Agenda 12/09/2014 Item #16E2 12/9/2014 16.E.2.
EXECUTIVE SUMMARY
Recommendation to approve the purchase of Group Health Reinsurance coverage for
calendar year 2015 in the estimated amount of $854,854 to Fairmont/US Fire Insurance
Company effective January 1, 2015.
OBJECTIVE: To protect the Group Health Insurance Fund against catastrophic losses through the
purchase of group health reinsurance coverage.
CONSIDERATIONS: The Board of Commissioners through the Risk Management Department
administers a partially self-funded Group Health Insurance Program (the Plan) for its employees,
participating constitutional officer employees and their eligible dependents.
Group health reinsurance coverage, also known as "Stop Loss", is purchased to protect the Plan
against adverse loss experience. Two types of reinsurance coverage are generally available. Specific
excess insurance protects the Plan if a covered member incurs claims cost in excess of a "per
member" deductible. Aggregate excess insurance provides coverage to the Plan if total losses exceed
an aggregate deductible for the Plan. Currently, the County purchases specific excess insurance
through SunLife Insurance Company with a specific deductible of $325,000 per member. This
coverage provides an unlimited maximum lifetime benefit per covered member. Aggregate excess
coverage is not purchased. The current Stop Loss coverage expires on December 31, 2014.
Willis, Inc., the County's benefits brokerage and actuarial firm marketed the Stop Loss program on
behalf of the County. Willis sought specific excess retention levels (deductibles) ranging from
$325,000 per claimant to $375,000 per claimant. Willis approached sixteen carriers. Four carriers
offered proposals. The common response from carriers who did not quote was that the current rates
paid by the County are significantly below their manual rates, which negatively affects their ability to be
competitive.
Each carrier who submitted quotes offered three self insured retention options ranging from $325,000
to $375,000. Of the four carriers quoting, Fairmont/US Fire offered the most competitive rates and
terms. To maintain the current program, Fairmont/US Fire proposed an 8.8% rate increase compared
to current rates. This equates to an annual premium increase of $69,366. If the excess retention level
(deductible) were increased to $375,000, the rates would decrease 10.6%.
In order to determine which option presents best value, Willis completed an actuarial analysis to
determine the Expected Cost of Risk Transfer. A comparison of the three Specific Deductible options
indicates that the range in the Expected Cost of Risk Transfer(Premium minus Expected Recovery) is
approximately $36,929.
Cost of Risk Transfer
Specific Premium Expected Return on Expected Cost Variance in
Deductible Specific Premium of Risk Transfer Cost of Risk
Options Recovery Transfer
$325,000 $854,854 $790,764 0.925 $64,090 NA
$350,000 $774,937 $728,943 0.941 $45,994 ($18,096)
$375,000 $702,322 $675,161 0.961 $27,161 ($36,929)
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12/9/2014 16.E.2.
Therefore, it is the recommendation of Willis and the Risk Management staff that the Board continue to
purchase the $325,000 Specific Deductible option because the minor difference in the Expected Cost
of Risk Transfer compared to the potential for variability does not justify the assumption of a higher
retention.
The proposal submitted by Fairmont/US Fire has no lifetime maximum benefit limit. Fairmont/US Fire
carries a Best's "A" (Superior) rating. Fairmont/US Fire did not offer an aggregate excess quote.
However, based upon past experience, Willis has repeatedly determined that there is a 99%
probability that the aggregate deductible will never be met. Thus, the purchase of aggregate
reinsurance is not recommended.
Coverage will commence January 1, 2015 for a one year period.
FISCAL IMPACT: The total estimated cost of group health reinsurance in calendar year 2015 is
$854,854 based upon an estimated average enrollment of 1,832 employees. This represents a
premium increase of $69,366 annually. The rates as proposed are $20.57 per single and $51.87 per
family per month. Stop Loss premium comprises 2% of total program costs. Thus, the impact of the
increase on total program costs is not significant. There are sufficient funds available in Group Health
Fund 517 for this purchase.
GROWTH MANAGEMENT IMPACT: There is no growth management impact associated with this
item.
LEGAL CONSIDERATIONS: This item has been approved as to form and legality and requires
majority vote for approval. —CMG
RECOMMENDATION: That the Board approves the purchase of Group Health Reinsurance as
outlined in the Executive Summary and authorizes the County Manager or designee to sign the
documents necessary to commence coverage effective January 1, 2015.
PREPARED BY: Jeffrey A. Walker, CPCU, ARM, Director, Risk Management
Attachments:
• Willis 2015 CCG Stop Loss Report
• Health Reinsurance Quote Summary 2015
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12/9/2014 16.E.2.
COLLIER COUNTY
Board of County Commissioners
Item Number: 16.16.E.16.E.2.
Item Summary: Recommendation to approve the purchase of Group Health Reinsurance
coverage for calendar year 2015 in the estimated amount of$854,854 to Fairmont/US Fire
Insurance Company effective January 1, 2015.
Meeting Date: 12/9/2014
Prepared By
Name: WalkerJeff
Title: Director-Risk Management, Risk Management
11/6/2014 4:06:46 PM
Submitted by
Title: Director-Risk Management, Risk Management
Name: WalkerJeff
11/6/2014 4:06:48 PM
Approved By
Name: GreeneColleen
Title: Assistant County Attorney, CAO General Services
Date: 11/10/2014 4:18:31 PM
Name: PriceLen
Title: Administrator-Administrative Services, Administrative Services Division
Date: 11/25/2014 12:29:53 PM
Name: KlatzkowJeff
Title: County Attorney,
Date: 11/25/2014 4:37:47 PM
Name: KimbleSherry
Title: Management/Budget Analyst, Senior, Office of Management&Budget
Date: 11/26/2014 1 1:16:15 AM
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12/9/2014 16.E.2.
Name: OchsLeo
Title: County Manager, County Managers Office
Date: 11/30/2014 11:22:19 PM
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12/9/2014 16.E.2.
Collier County Government November 11,2014
2015 Medical Stop Loss Marketing Report
Introduction
Each year Willis assists the Collier County Government(CCG)in obtaining quotes, analyzing the responses and
placing stop loss protection for the medical and pharmacy plans offered to the employees of the Collier County
Government and its constitutional affiliates.
Willis seeks stop loss coverage for both specific and aggregate coverage on behalf of the CCG. Specific stop loss
provides reimbursement of medical and pharmacy claims for an employee, spouse or dependent whose claims
exceed a specified deductible in any one year. The current retention level is$325,000.
Aggregate stop loss protects the CCG in the event that total claims for covered individuals exceed a predetermined
amount in any one year. The CCG does not currently purchase aggregate stop loss, as past analysis of the terms
has shown that purchasing this coverage in conjunction with specific stop loss would offer little real protection and
represented a poor value.
CCG had five claimants with total dollars exceeding the specific stop loss in 2012,with reinsured losses totaling
$754,120. There was one claimant that exceeded the stop loss level in 2013. This year through September 30th
there, has only been one claim exceeding the stop loss attachment point. Sun Life has been the carrier during 2013
and 2014.
Marketing Summary and Recommendation
Willis worked to secure terms for the specific medical stop loss program from the current carrier Sun Life. In addition,
a request for proposal document was prepared, approved by the CCG and distributed to select carriers. Quotations
were requested for specific retention levels of$325,000, $350,000 and $375,000. Specific terms were requested on
a 12/24 basis which means the coverage operates on an incurred versus a paid basis. This is consistent with past
practice.
Specific and aggregate quotations were requested from the following carriers:
• AIG (declined—not competitive)
• AmWlns(declined—insufficient information)
b Arch (declined—not competitive)
• BCBSFL(declined—not competitive)
b Beacon Risk(declined—not competitive)
* Zurich (declined)
Amwins(declined)
* Greenwood International(declined—not competitive)
• HM Life(declined—not competitive)
• AIT underwritten by American Fidelity Assurance Company(quoted)
• MunichRE(declined—not competitive rates 80%over current)
• Optum (declined—not competitive)
Symetra(quoted)
Voya(proposal pending)
b United States Fire Insurance Company(quoted)
* Zurich (declined—not competitive)
All these carriers are rated A or better by A.M. Best. Carriers that declined to quote as not competitive did so
because their manual rates were not competitive. The market summary document included with this report provides
the details of the quotations that the carriers provided.
Willis Page 1
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Collier County Government November 11, 2014
2015 Medical Stop Loss Marketing Report
To aid the CCG in making a selection of what level of coverage to purchase, Wills completed three separate
analyses. The purpose of each is summarized below:
1. A standard spread sheet analysis which shows what was quoted at the stated retention levels.
2. A stochastic forecast model which used detailed claims data to forecast the expected number of claims at
each retention level to assist the CCG in selecting the most appropriate retention level.
3. An analysis of the expected claims level for 2015 and the expected variability of total claims. This is done
to assist the CCG in assessing whether aggregate stop loss has potential value and to assist it in better
understanding the volatility risk assumed by being self-insured.
Based on the above analysis Willis believes the risk management needs of the CCG are best met by purchasing
coverage with coverage arranged through US Fire Insurance Company at a$325,000 retention level.
US Fire Insurance Company offered all three coverage levels and offered the most attractive terms at all the levels
quoted.
There was one contingency associated with the US Fire Insurance Quotation. This pertains to one covered member
who may require a significant procedure in 2015. "Laser"is an industry term where the insuring carrier places a
higher deductible on specific individuals.
With respect to the individual in question the laser is conditional. The higher deductible will only apply if the individual
receives the procedure and in the event the procedure occurs the deductible would be$475,000 versus$350,000.
Willis and its retained Medical Director Michael Neren MD reviewed the medical records of the potential recipient.
Although the potential for the procedure cannot be ruled out, Willis believes the probability of the procedure occurring
is remote.Therefore, accepting the conditional laser represents an acceptable risk. In the event the procedure were
to occur the CCG would pay$6,500 more than had a selected the next best quotation from Symetra which did not
have lasers.
There is no annual maximum benefit in the quotation consistent with the requirements of the Accountable Care Act.
Any decision to increase the retention level should be based on an assessment of the CCG's risk tolerance during
2014. The following analysis provides the detail supporting these recommendations to assist the CCG in reaching a
decision.
Willis did not request an aggregate quotation. Past years'analyses have shown that aggregate would represent a
poor value and for 2015,the expected upper limit variance in total claims at the 99% confidence interval is 111%
(refer to the attached chart that shows the likelihood of claims exceeding certain levels). This is far below the 120%
to 125%terms that carrier will offer. The CCG would have less than a 1% probability of collecting on coverage that
costs upwards of$50,000 annually. Therefore, it does not make sense to go back to the recommended carrier and
request a quote.
Quote Cost Analysis
The attached document labeled Specific Level Retention Support Analysis outlines what US Fire Insurance Company
quoted at each retention level. The analysis shows that they will increase premiums 8.8%%for the current retention
level of$325,000. Increasing the retention level to$350,000 would cost would reduce premiums by 1.3%when
compared to the current rates, and for a retention of$375,000,the rate would be 10.6% less than current.
W1111S
Page 2
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Collier County Government November 11,2014
2015 Medical Stop Loss Marketing Report
These are competitive terms. Stop loss renewal increases typically range from between 20%to 40%due to two
factors. The first being the carriers' risk expectations based on a review of emerging high cost claims/trigger
diagnoses and the second due to what is called leveraged trend. Leveraging is what happens to the amount of
claims exceeding a specific level($325,000 in the CCG's case)when claim costs are increasing.
For example, assume a claim of$400,000 occurred for an individual with cancer. In this case,the CCG would
receive$75,000 back from the reinsurer. Now let's assume costs increase 5% (which is consistent with medical
CPI). Next year the same claim would cost$420,000. Under this scenario,the amount collected under the
reinsurance would be$95,000 instead of$75,000. This represents an increase of 27%.
As in the past,all quotes were made assuming a 12/24 basis. This means coverage applies to all claims incurred in
2015 and paid by December 31,2016,so there is no concern at the end of the year about getting claims paid so they
will be included against coverage.
Retention Level Analysis
Willis actuaries developed a Monte-Carlo simulation model using actual large claims in 2009-2013 and the first 8
months of 2013 to forecast the large claims that are likely to occur in 2015. Note that the expected number of claims
for quoted retention levels is lower than what CCG actually experienced in 2012. Since the forecast is based on
several years'experience adjusted for trend at 5%annually,the forecast continues to suggest lower claims than
occurred in 2012,which was an above-average claims year.
Refer to the attached document labeled Collier County Government—Specific Level Retention Support Analysis.
The first page shows the actual and expected number of claimants that exceed specific levels. It also shows the
expected cost of risk transfer. When the risk transfer number is negative,the model is suggesting the likelihood that
the specific recoveries will exceed the premium paid. Generally,a negative or smaller number suggests that specific
retention is likely to provide the best return.
This analysis suggests that, based on the expected claims at each level,the CCG would expect savings of$18,000
and $37,000 by choosing a higher stop loss deductible. Compared to the$854,854 in premium for the current level
and the$25,000-$50,000 additional risk per claim,these are relatively small savings.
Page two is an analysis that shows the relative cost savings associated with increasing the specific level and the
number of large cost claimants that must occur to offset the savings.
The premium reduction CCG will receive for raising its attachment point from$325,000 to$350,000 will offset the
additional cost of paying the associated claims if CCG incurs fewer than 3.2 claims exceeding the$325,000
attachment point. To put this in perspective,there was 1 claim over this level in 2009 and 2010,2 in 2011 and 3 in
2012 and 1 in 2013. So far in 2014 the CCG has experienced only 1 claim of this magnitude.The analysis indicates
that the probability of large claimants not exceeding the level where the savings is negated is 74%. Put another way,
there is approximately a 26%chance that if the County increases the specific stop loss level to$350,000 that the
savings in premium will be offset by greater claims payments.
The second breakeven analysis suggests that increasing the retention level to$375,000 is less likely to yield positive
results. The second table shows that in order for the$37,000 in net premium savings not to be offset by additional
claims,there would need to be three claims exceeding the$325,000 level. Our analysis says the likelihood of the
premium savings exceeding the additional claim amounts is 66%. Conversely,there is a 35%chance that the
additional claims retained by the County would exceed the premium savings. Willis does not believe these figures
make a compelling argument to increase the retention limit given the net premium savings that might be generated.
Will1S Page 3
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Collier County Government November 11,2014
2015 Medical Stop Loss Marketing Report
Aggregate Stop Loss Analysis
We did not request quotes. Typically a stop loss carrier will set a somewhat conservative expected claims target and
set the threshold for aggregate coverage at this level plus 20%or 25%.
Please see the chart labeled"Likelihood of Medical Claims(with RX) Cost Greater than Listed$Per Employee Per
Month for CY 2014--Assuming 8% Trend."
This loss probability distribution shows the likelihood of claims falling within certain ranges. We estimated the overall
claims cost for 2015 to be$1,238 per employee per month, There is a 99% likelihood that claims will not exceed
$1,377 per employee per month- 11%above the expected level. With carriers setting the aggregate attachment
point at 25%above expected,the likelihood of meeting the aggregate threshold is well below 1%.
Willis does not believe that purchasing aggregate stop loss would be a good investment.
Willis Page 4
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12/9/2014 16.E.2.
Collier County Board of County Commissioners
2015 Stop Loss Marketing Analysis-$325,000
Sun Life Sun Life IAT l Symetra
American Fidelity Fairmont I US Fire
xx nt W
ENROLLED ,, CURRE ; :RENEW PROPOSED We-PIP-POSED PROPOSED ;
Reinsurance Contract Provisions?' S N, ° ��s , �um c m t r c A 0
'13#.,.�'......5 �
Maximum Reimbursement
ISL-Lifetime Unlimited Unlimited Unlimited Unlimited Unlimited
ISL-Annual Unlimited Unlimited Unlimited Unlimited Unlimited
Aggregate-Annual NA $1,000,000 $1,000,000 NA NA
Covered Benefits
ISL- Medical,Rx Medical,Rx Medical,Rx Medical,Rx Medical,Rx
Aggregate- NA Medical,Rx Medical,Rx NA NA
ISL Contract =
Deductible $325,000 $325,000 $325,000 $325,000 $325,000
Contract Type 12/24 12/24 12/24 12/24 12/24
Reimbursement Method Simultaneous Manual Manual Manual
Rates
Composite 1,832 $35.73 $48.59 $58.81 $44.27 NA
Single 760 NA NA NA NA $20.57
Family 1,072 NA NA NA NA $51.87
Estimated Annual Premium $785,488 $1,068,203 $1,292,879 $973,232 $854,854
Aggregating Specific Liability $0 $0 $0 $0 $0
Estimated Annual Premium including
Aggregating Specific $785,488 $1,068,203 $1,292,879 $973,232 $854,854
Aggregate Contract.'.( ,
Contract Type NA 12/24 12/24 NA NA
Premium Rate-Composite 1,832 NA 5= 2.52 NA NA
Annual Aggregate Premium NA $203,792 $55,400 NA $0
Total Insurance Premium including • .
Aggregating Specific Liability $785,488 s $1,271;894 $1 348,279 $973 232 $854,854 -
%Change N/A 61.9% 71.6% 23.9% 8.8%
Maximum Claims Exposure
Risk Corridor NA 125% 125% NA NA
Aggregate Minimum% NA 90% 100% NA NA
Aggregate Factors
Composite 1,832 NA $1,569.79 $1,741.32 NA NA
Single 760 NA NA NA NA NA
Family 1,072 NA NA NA NA NA
Estimated Annual Expected Claims y li NA,. $27,608,211;, <<, $30,624,943 NA NA
Estimated Annual Aggregate Loss Fund : a-, ,•_
, NA' $34,510,263, :.' $38,281,179 NA NA
Total Annual Stop Loss Premium
including Aggregating Specific Liability NA $1,271,994 ' $1,348,279 , NA NA
Total Annual Expected Claims,SL.
Premium and Aggregating Specific,.,,-: .-. m NA '4,, 880 205 $31 973 222 NA NA
Liability: .,
Total Annual Maximum Claims and SL i - ., m
Premium and Aggregating Specific NA' $35,782 258 $39,629,458 NA NA
Liability
Gl
Participation NA Maintain current Maintain current Maintain curcent Maintain curcent
Run-In Limit NA None None None None
No New Lasers at Renewal Included Included with 50% Not included Included Not included
Renewal Rate Cap
Contingencies Apply NA Yes Yes Yes Yes
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12/9/2014 16.E.2.
Collier County Board of County Commissioners
2015 Stop Loss Marketing Analysis-$350,000
Sun Life Sun Life IAT / Symetra Fairmont/US
American Fidelity
�
Fire
'` r7 :}Z t EN14-OLLD
yCURRENT, `PROPOSED t PROPOSED' PROPOSEd PROPOSED
... ..... ................. .... ..
ReinSllrafCe Contract PrOYISlons W t , Ia' t '' ,t . Y�x 11 zd'- ,s's z q e- f
Maximum Reimbursement
ISL-Lifetime Unlimited Unlimited Unlimited Unlimited Unlimited
ISL-Annual Unlimited Unlimited Unlimited Unlimited Unlimited
Aggregate-Annual NA $1,000,000 $1,000,000 NA NA
Covered Benefits
ISL- Medical,Rx Medical,Rx Medical,Rx Medical,Rx Medical,Rx
Aggregate- NA Medical,Rx Medical,Rx NA NA
ISL.Contract # i" ,` r I
ir ' a� ae $3 74:'0,'.:98C e Deductible $325,000 0 , Q , 5 J
Contract Type 12/24 12/24 12/24 12/24 12/24
Reimbursement Method Simultaneous Manual Manual Manual
Rates
Composite 1,832 $35.73 $44.83 $52.54 $39.68 NA
Single 760 NA NA NA NA $18.62
Family 1,072 NA NA NA NA 47.04
Estimated Annual Premium $785,488 $985,543 $1,155,039 $872,325 $774,937
Aggregating Specific Liability $0 $0 $0 $0 $0
Estimated Annual Premium including
Aggregating Specific $785,488 $985,543 $1,155,039 $872,325 $774,937
Aggregate Contract '_ ?
Contract Type NA 12/24 12/24 NA NA
Premium Rate-Composite 1,832 NA $9.27 §= NA NA
Annual Aggregate Premium NA $203,792 $55,400 NA $0
Total Insurance Premium including ' '=.- :.
Aggregating Specific Liability $785,488 ' $1,188,334'':' $1,210,439 $872,325 $774■937
%Change N/A 51.4% 54.1% 11.1% -1.3%
Maximum Claims Exposure
Risk Corridor NA 125% 125% NA NA
Aggregate Minimum% NA 90% 100% NA NA
Aggregate Factors
Composite 1,832 NA $1,573.21 $1,748.19 NA NA
Single 760 NA NA NA NA NA
Family 1,072 NA NA NA NA NA
Estimated Annual Expected Claims . . NA " ; $27,668,359 $30,745,767 •. NA . NA
Estimated Annual Aggregate Loss Fund NA $34,588,449 $38,432,209 .. NA'` '' NA
Total Annual Stdp Loss Premium NA $1,189,334. $1,210,439 NA; NA
including Aggregating Specific Liability .
Total Annual Expected Claims,SL
Premium and Aggregating Specific NA ` $28,857,693 $31,956,206 - NA. NA
Liability
Total Annual Maximum Claims and SL
Premium and Aggregating Specific`.:' NA $35,774,783 ' - $39,642,648 , .NA NA"`
Liabil
Participation NA Maintain current Maintain current Maintain current Maintain current
Run-In Limit NA None None None None
No New Lasers at Renewal _ Included Included with 50% Not included Included Not included
Renewal Rate Cap
Contingencies Apply NA Yes Yes Yes Yes
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Collier County Board of County Commissioners
2015 Stop Loss Marketing Analysis-$375,000
ENROLLED* PROPOSED PROPOSED ..PROPOSED' PROPOSED'. s . ;
Reinsurance Contract Provisions:
Maximum Reimbursement
ISL-Lifetime Unlimited Unlimited Unlimited Unlimited Unlimited
ISL-Annual — Unlimited Unlimited Unlimited Unlimited Unlimited
Aggregate-Annual NA $1,000,000 $1,000,000 NA NA
Covered Benefits
ISL- Medical,Rx Medical,Rx Medical,Rx Medical,Rx Medical,Rx
Aggregate- NA Medical,Rx Medical,Rx NA NA
ISL Contract
Deductible $325,000 $3750Obr $375000 $7S,OOts ` $M3/7 5,,O O
0 i,
Contract Type 12/24 12/24 12/24 12/24 12/24
Reimbursement Method Simultaneous Manual Manual Manual
Rates
Composite 1,832 $35.73 $42.28 $47.84 $35.84 NA
Single 760 NA NA NA NA $16.85
Family • 1,072 NA NA NA NA $42.65
Estimated Annual Premium $785,488 $929,484 $1,051,715 $787,907 $702,322
Aggregating Specific Liability $0 $0 $0 $0 $0
Estimated Annual Premium including
Aggregating Specific $785,488 $929,484 $1,051,715 $787,907 $702,322
Aggregate Contract
Contract Type NA 12/24 12/24 NA NA
Premium Rate-Composite 1,832 NA $9.27 $2.54 NA NA
Annual Aggregate Premium NA $203,792 $55,839 NA $0
Total insurance Premium including
Aggregating Specific Liability ' $785,488 $1,133,275 $1,107,554 $787,907 ' $702,322
%Change N/A 44.3% 41.0% 0.3% -10.6%
Maximum Claims Exposure -
Risk Corridor NA 125% 125% NA NA
Aggregate Minimum% - NA 90% 100% — NA NA
Aggregate Factors
Composite 1,832 NA $1,575.67 $1,753.33 NA NA
Single 760 NA NA NA NA NA
Family 1,072 NA NA NA .. NA NA
Estimated Annual Expected Claims NA $27,711,623 $30,836,165 NA -NA��
Estimated Annual Aggregate Loss Fund NA $34,639,529 $38,545,207 NA NA
Total Annual Stop Loss Premium including
Aggregating Specific Liability NA $1,133,275 $1,107,554 NA NA
Total Annual Expected Claims,SL Premium
and Aggregating Specific Liability NA $28,844,899 $31,943,719 NA NA
Total Annual Maximum Claims and SL
Premium and Aggregating Specific Liability NA $35,772,804 $39,652,761 NA NA
Participation NA Maintain current Maintain current Maintain current Maintain current
Run-In Limit NA None None None None
Included with
No New Lasers at Renewal Included 50%Renewal Not included Included Not included
Rate Cap
Contingencies Apply NA Yes Yes Yes Yes
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