“The analysis found that treasury officials had arranged coverage for estimated contract values totaling $5.2 billion during that time, even though actual values totaled just $2.23 billion. The difference between the estimated and actual value of the contracts, the analysis concluded, cost the agency a total of $58,353,156 in excessive premiums.”
“It is unclear whether Aon, the insurance broker, also profited from the excessive premiums.”
Aon or whoever the broker is profited from commissions or fees for the extra premiums.
Can’t wait to see how good the gov’t handles health insurance and obamacare.
Cheetoh – you obviously haven’t worked on a fee basis before. The fee is the fee regardless of the premiums. That’s why the client wants a fee.
What I don’t understand is why there wasn’t an audit. When premiums are based on estimated costs, there is usually an audit that would have returned half of their premiums. If this was a builders risk, it should have been on a reporting form with values like that.
You would think there would be an audit. It’s possible that the information provided to the auditor was prepared by the same person who provided the “estimates”. I don’t know if that would make a difference or not.
Wouldn’t there have to be an audit of the risk and adjustment of the premium anyway? What if the project was set up at a billion less than actual (oh those cost over runs. I would think this is audited and premiums adjusted accordingly. The broker may not have done anything wrong, the projections were just wrong.
It is suspect when a fired employee is giving the information as well.
I never audited builder’s risk, so I have no clue what type of documentation they would use. I cannot even comprehend the complexity of an audit of this size operation. Yuck.
July 31, 2013 at 2:09 pm
Libby says:
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I re-read the article several times, but it doesn’t really confirm this is a builders risk, just insurance on construction projects. If it’s builders risk, there should have been some reporting form involved.
August 1, 2013 at 7:59 am
jw says:
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If I had had a client with these exposures and this large of a risk, I might’ve given up auditing a lot sooner than I did.
July 29, 2013 at 3:54 pm
InsGuy says:
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Wait, Really??
I just did a review of my HO bills for the last 10 years and discovered I paid excessive premiums as well. I want a refund too!
Not an expert on B/R, but isn’t that the norm? Actual to Estimated ratios run very high when contracts are written and decline as they approach completion, eventually hitting 100% at the close of the contract, at which point a final adjustment is made. Does the article mention anything about which projects, and at what stage they are? I would imagine, being a port authority, that $5B could be only 10-20 projects, given the complexity of their construction/logistical issues.
How many were in progress when Sandy hit? What are the pre- and post- loss values? Does that have any bearing?
Article doesn’t give enough details to be sure of anything.
From the Star-Ledger article:
“The analysis found that treasury officials had arranged coverage for estimated contract values totaling $5.2 billion during that time, even though actual values totaled just $2.23 billion. The difference between the estimated and actual value of the contracts, the analysis concluded, cost the agency a total of $58,353,156 in excessive premiums.”
“It is unclear whether Aon, the insurance broker, also profited from the excessive premiums.”
Sounds like Aon is getting a write-down. Oops.
Aon or whoever the broker is profited from commissions or fees for the extra premiums.
Can’t wait to see how good the gov’t handles health insurance and obamacare.
Why, will the Port Authority of NJ be running the insurance exchange in that state?
Cheetoh – you obviously haven’t worked on a fee basis before. The fee is the fee regardless of the premiums. That’s why the client wants a fee.
What I don’t understand is why there wasn’t an audit. When premiums are based on estimated costs, there is usually an audit that would have returned half of their premiums. If this was a builders risk, it should have been on a reporting form with values like that.
You would think there would be an audit. It’s possible that the information provided to the auditor was prepared by the same person who provided the “estimates”. I don’t know if that would make a difference or not.
15 minutes could save you 15% on your contract construction costs!
Incompetents in charge of people who don’t care = government
Wouldn’t there have to be an audit of the risk and adjustment of the premium anyway? What if the project was set up at a billion less than actual (oh those cost over runs. I would think this is audited and premiums adjusted accordingly. The broker may not have done anything wrong, the projections were just wrong.
It is suspect when a fired employee is giving the information as well.
It’s possible the insurer didn’t audit or that the insurer only did a mail in audit.
Keep in mind, I don’t know anything about insurance in NJ. I’m only familiar with premium audits in the Southern states.
jw – there’s no way you would do a mail-in audit on values and premiums this large. Those are usually reserved for smaller risks. Just an FYI. :-)
I never audited builder’s risk, so I have no clue what type of documentation they would use. I cannot even comprehend the complexity of an audit of this size operation. Yuck.
I re-read the article several times, but it doesn’t really confirm this is a builders risk, just insurance on construction projects. If it’s builders risk, there should have been some reporting form involved.
If I had had a client with these exposures and this large of a risk, I might’ve given up auditing a lot sooner than I did.
Wait, Really??
I just did a review of my HO bills for the last 10 years and discovered I paid excessive premiums as well. I want a refund too!
Not an expert on B/R, but isn’t that the norm? Actual to Estimated ratios run very high when contracts are written and decline as they approach completion, eventually hitting 100% at the close of the contract, at which point a final adjustment is made. Does the article mention anything about which projects, and at what stage they are? I would imagine, being a port authority, that $5B could be only 10-20 projects, given the complexity of their construction/logistical issues.
How many were in progress when Sandy hit? What are the pre- and post- loss values? Does that have any bearing?
Article doesn’t give enough details to be sure of anything.
We ALL pay too much for insurance!!!