercial insurance, wouldn’t it be less expensive?
We do buy commercial insurance for the state. Our workers’ compensation losses
are insured by SAIF, as required by law. We are able to protect the state’s $8
billion in property by purchasing a commercial excess property policy. Liability
excess insurance has not been a good option in the past. Insurers exclude most of
the worst risks we face. They rarely cover federal actions that can exceed the
state’s tort claim limits. And, the Oregon Tort Claims Act usually caps the state’s
liability below most commercial policies’ deductible levels. We buy many, smaller
commercial policies to cover exposures that are not wise to self-insure or that are
unique to individual agencies.
Our periodic studies show that commercial insurance is more costly than self-
insurance. It is not always available or affordable. Our broker tells us that
insurance industry-wide administration expense makes up about 15% of cost. Our
8-9% looks attractive. Bottom line: If agencies were to buy coverage, the state’s
sum of all premiums and excluded losses would be higher.
Risk Chgs07-09 covletter.doc