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Presentors : Michael Simmons , Vice Chairman – Public Entities Alliant Insurance Services

Keep Your Hands Out of My Agency's Deep Pockets: The Growing Liability Crisis for Public Agencies in California April 24, 2019. Presentors : Michael Simmons , Vice Chairman – Public Entities Alliant Insurance Services Kelly Halcon , Director of Human Resources/Risk

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Presentors : Michael Simmons , Vice Chairman – Public Entities Alliant Insurance Services

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  1. Keep Your Hands Out of My Agency's Deep Pockets: The Growing Liability Crisis for Public Agencies in California April 24, 2019 Presentors: Michael Simmons, Vice Chairman – Public EntitiesAlliant Insurance Services Kelly Halcon, Director of Human Resources/Risk Monterey Salinas Transit District Kelly Shawn, Senior Associate RLS & Associates Moderator: Charlie Anderson, General Manager Western Contra Costa Transit Authority

  2. Presentation OverviewCharlie Anderson, General ManagerWestern Contra Costa Transit Authority • Opening Comments • State of the Market 2019 • The Risk of Bus Stops for Transit • Managing Transit Risk with Safety Management Systems 2

  3. State of the Market 2019Michael Simmons, Vice Chairman – Public EntitiesAlliant Insurance Services • Transit – An Example of the Developing Problem • Industry Highlights • Property/Casualty Industry Performance • The New Reality – Emerging & Evolving Risks • Toward the Future 3

  4. Why Pedestrian Deaths are at a 30 Year High • Both Drivers and walkers use cell data 4,000 percent more than they did in 2008, which means they aren’t watching the road. • In 2018 6,227 pedestrians died in traffic accidents in the U.S. • In California, in the first half of 2018 alone, 432 Pedestrians were killed. • What accounts for the 30% jump in Pedestrian Deaths in the past ten Years: • Smartphone Distractions • SUV Market share Increase NPR Morning Addition – March 28, 2019

  5. General Liability Severity Increasing Bus Shelter Collapses During Inclement Weather at Chicago O’Hare • Severs spinal cord of 26 Year old woman. • $115M Settlement

  6. Other Large Public Entity Liability Claims State of Washington • Taylor Bridge Fire – Wildfire sparked by construction workers welding on bridge • $60M Total Settlement, $40M from DOT for negligence. “If you hire a contractor and you know they are behaving in a negligent fashion and you don’t do anything about it, you are liable” Caltrans • A roadside construction worker struck by vehicle, now a quadriplegic • $56M jury verdict, 100% liability to Caltrans for dangerous condition Notre Dame Cathedral Fire April 15, 2019

  7. Transit Losses • Large Losses • We have more large losses affecting more layers of the program. Some of these are older losses continue to develop poorly. • 2. Overall Market Conditions • Most public transit systems are experiencing adverse loss development, especially in California. • Severity continues to go up because of: • 1. Aggressive plaintiffs attorneys • 2. Severity increasing for General Liability claims as well • 3. Rising Medical Costs – In the Past 10 years Bodily Injury claims have gone up 42% (source: Liberty Mutual) • Frequency is Increasing because of: • 1. Distracted driving 2. Aggressive driving • 3. Impaired Driving 4. More Miles

  8. Excess Insurance Layers are the Real Problem A Real Life Example • $2M xs $3M layer: 25% rate increase (60% rate increase last year) • $7M xs $3M: ESTIMATINGat least a 27% Rate increase on layer (Awaiting Further Updates – 90% rate increase last year) • $15M xs $10M Layers: ESTIMATINGat least 18% Rate Increase in the (Awaiting Further Updates – 125% rate increase last year)

  9. Driver killed, 18 injured after 2 NJ Transit buses crash in Newark • Newark bus crash victims to sue for at least $115M for 'catastrophic' injuries

  10. Collision Avoidance System Effects • Direct Effect • Give warnings about a potential collision • Pedestrians • Cyclists • Motorcyclists • Vehicles (forward collision) • Indirect Effect • Bus drivers’ mindset change • Fuel savings ("'2%)

  11. Claims > $100K

  12. Top Five Large Claims • 4 out of 5 could be prevented by the system • $18 Million could be saved (16% of total large losses)

  13. PROPERTY/CASUALTY INDUSTRY PERFORMANCE

  14. Industry Highlights • 2018 is likely to be a ‘normal’ catastrophe year for the re/insurance industry as overall losses are expected to be in line with the 10-year average of $50 billion, according to analysts at Peel Hunt. • Losses will be particularly weighted towards Japan in Q3 and the U.S in Q4 due to the impact of Typhoons Jebi and Trami, Hurricanes Florence and Michael, and the California Wildfires. • Key Industry Metrics • The U.S. property & casualty industry posted a combined ratio of 96.2% in the first-half 2018, the lowest three-month combined ratio of the last five years, according to AM Best. The combined ratio for 2017 was 103.7%. • In the first-half 2018, Policyholder surplus increased to $761.1B It was at a record high of $750.7B as of 12/31/17. • Private U.S. property/casualty insurers saw their net income more than double to $34 billion in the first-half 2018, helped by lower catastrophe losses and reserve releases. • Weather extremes, wildfires, catastrophic losses and investment earnings remain areas of concern for insurers. Source: A.M. Best, ISO, Property Casualty Insurers Association of America (PCI) and Peel Hunt

  15. Property/Casualty Net Income after Taxes*, 2007-18 Billions, 2018 dollars • In the second quarter of the year, net income varied over the last decade. 2018 had the highest profit in the last 11 years. • Why did profits spike in 2018? Favorable conditions: Earned premiums grew by more than 9%, but claims grew by only 3%. *Through second quarter. Adjusted for inflation using the BLS CPI calculator to 2018 dollars.Sources: NAIC data, sourced from S&P Global Market Intelligence; Insurance Information Institute. 6

  16. P/C Net Premium Growth vs. Nominal GDP 1971-2017 1984–87 2000–03 1975–78 • Sources: A.M. Best (1971-2013), ISO (2014-17); U.S. Commerce Dept., Bureau of Economic Analysis; I.I.I. • Shaded areas denote “hard market” periods The Economy Drives P/C Insurance Industry Premiums Except for the three “hard markets” in this 47-year period - 1976–77, 1985–86, and 2001–03 - Net Written Premiums track Nominal GDP — not year by year but recently fairly well.

  17. P/C Insurance Industry Combined Ratio* Higher CAT Losses, Shrinking Reserve Releases, Toll of Soft Market 3 Consecutive Years of U/W Profits; 1st time since 1971-73 Hurricanes, Wildfires Drive CR Higher. Best Combined Ratio Since 1949 (87.6) Sandy • Through Q2. • *Excludes Mortgage & Financial Guaranty insurers 2008-2014.Including M&FG, 2008=105.1, 2009=100.7, 2010=102.4, 2011=108.1; 2012:=103.2; 2013: = 96.1; 2014: = 97.0. • Sources: A.M. Best; ISO, a Verisk Analytics company; I.I.I. projection for 2018.

  18. THE NEW REALITY

  19. 10 Emerging Risks Affecting Public Entities Click here to access the interactive version: http://riskandinsurance.com/10-emerging-risks-affecting-public-entities/

  20. Data Breaches & Cyber Security Most data breaches are the result of weak or overused passwords… Enough said?

  21. IMPACT OF NATURAL CATASTROPHES

  22. 2017 - a Record Year for Catastrophic Losses Natural Disasters have greater impacts due to increased concentration of exposures on the coasts and fire-prone areas. Cyber risks grow as we become more interconnected. Flooding events spurred 73% of federal disaster declarations Thunderstorm related losses 2nd highest ever in U.S. $14 billion insured wildfire losses; California damage estimated ~$11 billion N.A. hurricane season record-breaking insured & economic losses; disasters affected >25 million Americans Cyber: Risk continuing to increase Auto: Reaching epidemic proportions

  23. U.S. Insured Catastrophe Losses Harvey, Irma, Maria* 2017 – Worst Ever for U.S. Insured Catastrophe Losses. Average Insured Loss per Year for 1989-2017 is $22.4 B. Sources: *2017: Inflation-adjusted PCS estimate, subject to change. **2018: Peel Hunt expectation Sources: Property Claims Service, a Verisk Analytics business; Insurance Information Institute. .

  24. Wildfires • Carr Fire, Redding, CA July 18, 2018 • Photo courtesy of Cal Fire On average, more than 100,000 wildfires, also called wildland fires or forest fires, clear 4 million to 5 million acres (1.6 million to 2 million hectares) of land in the U.S. every year. In recent years, wildfires have burned up to 9 million acres (3.6 million hectares) of land.

  25. Other Consequences of Wildfires • The deadliest blaze in California's history is threatening to cause losses for investors who purchased the first catastrophe bond designed specifically to cover wildfire risk. • San Francisco utility giant PG&E Corp. sold the $200 million bond in August to insure against liability from future infernos. Three months later the Camp Fire in Northern California burned more than 18,800 structures and killed at least 85 people. • Investors will suffer significant losses if state investigators determine that PG&E was responsible for the November conflagration. PG&E said in a Nov. 13 filing that it has $1.4 billion in liability coverage, including the catastrophe bond, and expects to use all of it if found liable for the Camp Fire. • A PG&E spokesman said the utility is participating in the investigation into the fire's cause.

  26. Earthquakes Rescue workers look at the Yun Tsui building, which is leaning at a precarious angle, in the Taiwanese city of Hualien. It was hit by a 7.1 magnitude earthquake on February 6, 2018 , which killed 17 people. (Anthony Wallace / AFP/Getty Images) Taiwan sits on an earthquake “ring of fire” that also touches California.

  27. The Alaska Earthquake of Nov 30, 2018 • A magnitude (M) 7.0 earthquake struck north of Anchorage, Alaska, on November 30, 2018. • Located along the Ring of Fire which sees 81% of the world’s largest earthquakes, Alaska is no stranger to earthquakes. Alaska has experienced several of these devastating earthquakes in the past including the M9.2 in 1964 – the largest U.S. earthquake in recorded history.

  28. The new scourge on our streets… … Shared Bikes & Electric Scooters!

  29. TOWARD THE FUTURE

  30. Looking Forward 18+ Months . . . • Drone Deliveries • Autonomous Ships & Flying Taxis • Unemployment / Underemployment • The Internet of Things & Rising Cyber Dependency • Cyber crimes escalate • 3D Printing • Aging Infrastructure Woes • Rising income and wealth disparity • Profound social instability

  31. Looking Ahead • Expect upward pressure on property rates: buyers of property insurance should budget conservatively.  We will see rate increases of 10% with larger increases for insureds with above average losses.  Poor performing accounts and classes will experience increased pressure. Dramatic price increases and reductions in coverage can be expected for Sexual Abuse and Molestation. General casualty lines of coverage may see modest increases, while others such as law enforcement liability, commercial automobile liability and employment practices liability (EPL) may see higher price increases.

  32. The Risk of Bus Stops for Transit OperatorsKelly Halcon Director of Human Resources/Risk Monterey Salinas Transit • Know thy bus stop • Location…location…location • Training • Mitigation through Training 33

  33. Highlights • MST covers 295 square miles • Within the service area • there are 1,317 Stops • MST serves over 13 • different jurisdictions • 4,632,152 revenues miles • traveled

  34. Know your thy bus stop • Know the ownership of the bus stop • Make sure the bus stop is properly insured • New bus stops -agreement of ownership (Insurance coverage)

  35. Location…Location…Location • Placement of your bus stop can greatly determine an agency’s liability. “Lawsuits seek $40M over 'dangerous' bus stop”- Battle Ground, WA

  36. Training of drivers • Train your drivers to watch people as they approach bus stops • Watch pedestrians as • they walk down the • street or cross the street • Keep an eye out for • passengers and where • they go after they • leave the bus

  37. Mitigation through technology • Use of the cameras on buses • Use of cameras at facilities and bus stops • Use of voice announcement on • Buses • Use of future technologies

  38. Managing Transit Risk with Safety Management SystemsKelly Shawn, Senior Associate RLS & Associates • Daily Transit Risk – employees, riders, community • How is Safety Management Systems Different • Changing the Culture of Safety • Public Perception 39

  39. Daily Transit Risks • Some Areas of Transit Risk • Vehicle operation • Pedestrians and drivers • Vulnerable Riders • Asset Maintenance • Financial Management • Emergency Response • Policies and Procedures • Training • Hiring Practices • Security • Transit exposes itself to risk as soon as the first bus leaves the lot. Risk is not exclusive to riders, but also the community, funding sources and employees. nsurers.

  40. How is Safety Management Systems (SMS) Different? • SMS Framework • Policy – Leadership and Employees • Safety Risk Management • Identify • Assess • Mitigate • Safety Assurance • Monitor • Performance • Proactive • Safety Promotion • Training • Communication

  41. Changing the Culture of Safety • Empowering Employees Everyone plays a role in defining a transit systems safety program. From bus washer to Accountable Executive See something, say something Management will have your back Employee support shown through actions taken by management

  42. Public Perception • What does your community think of your system? • Choice riders can be lost due to poor…. • Safety record • Maintenance record • Vehicle condition • Personnel issues • Policies • Controversial advertisements • Periodic fare increases • Environment concerns • Schedules

  43. Questions? Thank You Please contact us if you would like a copy of this presentation.

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