The County’s Self-Insurance Program includes excess coverage for Workers’ Compensation, Property, Casualty Package, Boiler and Machinery, Cyber and Internet Liability, Aviation Liability, and Pollution Liability Insurance. The effective date for this renewal will be January 1, 2022. The County’s broker, Arthur J. Gallagher & Company (AJG), competitively markets excess insurance coverage for the self-Insurance program each year on behalf of the County.
Insurance Market Conditions
The market has remained challenging and is similar to what was experienced in 2020. While there was optimism toward some moderation in premium increases, it has yet to be widely seen in year-to-date 2021 renewals. Across the industry, renewals for many companies have been upwards of 20%, which is unsettling after an already difficult year. What has made this market even more troubling is that there is no one single event to point to as the cause. Instead, a confluence of factors has challenged the industry, including social inflation, increased storm activity, and pandemic losses. Additionally, carriers’ ability to offset these results through investment income remains a challenge due to the lower interest rate environment.
Unfortunately, these factors likely will impact the market for some time. Despite pushing significant rate increases across most lines in 2020, the industry’s combined ratio hovered around 100%. Accordingly, all market indicators point to a continuation of premium increases for the balance of the year and possibly into 2022.
However, there was optimism for some moderation in certain lines as we moved into the latter half of 2021. Many carriers have reported stronger results in the first quarter of this year, but that progress must be sustained for several quarters to see a market shift. The challenges have not kept out new capital and the market is seeing some expansion, which will inevitably lead to more competition. Finally, despite across-the-board increases on January 1 reinsurance renewals, the rate increases ultimately ended up at the lower end of initial projections and below budget.
Renewal Results
Zurich was selected as the County’s property carrier effective 01/01/2019, as their premium was significantly lower than all other options and they provided 100% of the County’s property coverage with a single carrier. They have remained the most competitive market for the County over the last 3 years and Seminole County remains one of the only large property accounts that Zurich will cover on a ground up basis in Florida.
Seminole County’s total insured property values for 2022 increased 5.11%. The expiring premium rate is .1180 per $100 in total insured value. Zurich’s quoted renewal premium reflects a 9.78% rate increase (.1296 rate per $100) and a total premium of $1,068,946 including inspection fees, which is a $142,525 (15.38%) increase over the expiring program.
The market for Excess Workers Compensation Coverage, while stable, has limited markets willing to offer coverage to entities with Fire and Police exposures that are subject to presumption laws. This limited marketplace contributes to the cost of excess workers compensation coverage. The County’s current self-insured retention for workers compensation is $400,000 with coverage for the layer from $400,000 - $500,000 provided under the Ambridge (formally Brit) casualty package and all claims excess of $500,000 provided by Arch Insurance Company (referred to in this section as Excess Workers Compensation).
The County incurred a presumption claim currently valued at $3,660,000 in January 2021. This claim has forced the excess carrier to increase the SIR for Firefighters from $500,000 to $1,000,000. The SIR for all other employees remains $500,000.
The expiring premium rate for excess workers compensation coverage with Arch is .3182 per $100 in total payroll. The County’s 2022 estimated payroll has increased by 8.81%, and Arch has offered an 8% rate increase and renewal premium of $380,681, an increase of $56,783. The rate increase is inclusive of the increase in SIR noted above for Firefighters.
Ambridge is the current carrier for excess General Liability, Auto Liability, Errors and Omissions Liability, Buffer Layer Excess Workers Compensation, Employee Benefits Liability, Crime, Law Enforcement Liability and Sexual Abuse Liability. One of the primary advantages offered by Ambridge is a buffer layer of workers compensation coverage that allows the County to buy down its workers compensation SIR to $400,000. However, Ambridge will only offer us a SIR of $750,000 for firefighters covered by presumption laws. The current program with Ambridge has a $200,000 SIR for all other casualty coverages. The renewal quote includes a workers’ compensation buffer layer that buys down the SIR to $750,000 for firefighters and $400,000 for all other employees.
Unfortunately, there has been quite a bit of adverse development in Ambridge’s loss experience over the past year, which has driven them to increase the premium rate on renewal. The renewal premium quoted for 2022 without additional changes would be $617,075, an increase of $116,760 (23%). This includes a 4% increase in exposures and a 19% rate increase.
To offset this increase, the recommended renewal option would increase our SIR on E&O and Sexual Abuse claims from $200,000 to $300,000, while maintaining the $200,000 SIR for general and auto liability and providing $69,000 in premium relief, yielding a premium of $548,075. There has been market and claim pressure to increase our SIR in these two areas. Making the move while it is still optional will save premium dollars.
Ambridge’s renewal quote remains the most competitive available, as no competing markets were able to compete with their renewal terms or able to offer SIR options as per expiring.
The current Cyber Liability program through Chubb has a $5,000,000 limit and a $150,000 retention, with an annual premium of $58,193. Market signals throughout 2021 have been clear: limits will be reduced and coverage more strongly scrutinized for public sector markets. Indeed, Chubb has advised that they will be reducing the policy limit to $1,000,000 and increasing the retention to $500,000 at renewal. Chubb’s renewal premium is $48,942. To counter the reduced limit, we are seeking an additional $1,000,000 of excess coverage from the markets and will add it if coverage can be secured at or under $48,500.
Program Summary
Expiring premiums for 2021 total $1,900,620. The renewal premiums for 2022 are anticipated to be $2,194,669 (with the additional excess cyber), with actual premium paid subject to change in exposure through the year. This is an annual increase of $249,049 or 15.5%, largely due to the rate increases discussed herein.