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Laurie Milhiser sits on three of the California State Association of Counties' Excess Insurance Authority committees. So she's well familiar with how the authority serves its 54 member counties.

Just the same, as the risk manager for San Bernardino, Milhiser said she feels she owes it to the citizens of her county to see if she can do better in the private marketplace.

Milhiser has narrowed down to two the number of brokers with which San Bernardino is on the verge of signing a broker-of-record contract to investigate a complete restructuring of the county's insurance program.

"Maybe we split it between the two of them," Milhiser said.

The brokerages that came to Milhiser's lips during her chat with Risk & Insurance® were Aon, Marsh and A.J. Gallagher. But she made it clear she's just in the feeling-out stage.

"I don't know that I'll move a thing. I have no expectation that I will," said Milhiser, as she sat in her office in October, musing on the effects of the wildfires that struck Southern California but left San Bernardino's public infrastructure largely unscathed.

As things stand, San Bernardino participates in eight insurance programs that are managed by the Excess Insurance Authority of the California State Association of Counties But, as any underwriter knows, there is no such thing as one size fits all, and San Bernardino's financial picture has changed dramatically since when it first joined the EIA in 1991.

As part of Southern California's vast Inland Empire, which comprises San Bernardino and Riverside counties, San Bernardino is growing rapidly. It's already huge.

San Bernardino is the 12th largest county in the country in terms of population with more than 2 million people, and at more than 20,000 square miles, it is the largest county in the country by land area. It's the only California county to share a border with Nevada and Arizona.

It has also struggled with financial insolvency and political corruption. In the mid-1990s, three county executives pled guilty to corruption charges.

The fallout from the scandal, which involved county executives taking bribes to approve contracts, is that county statutes now demand that every one of the county's 23 insurance contracts be rebid every three years. The county has also recovered $35 million from the companies and the county executives involved in the wheeling and dealing.

"We had major ethical issues, which resulted in us developing a philosophy that, if it moved, bid it," Milhiser said. But some of the contracts are so small that they have premiums in the $10,000 range.

"There are very few of the major players who will bid on that because it's not worth it to them," Milhiser said.

San Bernardino's involvement with the EIA also discourages other bidders.

"It is very difficult to compete with CSAC programs, so unless they can get a substantial book of business, unless they can be our broker of record, it is not realistic for them to make any attempt to bid," Milhiser said. "They want the whole nine yards, or they don't want anything."

San Bernardino's past financial problems also meant that there were years that the county was too strapped to make contributions to its self-insurance fund. But since then, the extension of the I-210 freeway deeper into San Bernardino, the increased development of warehouse space to serve the ports of San Pedro and San Diego, and the establishment of the Riverside-Ontario Airport have all changed the economic landscape in San Bernardino dramatically. Towns such as Upland, Fontana and Rancho Cucamonga that were once dusty outposts are now booming.

At $4.2 billion, the county's annual budget has ballooned and so has the amount it has retained in self-insurance.

"The two years I've been here our self-insurance funds have increased by $150 million," said Milhiser.

Greater economic stability in San Bernardino means that Milhiser can get more creative with her insurance program. And the county may have grown enough that it is ready to step outside of the EIA.

Instead of parsing out her insurance programs between the EIA and a handful of mom-and-pop shops that are satisfied with handling some of her smaller programs, Milhiser is intrigued with the possibility of using the county's much larger self-insurance fund as a baseboard and using one of the larger brokers to find better excess rates in the private market.

"As I mentioned, we have some of our lines placed with very small brokers. I'm not questioning their ability to service the account. I'm questioning that, if you are Charlie's Insurance in Victorville, can you get the same clout in the market as Aon or Gallagher?"

DAN REYNOLDS is senior editor of Risk & Insurance®.

December 1, 2007

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