4.8 SAO Annual Report Schedules
4.8.9 Risk Management (Schedule 21)
Financial reporting guidance
184.108.40.206 Please refer to Risk Management Principles for GAAP financial reporting guidance.
Cash basis governments should also refer to this section for definitions and note disclosure guidance for any potentially material contingencies that are either probable or reasonably possible.
Applicability of schedule
220.127.116.11 Schedule 21 is required for all local governments. The purpose of this schedule is to report information on how the government responds to risks/payments in the following categories: liability, property, health and welfare, unemployment compensation, workers’ compensation and Washington Paid Family & Medical leave. Local governments may assume the risk, purchase insurance, become a member of a risk pool, self-insure their own risks only (an individual self-insurance program) or self-insure jointly with other governments pursuant to Chapter 48.62 RCW or another enabling statute.
18.104.22.168 Local governments occasionally maintain or assume risk for one or more risks without setting resources aside as part of a self-insurance program. This activity does not constitute a self-insurance program under RCW 43.09.260(1).
22.214.171.124 Instructions to preparer:
Self-insurance program manager: This is generally the person responsible for designing and implementing an overall risk management process for the entity or the appropriate person to contact with questions about the entity's self-insurance programs.
Use the following definitions and information when preparing responses in the schedule for the method used by the entity to address risks related to property, liability, health and welfare, unemployment compensation, workers’ compensation and any other insurable risk.
Self-insurance: Risk management approach in which an entity formally sets aside money to pay or fund future claims and probable losses, instead of transferring the risk by purchasing an insurance policy. Setting resources aside to fund a deductible as part of an insurance policy is not considered self-insurance.
Risk assumption: Risk management approach in which an entity has an insurable risk of loss but neither purchases an insurance policy nor has a program to set aside funds to cover those obligations should they arise. In other words, the entity will simply pay the claims or losses as they arise without creating a program and setting money aside.
Public entity risk pool: A cooperative group of governmental entities joining together through a written agreement to finance an exposure, liability or risk. A pool may be a stand-alone entity or be included as part of a larger governmental entity that acts as the pool’s sponsor.
There are two basic types of public entity risk pools:
1. Risk is retained by members: Some public entity risk pools do not involve any transfer or pooling of risk among pool participants. Each participant is completely responsible for (and only responsible for) its own claims liabilities. In other cases, members pay a required contribution to a pool based on the individual member's claims/loss experience. If the member’s actual losses exceed the initial charge, the member will be assessed an additional amount to fully reimburse the pool. If the premium exceeds the losses, the entity will receive a refund. In all the above situations, risk has been retained by the member and it is considered to be self-insurance for the member. There are two main categories of these types of arrangements:
a) Banking: an arrangement by which monies are made available for pool members in the event of a loss on a loan basis.
b) Claims-servicing: an arrangement by which a pool manages separate accounts for each pool member from which the losses of that member are paid. Members contribute their funds to these accounts.
2. Risk is transferred to the pool: This is often referred to as a risk-sharing pool. In this case, the pool collects premiums that it estimates will cover the costs of all claims for which the pool is obligated. If a member's losses are different than its premiums, there is no regular, supplemental assessment or refund. The insurer (pool) views its activities in the aggregate, rather than on an individual insured member basis, which is the case for pools where risk is retained by members. In this situation, risk is shared by members, with the pool acting as the insurer. Although risk is transferred by members to the pool, it is not the same as purchasing an insurance policy since the pool is organized as a cooperative – the members remain liable for unpaid claims in excess of pool resources. Many risk pools have a “retroactive assessment” provision in their agreements whereby the risk pool will charge members in the event losses exceed available assets. Alternatively, pools may declare supplemental assessments or refunds depending on the loss experience of members or may increase or decrease premiums for future coverage. This type of arrangement is not considered self-insurance.
Unemployment compensation – taxable: The entity is assigned a rate that is applied to applicable wages and makes payments quarterly. Rates are reassessed annually by the Employment Security Department (ESD). The taxable basis is not considered self-insurance.
Unemployment compensation – reimbursable: The reimbursable status is considered self-insurance. Entities must be approved for this status by the ESD. Entities report quarterly wages to the ESD. Unemployment claims are still managed, approved and paid by the ESD, but the ESD submits a quarterly claim for reimbursement to the entity for all claims paid on the entity’s behalf.
Workers’ compensation – taxable: The entity is assigned a rate that is applied to applicable wages and makes payments quarterly. Rates are reassessed annually by the Department of Labor and Industries (L&I). The taxable basis is not considered self-insurance.
Workers’ compensation – self-insured employer: Entities must submit for formal approval via an application to the L&I to operate as a self-insured employer. As a self-insured employer, the entity sets funds aside to pay for workers’ compensation claims, but L&I still reviews and approves all claims, and sends approved claims to the entity to pay.
Washington Paid Family & Medical Leave (PFML) – State Program: The entity pays assigned rates to ESD based on applicable gross wages. Claims are managed, approved and paid by the ESD. This is not considered self-insurance.
Washington Paid Family & Medical Leave (PFML) – Voluntary Plan: A PFML Voluntary Plan administered internally by an employer is considered self-insurance. An employer must obtain approval from the ESD to offer a Voluntary Plan for one or both benefits, manage the funds withheld from employee pay, and maintain overall financial responsibility for paying claims for eligible events under program guidelines.
Use the following definitions and information to help complete the schedule if the entity self-insures for one or more class of risk.
Individual self-insurance program: A formal program established and maintained by an entity that formally sets aside money to pay or fund future claims and probable losses. This is in contrast to risk assumption, which is a decision to absorb the entity's financial exposure to a risk of loss without the creation of a program of advance funding of anticipated losses (i.e. just pay the claims/losses as they arise).
Joint self-insurance program: Any two or more local government entities which have entered into a cooperative risk sharing agreement subject to regulation under Chapter 48.62 RCW.
Third party administrator: An organization that processes claims and performs other administrative services in accordance with a service contract.
Claims audit: An audit conducted by an independent qualified claims auditor not affiliated with the program, its insurers, its broker of record, or its third-party administrator. The services performed generally include an in-depth, written evaluation of the claims handling activities, identifying strengths, areas of improvement, findings, conclusions and recommendations to improve quality of claims management and processing. These reviews are required to be performed every three years by state regulation for joint self-insurance programs covering property and liability risks (WAC 200-100-050) and individual and joint health and welfare programs offering medical coverage (WAC 200-110-120).
Actuarially determined liabilities: Joint property and liability programs are required to obtain estimates of unpaid claims measured at eighty percent confidence level by an actuary (WAC 200-100-03001). Joint and individual health and welfare programs are not subject to this requirement.
Number of claims paid during the period: The number of individual claims that were paid (in any amount) during the reporting period. In the case of unemployment compensation, this would be the claims paid by the government to ESD during the period.
Total amount of claims paid during the period: The total dollar amount of claims paid during the reporting period. In the case of unemployment compensation, this would be the claims paid by the government to ESD during the period.
Total amount of recoveries during the period: The total dollar amount of gross recoveries or subrogation received during the reporting period.
126.96.36.199 The schedule should be prepared on the same basis of accounting, for the same period and reporting entity, and using the same underlying accounting records as the Schedule 01 and financial statements.
188.8.131.52 The template for Online Filing is available on the SAO’s website page, BARS Reporting Templates. When using the Online Filing option, the system will require completion of question 1 and, based on the answer, indicate the need for completion of the rest of the schedule. If required, this template will need to be attached.