It’s renewal season at VML Insurance Programs (VMLIP) – and also budget season for members. While many line items on a budget may fluctuate from year to year, VMLIP’s rates have remained very stable over the past five years.
“Rate stability is a major goal for VMLIP,” said VMLIP Managing Director Steve Craig. “We know our members count on this and over the years we have been successful in maintaining stable rates, while also continuing to add to members’ equity.”
Members’ equity is the financial strength that allows VMLIP to better negotiate reinsurance terms, add new products and services, provide underwriting flexibility and ignore short-term volatility in claim results.
“A key factor in our rate stability is members’ equity,” said Craig. “VMLIP currently has more than $80 million, which we can use to offset short term losses or increases in reinsurance costs.”
A pool with insufficient member’s equity is unable to fund any unexpected short-term increases, and in extreme cases may be unable to continue operations.
Rate stability is also an important factor to our reinsurers.
“We have several reinsurers who assume the risk over our self insured retention, typically $1 million,” said Craig. “VMLIP’s policy for rate stability enables our reinsurers to remain confident that our pricing will not change drastically from one year to the next. Dramatic rate fluctuations would negatively impact our ability to keep or attract future reinsurers.”
In the past reinsurance rates have risen steeply. Liability and workers’ compensation reinsurance was affected after the 9/11 terrorist attacks, and property reinsurers have been affected by several catastrophic storms worldwide over the past decade. In most cases, VMLIP was able to temporarily absorb these rate increases until the pool could either negotiate better terms with the current or another carrier, or until the market stabilized.
“Our ability to absorb this exposure and not have to react with immediate rate increases is due to our considerable member equity,” said Craig.
Another significant factor in VMLIP’s ability to maintain low stable rates is member commitment to positive risk management practices. A commitment to proactive risk management results in lower claims over time, which allows VMLIP to keep rates stable even amidst nationwide increases in the cost of medical treatment and legal fees.
Currently 26 percent of members receive a premium credit for overall risk management practices such as achieving a 100 percent score on the Risk Management Guidelines, participating in the Where the Rubber Meets the Road campaign, and through obtaining a law enforcement accreditation.
Another area that contributes to rate stability is investment income. A key element of VMLIP’s investment strategy is to sufficiently diversify its portfolio to leverage the often-inverse fluctuations in market values by sector, in order to maintain stable investment returns over time while remaining focused on the preservation of capital.
“Of course, rates are only one factor in the development of member insurance premiums,” said Craig. “The rate is multiplied by an exposure factor – such as automobiles, buildings, expenditures, payroll, etc. – to determine a manual or base premium. There are also factors applied for loss experience and the various credits mentioned above.”
Lastly, VMLIP considers exposure to loss not currently reflected in a member’s loss experience – such as rapid population growth, significant employee turnover, or failure to maintain property due to budget constraints – that represent exposure to claims for the pool. Although rates may remain stable, it is possible that premiums will still increase particularly due to one or more of these other factors.
If you have any questions, or need additional information regarding VMLIP’s rating or pricing methodology, please contact your underwriter.
VMLIP offers more than just coverage. We are partners in risk management. How does your insurer stack up? Having all lines of coverage with VMLIP ensures that your organization is receiving comprehensive coverage and a wide variety of value-added services tailored to Virginia’s local governmental entities. Call for a quote today: (800) 963-6800. For more information on VMLIP visit: www.vrsa.us or follow us on Facebook.