ALC-Executive Subcommittee

Miss your recognize you to open us up she would introduce yourself for the record and you're interested in your recognized thank you mr chair jill they are bureau of legislative research i'm just going to give you a brief intro to what you are going to hear today so as you all know this subcommittee received their final draft or the final report from matters adams and leave your last meeting and as we began to receive the initial drafts of that final report it became a parent that an actuarial study had not been performed on those numbers yet and I was asked by the members of this committee to determine the availability of a firm that could provide actual services as well as possibly some consulting services with experience in the property insurance industry so I reached out to three different firms and two of those did express an interest in possibly assisting the subcommittee one is a per night that you will hear from today and the other was pinnacle actual services who after running their conflex cheque notified me that they had already been engaged at and had a conflict with regard to this study and. So we have martin and both at. Discussed with the consultants that are here the at needs of the subcommittee with regard to your property insurance study and they have a proposal that they've submitted that you all have in your bont or in your folders in front of you and they're going to go over that with you and answer any questions that you may have and so we have cow hails and dean for deco here today and i'd be happy to answer any questions about how he got here and then they will present their proposal. So you're not questions at this time you guys are introduced to your recognized to introduce yourselves for the record and then you recognize to give you proposal. Good afternoon everybody my name is dean i'm one of the partners of peronine i've been with or firm for twenty seven years my title is a director of a business development I had a bar jersey city office and one I think everyone today for this opportunity to present our proposal to. And i'll introduce myself my name is kyle hails i'm a principle in consulting actuary at per night I also in the director of our restranges and solutions area with that i'll have deem just kind of talk a little bit about the background of our firm and and then we could continue on with the proposal that way. So it's it's just a brief it introduction of pronounce a per night we celebrating actually are thirty years in business this year we started out as a independent actual consulting firm a timper of the permanent per night started the burn he is still actually works for their organization itself. Over the course of the thirty years we listen to our clients and you know they were always asking us for additional services can help them support their needs so one out stressed that we are an independent. Consulting firm our services are restrated season solutions that's part that we're going to present today actual services product design regulatory compliance and are operations and techn. We have a little bit more than hundred and twenty employees consultants we have offices in santa marta that's our home office we have an office in jersey city which I head up we have an office in bucker atone and an office in those. And again I just want to thank you for the opportunity to represent our proposal to you. So that's if you're following along that that's our firm background that we talked about and page three four and five so i'll talk about some of the relevant experiences deen mentioned before we've been and operations for for thirty years now also his deem mentioned were completely independent firm what that means is we don't have ownership in any of our clients we don't sell insurance we don't make a commission we're strictly fee based company so it's it's strictly and we work by the hour we give our opinion we're completely unbiased in in any of the of the reports or the analogies are the conclusions that we that we come up with. So in terms of relevant experience we've helped multiple companies throughout the years there's there's probably well into the thousands of different firms arrange anywhere from from small single bill kind of mum and pop type companies all the way up through multi million dollars in insurance operations actually multibillion dollar insurance operations in infirms and that so where we are specialised in is is some of the things that relate to self insurance I know specifically here we're we're talking about commercial property insurance so that's that's definitely something that we're going to you know take a look at and in canada go through so so that's a relevant experience we kind of bull appointed some specific engagements that we've had in the past. Moving on to some of the references we we have work with a number of public entities in the past before there's a handful of school systems and cities as well as counties in even we've worked with AAA number of diocese they're all in a very similar situation meaning they self insurer a portion of their up of their property casualty insurance some of them do this any number of different ways some of them simply do it just via a deductible some of them will do this with a self insured retention others will form a captive and there's other options as well out there are understanding with this engagement it's really to go through and look at what best fits the school system and the public state run buildings within the state of arkansas so again there's a united states can imagine there's a number of different ways that that we can look at this and and go into it as i'll mention in in the future here one of the key components of this is going to be an actual world study and that that study is really what's going to kind of go through and help figure out what makes the most sense in terms of the the rates and and how they play out in in kind of what some of the answers are. So under key members i'm kyle hails a mentioned before i'm a partner of the firm i've been here twenty years I started my career at state farm I helped price their auto insurance for them as there for about five years and left and now have been at per night for for twenty on the partner of the firm charlie lens whose not here today but he likely is going to be the actuary that uh will oversee the the making an and the historical loss development in that and the you know the property casualty side for that. So in terms of the so i'm amanda peach ten here in terms of the project description so the way that we understand this engagement is that the school system essentially unfortunately last summer received a very large rate increase and what we would really want to do is just start getting down to the heart of that why did the premiums go up so much what did the insurance policy look like before what it it look like afterward and really the key component in all of this is the actual world study. And so that's one of the the main pieces that will do is an actual study were also going to perform an independent review of your of the systems the school systems and that that are outside of the state of arkansas and just kind of see what else is out there in terms of how they set up and how they structure their self their their commercial property. So get into this and a little bit more detail. The. Any questions or yeah or should we pass to the end for questions. Just carry understood questions so in in terms of the scope of services this is on page twelve it really breaks down into three sections here the first piece is the data review and aggregation the second component is the actual analysis in the final component is the risk management in restrictions and solutions appears so in terms of the data review this is the uh this is a critical are component of it any actually we'll tell you they're analysis is only as good as the data that's underlying it so if we're gonna spend a lot of time kind of going through understanding the the claim history understanding you know potentially the causes of loss will look at the data by peril will try to understand how you have just make sure that the data seems reasonable to us make sure that unaggregated kind of reconciles and and and things to that effect so the the data is is really a key component of the actual real study I tell my clients this all the time I could be the best actually in the world but if they underlying data that i'm receiving to do the analysis on is flawed for some reason the results that I get are going to be similarly flood so the data are review is is is a critical peace that feeds into the actual analysis and then i'll walk through the the analysis or I should say this are review the data it won't be an audit but it will be will look over the data for reasonable ness will make sure that it seems consistent you're likely with prior years information will look at this over over a number of years time frame and so in just a you'll see if there's anything that jumping out at us that might look a unusual or something that might need some extra attention then in terms of the actual analysis is much as the school system will you know likely have claims in a significant amount of. Claims volume that we could research and review it it's always prudent to look at industry data as well so we're going to have research large commercial carrier filings in this information should be publicly available through through the rate making filing history and we're going to supplement the school systems in in in arkansas historical data with industry data as well this is especially helpful for coverages that are more of a catastrophe of nature meaning your floods your windstorm your earth movement in and hale the reason you do this is especially with coverage is like earth movement it's very rare that there's ever a claim which is a good thing but when they when they do come it tends to impact very wide you know they tend to be exactly catastrophic and nature to impact a wide geographical area and you know without having a really good risk distribution among where the uh you know that the insured buildings happen to be located it's you know it's it's going to make sense to look at this kind of more from from perhaps a modeled standpoint. The. The next thing we're going to do is we're going to incorporate that information into the you're into the study that we're performing on an actual world basis in an estimate in essence what will do is well we'll calculate what we call and ground up loss by peril for I invite school system slash building we'll see how what makes the most sense to kind of divide some of the uh the data categories into we won't know into we start looking at the data how to best split this is how the best split the results it may be that we combined some of the results depending on the cause of loss so for example it might make sense to look at the causes of loss like an an aggregate basis maybe for something like earthquake or more the catastrophic coverage like windstorm or flood or in and then more or less the coverages that we think are probably more controllable by the school systems themselves think of things like your your fire your vandalism your freezing coverage is those are the ones that are more likely that will be able to kind of look at by school system again we won't be able to say for sure until we get into the data and we see exactly how this your how it develops but once we have a good idea to good understanding in terms of how you know how we could cut combined the data as a mention before will supplement it with industry information is is we deal appropriate and then from there one of the main pieces that will do is will create what we call a lost distribution curve in essentially what this does is it shows sort of layer by layer how many claims we're going to have for example under ten thousand dollars under a hundred thousand under a million dollars what's the frequency what's the severity of that using this information then is going to be the main peace that we're gonna are used to understand okay if we retain a certain levels of loss. How much is going to go back to the school system versus how much do we need to seek a outside insurance for so without doing an actual study in really doing a lot of this modeling and really trying to understand how this is is going to fit in it's almost impossible to tell what an optimal amount of retention if any would be for for the school system so as I mention the actual component is going to be is going to be critical to understanding how much risk we want to take and how likely it it is that we diversify some of the uh some of the risk of among the different school systems. The last couple of numbers here tenth through thirteen essentially say that or document our report are our results were create exhibits will explain a result and solicit feedback as as appropriate for that. So that's the actual analysis and then and then the next peace and and this is the you know really a critical component as well yeah this is the restrages in solutions consulting. In essence what we're going to look at at a high level is we're going to review the actual study we're going to look to see what other school systems do in neighboring states do they self insurer if so up to what limits how do those work my guess and this is just a guess i'm thinking that the losses that are more likely to correlate directly to things that are preventable think of losses like fire think of theft vandalism those will probably be less port and more the responsibility of the individual school system the claims or the the types of losses that are more likely to be random at nature so I think of your catastrophe coverage those may make more sense to poor it just it depends until we start looking at the data until we start seeing what other carriers do are not carriers but what other states do it'll give us a better understanding in terms of what makes the most sense but as you could see here there's a number of things too that we really need to understand in terms of how the current state of operations are in in arkansas and i'd listed a few of the items here for example how often are the the buildings themselves reevaluated what is the maintenance cycle do some buildings have maintenance cycles and some of them don't have that established yet what is the existing insurance policies look like what are the limits for the deductibles the exclusions another big thing too that we want to look at is I want to compare the prior year so when you don't prior to the large rate increase I want to compare all those insurance contracts to after the rate increase and I want to really dig down in the trying to figure out why did those rates go up by so much in one year seems a little odd to me especially from an actual world standpoint that the you know perfectly normal buildings perfectly normal operations would more than double in a given year. So that something definitely that I think we should should look into in at least see some of the reasons perhaps the the only p second self insured is is what's causing the large increase in the rate that could have something to do with it again we won't know this until we start digging into this and more detail. But continuing on essentially will look to see what other states are are doing I think the ones that we specifically listed or are kind of geographically close louisiana mississippi missouri oklahoma tennessee and taxes was in this is just to the extent that this information is publicly available and we could get this information from from those states so hopefully we could use that if not be you know again we could still you'll make proxy used to see you know potentially you may have to expand our a reach a little bit just a see what other areas are doing but again just a guess I think there's self insurer a portion of it I just can't tell you how it works is that a captive structure is not are they just doing deductibles or they doing a lot of exclusions how is that that hope process working and then another component that will do essentially is look to see what other public buildings within the state of arkansas are doing that are not stayed old so to get things more at the local levels of you know either your libraries museums make the power stations things to that effect just to see if there's some you know additional information and additional past that we could potentially take based on that. So number nineteen here and this is really the the key to kind of the whole analysis we're going to take the actual world study we're going to take the information that we find through digging through the old insurance contracts and looking at the other states and and looking at everything else in based on that information make a recommendation back to the sub committee essentially what does that mean we made maintain our current insurance structure is is do we self insure all or a portion of the risk do we pool some of these do we look at this by different layers I think there's a lot of different avenues that we can take and until we get into this and more detail we won't know for sure but our suggestion what are our the crux of our analysis then will be to go through in the sale now we're going to make of recommendation back to the subcommittee based on all the evidence in all the data in all the underlying information that we have to say here's how we think we're going to proceed how you suggest proceeding i'm in going forward basis after that are engagement stops in our gaugement stops intentionally because we don't want to bias the results or bias anyone else we're not looking to do any you know any further additional work than than that so it's it's making a suggestion and I know it will see a panel through the end if need be but in essence we're just here to to offer our professional opinion or professional advice and what's in the best interest of the state of arkansas. And so then the last A time frame and in just kind of how the the rest will. Represent ladyman sorry went out I had to figure out who you were sorry thank you miss german right here well this is really good III think that's a real good explanation what you're going to be doing I think it's the right way to go but. You know we have a earthquakes and tornadoes in articles on those who you know what it is not a law that you can do about that tornado answered or is quite but the third in in a previous meeting here the third largest loss was freezing. It was a wind water and freezing water you might be able to do something about but. Will you look at what our schools are doing in preventive actions to reduce the risk like freezing like the testing of sprinklers. Monthly hears sim annual inspections those kind of things will you look at that and then look at how we compare to the surrounding states absolutely right so so we could go through we can look into that I mean there's there's simple things like the again that sprinklers are you know as an example do they you know how often do they test it how often do they they check for you know for potential cracks and again this goes back down to the meeting and schedules and that often are a lot is a lot of the upkeep are done because they again especially those are you know losses like freezing its what I would call more of a preventable loss not in every case but more likely to be prevailable than say a windstorm or a flood or an earthquake or or or what have you so absolutely will spend more time kind of looking into those thing how other school systems might handle that also just see other just buildings in general even even on the commercial side you know even just large normal you know you know we have the simmons building here simply talking to people there okay you have sprinkler systems as well what do you do to your kind of reduce the likelihood that if it gets too cold what's your how is your house I can prevent it maybe it's simple as just making sure that there's heaters on that are automatically kicked on the least warm it up to fifty degrees inside the kind of prevent some of the that those types of losses so again there's usually several different ways to to go about a preventing claims like that it you know it's some of them are obviously more expensive than others you know wrap in the wrap in the pipes could certainly be an option in that but but what are analysis will do is it'll it'll go through and and we could make some suggestions as well in terms of lost mitigation techniques. See enough other questions from the committee of representative first then I believe you have a motion. And thank you mr chair i'd like to move there that we direct the bureau to negotiate with contract with poor night which would include the terms of the proposal and authorize the cool cheers to prove the fire contract by emergency actually only i'll see rule sixteen b. That's proposing to have a second have a second auto's in favor say I all opposed as have it. Members with that we have no other business we stand adjourned.