BOARD OF RISK EXECUTIVE SUMMARY


ISSUE AREA 1: BRIM Is Making Progress In Reducing Its Unfunded Liability

Since 1993, the Board of Risk and Insurance Management (BRIM) has operated with an unfunded liability of between $40 million and $70 million. By definition, an unfunded liability represents liabilities which exceed the agency's assets. In short, if these liabilities became due at once, BRIM would be unable to pay them completely, resulting in insolvency. Table 1 presents a brief description of the unfunded liability based on BRIM's audited balance sheets for fiscal years 1993 through 1996. As Table 1 illustrates, the unfunded liability has declined by over $50 million over the past four years. This represents a 73.8% decrease.

Table 1 BRIM's Unfunded Liability (In Millions)
19931994199519961997
Total Assets$52.6$65.6$74.2$89.2$101.7
Total Liabilities$121.3$132.8$134.0$133.3$119.8
Unfunded Liability-68.7-67.2-59.8-44.1-18.0
Source: Ernst & Young's independent audits of BRIM's financial statements.

In fiscal year 1994, BRIM initiated a plan to reduce and eventually eliminate the unfunded liability which it is on course to accomplish according to plan. The plan involved substantial increases in premium charges, increases in State appropriations, and cost cutting measures.

Although the unfunded liability is on course to be eliminated, there are areas in which BRIM can improve. Premium charges should reflect not only loss history but exposure to potential loss. Currently, BRIM's premium charges are based primarily on loss history. Risk management, which is mandated by statute, needs to improve to reduce the exposure to future losses. BRIM also needs to re-examine its policies on assessing surcharges and incentives. Its surcharges can lead to inadequacies in cost recovery, and incentives are not broad enough to acknowledge those entities with good loss history.