For the past several months, the Primary General Liability Program has been the subject of conversations and analysis by the PGL, Underwriting, and Executive Committees, as well as the Board. The bottom line is this: the PGL Program as it stands on its own, is one of the smallest Programs offered by the EIA. There are 22 members with premiums of only $1.9M. An internal analysis showed the PGL Program’s administrative fees were 28% of the annual premium for the Program. In comparison, the EIA’s other programs’ average annual administrative costs are generally at or below 5%. Because of this discrepancy, staff has been looking at other options for the PGL Program to bring its administrative expense ratio down.
Over the past few months, there have been discussions surrounding the possibility of merging the PGL and General Liability 1 (GL1) Programs to address the administrative expense ratio and to improve the efficiency of the PGL Program. This would involve dissolving PGL as a stand-alone program, and having the GL1 Program offer a new Deductible Buy-Down Option.
The idea is that the Deductible Buy-Down Option in the GL1 Program will offer terms to match up to the current PGL Program structure, at least for the first year, which include a $10k per occurrence deductible, the GL1 Program will provide the duty to defend for at least the first $100k of loss and possibly more, and members will still select their TPA from the approved list for their claims administration services. The PGL Committee will be dissolved, with governance shifting to the Underwriting Committee for the approval of new members, the evaluation of renewal terms, and setting rates, and the Claims Review Committee will govern the settlement of claims, monitoring the claims administrators, and the oversight of claims audits. At the PGL Committee’s request, a seat (voting or alternate) on the Underwriting Committee will be designated for a member participating in the Deductible Buy-Down Option.
In order to fully dissolve the PGL Program, the outstanding liabilities will be transferred to the GL1 Program for a premium, which will be paid from the PGL Program’s Net Position rather than a collection from the members. At their meeting on May 10th, the PGL Committee took action to move forward with the dissolution and merge with GL1, and to declare a $980,419 dividend, which will return the remaining Net Position of the Program back to the participating PGL members.
What are the takeaways for PGL members?
Nothing will change from a PGL member’s perspective—the coverage and program structure remain the same, and members will benefit from larger economies of scale including administrative costs being spread over a larger membership. Being part of a larger group should bring additional stability and spread of risk.
The Board of Directors has approved Resolution B18-002 merging the PGL Program into the GL1 Program, effective July 1, 2018, including: