Dear Inquiring:
While P&C risks are many, the largest ones typically facing municipalities in CT are WC and H&H. Similar to pension benefits, these can have a “long tail” and the eventual outcomes can be challenging to predict. Let’s have a closer look at these benefits and the benefits a P&C actuary can bring.
Why an actuarial viewpoint is a smart investment for Connecticut municipalities
Managing workers’ compensation (WC) and heart and hypertension (H&H) obligations is not just an administrative necessity for a municipality; it is a key component of long-term financial stewardship. Municipal budgets are under constant financial pressure, and the uncertainty created by these and other benefits within the budget and financial reporting process can become extremely challenging. Connecticut’s unique H&H benefit structure, with its similarity to and interaction with WC benefits, presents a distinctive environment compared to other states that also heightens the importance of reducing this uncertainty.
Why WC and H&H matter for Connecticut towns
In Connecticut, many municipalities opt to self-insure WC benefits, thereby assuming and managing the financial risk of a benefit that provides defined wage replacement and unlimited medical statutory benefits, sometimes over prolonged time horizons. While self-insurance can lead to cost savings over the long run, it also exposes municipalities to uncertain liabilities and future costs. Uncertainty arises from changes in business operations, medical cost trends, legal rulings, and the unpredictable nature of claims. Additionally, legislative and administrative uncertainties can arise that significantly impact well-established employee benefits. For example, a 2025 Connecticut Supreme Court ruling1 (Gardner vs. DMHAS) was estimated to increase WC claim costs by as much as 265% due to expanded eligibility under the ruling.
The incidence of H&H claims occurs less frequently than WC claims, although H&H claims typically have a higher average cost. H&H benefits can be temporary or permanent and may include widow claims. In either case, H&H benefits are almost always self-insured due to the general unavailability of insurance coverage. Section 7-433c of the Connecticut General Statutes outlines benefits for police officers or firefighters disabled or deceased as a result of hypertension or heart disease. This statute is a presumptive disability law, meaning that no proof of a physical examination is required as evidence in filing a claim. Section 7-433c also states that “[p]ension benefits payable under the town’s ordinances must be reduced by benefits awarded under this statute.” Figure 1 shows the interaction between these benefits.
Figure 1: Where WC, H&H, and pension obligations intersect
As a result, H&H estimates are reviewed at a claimant level (using mortality and interest rate assumptions) to ensure no overlap exists between H&H, WC, and pension benefits. While employees hired after July 1, 1996 are no longer eligible, many municipalities continue to manage legacy H&H claims. Some do so with reserves or internal service funds, while many others maintain an unfunded H&H liability.
Why towns need a P&C actuary
These obligations are complex, long-term, and financially significant. As a result, they require a disciplined, data-driven approach to ensure municipalities can and will meet their financial commitments. One of the most effective tools municipalities can employ in this endeavor is to engage a P&C actuary.
P&C actuaries are highly qualified consultants who help municipalities interpret and manage this uncertainty. They have specialized expertise in projecting future costs and assessing the adequacy of funding levels. Direct benefits of leveraging this expertise include:
- More accurate estimates of self-insured reserve obligations
- Improved budgeting and planning to avoid financial surprises
- Greater insight into claims management
- Compliance with accounting standards
P&C actuaries use historical claims data, demographic trends, and assumptions regarding future medical inflation, wage growth, claim costs, and claim closure rates to calculate the present value of future self-insured costs. Without these analyses, municipalities can face extreme swings between years of underfunding (leading to sudden and substantial charges to financials) and overfunding (tying up public funds unnecessarily).
Forecasting and scenario planning
P&C actuaries often provide multi-year projections of needed accruals and cash flows, incorporating a range of assumptions and scenarios. Accurate forecasting enables municipalities to set aside appropriate reserves, avoid budget surprises, and ensure stable, sustainable funding strategies.
Better understanding of the claims experience
A key driver of actuarial analyses is the municipality’s own claims history. P&C actuaries can provide valuable insights into claims trends and cost drivers. For example, tracking the trends in types, causes, and locations of injuries that contribute disproportionately to overall costs can help formulate risk mitigation and loss control initiatives. Ultimately, this can help reduce the frequency and severity of claims, thereby reducing future liabilities.
Compliance, credibility, and financial transparency
Public entities are required to follow Governmental Accounting Standards Board (GASB) statements. These standards typically require disclosure of the estimated liabilities associated with self-insured programs. P&C actuaries provide the necessary analyses and documentation to support these GASB disclosures. In addition, audit firms expect to see independent actuarial reports when reviewing these self-insured liabilities; being able to show these reports lends credibility to a municipality’s financial statements.
P&C actuaries can also provide further in-depth analyses, which can include:
- Estimating the variation embedded in the liabilities (i.e., statistical confidence levels that show the level of adequacy of carried reserves).
- Estimating discounted liabilities and interest accretion levels that must be recorded if the municipality carries discounted reserves on its financial statements. Carrying discounted reserves reduces the initial need for surplus to back those reserves.
- Providing pro-forma financials that reflect various external and internal factors, including program expenses, investment returns, and inflation assumptions. This allows a municipal leader to see and act on various possible scenarios.
Managing uncertainty with confidence
P&C actuaries are trusted business advisors. Using the data you provide, they work with you to develop assumptions, build and manage models containing their estimates, and provide ongoing reporting and support. P&C actuaries help your municipality and its stakeholders continue to function effectively through uncertainty. In a time of growing financial uncertainty, fiscal scrutiny, and limited resources, this type of professional support is not just beneficial — it is essential.
1 See the Connecticut Business & Industry Association’s report on the decision at https://www.cbia.com/news/issues-policies/supreme-court-ruling-hikes-workers-compensation-costs. This ruling was followed by a joint favorable substitute version of HB 7141 approved by the Judiciary Committee, which included a modification to some statutory language; see the proposed substitute bill at https://www.cga.ct.gov/2025/juddata/sl/2025HB-07141-R00LCO07162JUD-SL.PDF.