AMLJIA, The Bridge

 

New Inspection Rules for Bulk Fuel Facilities

Federal regulations regarding bulk fuel facilities have been updated as of April 1, 2019. The changes to 33 CFR Part 154 and 33 CFR Part 156 may affect your fuel storage facilities. If you receive fuel by barge, U.S. Coast Guard (USCG) inspections will now cover from the pipeline header to include the entire fuel tank farm. Previously, USCG inspections could only check the pipeline from the header to the first valve in the tank farm.

Members affected by these changes should conduct regular inspections and routine maintenance checks, and employees require annual training. Questions? Contact your AMLJIA Risk Control Specialist at 800-337-3682.
 

 

Market Forces and Pool Experience Affect Rates

Hurricanes Harvey, Irma, and Maria, wildfires in California, and earthquakes in Mexico caused record losses in 2017. In 2018, Hurricanes Michael and Florence caused devastation in the southern U.S., Europe and California battled wildfires, Hawaii saw destructive volcanic eruptions, and earthquakes struck throughout the Pacific Rim. Although total economic losses from natural and human-caused catastrophes declined in 2018, global losses have made 2018 the fourth costliest year in the last half century in terms of losses covered by the insurance industry.

While most disasters seem far removed from Alaska, worldwide events do have an impact on the reinsurance market and ultimately, your pool’s rates. The Alaska Municipal League Joint Insurance Association, or the AMLJIA, was born out of the hard market of the 80’s. Coverage was unaffordable—or simply unavailable—for many local governments and school districts in Alaska. With a clear vision of the need for stable, cost-effective risk financing, the AMLJIA has experienced three decades of steady growth while becoming a recognized leader in providing innovative risk management solutions.

The AMLJIA has a solid financial foundation, and that foundation has helped smooth many of the bumps in the road as the commercial insurance market has experienced ups and downs over the years. Ultimately, however, your pool is pushed and pulled by the national and world markets, and something as distant as a hurricane in the Caribbean can have a noticeable impact on the cost of business. Nowhere was this as clearly illustrated as when the twin towers were attacked on what has now become simply known as “9-11.” Workers’ compensation, property, and liability lines were all impacted.

In order to understand how market fluctuations impact the AMLJIA, it’s important to first understand what a risk pool is and how it differs from commercial insurance. The first state municipal league risk pool was formed in 1974 as an innovative response to a lack of affordable risk financing solutions on the commercial market. A pool is a cooperative arrangement that works a lot like a traditional insurer: participating entities pay a contribution, receive coverage, and make claims.

Pools are usually more cost-effective than traditional insurers because they do no operate under a profit motive, they typically have low overhead, they may retain investment income, and they stress improved loss control and risk management practices to reduce claims. Many public agencies rely on their pools for assistance with overall risk management programs.

In addition, pool members have more oversight over claims-handling policies and defense strategies. They have more control over the type and breadth of coverages and limits offered by the pool. Your pool is governed by a board of trustees comprised of pool members, ultimately giving pool members decision-making authority and ownership of the pool.

With recommendations from independent actuaries, the board establishes loss reserves, sets contribution levels, and sets self-insured retention (SIR) levels for all lines of coverage. The SIR is like a large deductible. For example, if the pool’s property SIR is $250,000 and a member suffers a $1M property loss, the member pays its deductible, then the pool pays the next $250,000 from its reserves. The balance of the claim is covered by reinsurance or excess. Reinsurance is a tool pools, insurance companies, and self-insureds use to protect reserves in the event of a heavy loss year or a catastrophic loss.

This brings us back to how a hurricane in South Carolina or a wildfire in California can affect your annual member contribution. The pool can secure more favorable pricing for reinsurance based on its members’ favorable claims history, which is why pools work with their members to implement effective risk management programs. More than $100 billion in insured losses were spread across the insurance market in the second half of 2017 with an additional $52 billion in insured losses incurred in 2018, making 2017 and 2018 the costliest back-to-back years on record. While the AMLJIA may not have suffered any catastrophic events last year, such staggering losses drive up the cost of insurance on the commercial market. As a result, the cost of reinsurance for your pool also increases.

As mentioned previously, you can do your part in helping minimize contribution increases by working with your AMLJIA staff to reduce your risk and implement an effective risk management program. Maybe you can’t tame a tornado in Texas, but you can mitigate risk in your own organization. Your entity will benefit from fewer incidents, accidents, and losses, and your pool will gain more purchasing power with reinsurers. Visit www.amljia.org/risk-management to learn more about the AMLJIA’s risk management services, or call us at 800-337-3682.