When the cost of town employees’ and retirees’ life insurance doubled in 2014, First Selectman Carl Fortuna, Jr., wanted to know why. What that inquiry uncovered was the life insurance benefit the town offered each retiree was richer than what the town was insured for—this meant the town might receive a life insurance claim when an employee died and not have enough insurance or cash set aside to pay it.

Now what?

The first step was to find out if the town could find an insurance company willing to insure the town for the richer benefit the town had on its books. The town’s insurance broker, Brown & Brown, shopped out the policy to 23 different companies, asking for bids.

The result was not encouraging. Only four came back with a quote and not one was willing to match the current premium for the employee group that The Hartford (the current insurer) had offered. Firms viewed the town’s retiree life insurance pool as too risky to insure, based on the benefit promise the town carried on its books.

Until 2012, the town and school district employees were in the same, much larger life insurance pool, spreading out potential risk. The smaller pool of people, when the town split off, exposed underwriting firms to more risk and so The Hartford doubled the premium costs.

As Chuck Pettricione of Brown & Brown Insurance explained at the Dec. 8 Board of Selectmen meeting, the life insurance policy as underwritten pays as a benefit one-half of an employee’s last year’s salary at retirement up to a maximum of $50,000. Unfortunately for the town, the town finance office’s handwritten records tracked a different benefit of the full final year’s salary for some retired town employees. In the insurance audit, however, no one could uncover when or why the benefit the town offered some retirees was richer than the benefit the town’s insurance plan promised.

“One retired employee is on the [town] books for life insurance coverage of $100,000, even though The Hartford policy says [coverage is] only one-half of the last year’s salary,” said Pettricione.

Pettricione tried one last time to get the town’s employee and retiree pool covered. This time he contacted AIG insurance, a firm that he said was starting to insure smaller risk pools like that of the Town of Old Saybrook’s employees and retirees. AIG was willing to insure the town employee and retiree life insurance pool, but only if the town would agree to certain conditions and policy changes.

“AIG will match all current benefits for the active employees and restore older benefits for the 42 retirees...but only if the town cuts off the current retiree class,” said Pettricione.

AIG also required that the town put the retirees’ life insurance benefit on an age reduction schedule. An age reduction schedule would mean the retiree’s life insurance benefit would go to 75 percent at age 70 and to 50 percent at age 75.

“Only nine of the 30 municipalities [we contacted] offer retiree life insurance. Only three of those nine base the retiree benefit on a salary,” said Pettricione to the selectmen.

Fortuna told the selectmen that the town’s Pension Board had endorsed the AIG coverage concept.

“We’re reviewing this with counsel and expect to act on it with three months,” said Fortuna. “This is a legacy issue. Somehow the employee life insurance benefits on town books were changed in 2006. We’re looking at cost containment and cost control with this AIG plan.”