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Home My WebLink About5C 2016 Insurance Policies with LMCIT 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: APRIL 11, 2016 AGENDA #: 5C PREPARED BY: DON URAM, FINANCE DIRECTOR PRESENTED BY: DON URAM AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE 2016 INSURANCE POLICY RENEWALS DISCUSSION: Introduction The purpose of this agenda item is to consider approval of the 2016 insurance policy renewal with the League of Minnesota Cities Insurance Trust (LMCIT) for the period 02/01/2016 – 02/01/2017. History The City of Prior Lake participates in the LMCIT for the purpose of securing its liability, property, casualty, automobile, volunteer and workers compensation insurance coverage. Council approval of the insurance policies is appropriate since the total premiums exceed the $20,000 threshold which the City Manager is authorized to approve. This approval is requested on an annual basis. Current Circumstances The City has been insured by the LMCIT since 1987. The LMCIT is a self- insurance pool of cities formed to meet cities’ coverage and risk management needs. They provide coverage for over 90% of Minnesota cities. The LMCIT also provides a prorated dividend when claims for their long-time members are favorable and the members are successful in avoiding and controlling losses. This practice is unusual in the insurance industry. For the 2015 coverage year, the LMCIT provided the City a $55,610 dividend on the general insurance coverage and a workers comp retro adjustment of $83,408. Historically the City has had better than average workers comp claims experience. ISSUES: The coverage included in the City policy is municipal liability, property, automobile, open meeting law, public employee faithful performance required by State Statutes. The City has historically carried a $10,000/$20,000/$1,000 deductible amount for liability coverage. For 2011, the City Council approved increasing the aggregate deductible amount to $40,000. For 2014, the City Council approved increasing the deductible to $25,000 per occurrence/$50,000 annual aggregate/ $1,000 per occurrence thereafter. The LMCIT also provides workers compensation insurance coverage for the City. Maintaining the same $25,000/$50,000/$1,000 deductible amount for liability coverage, the following table provides a comparison between the 2015 and 2016 insurance premiums: Insurance Type 2015 2016 $ Change % Change Property & Casualty, Etc. $217,601 $206,416 -$11,185 -5.14% Workers Compensation Premium $203,636 $211,889 $8,253 4.0% *Starting in 2013, the City pays a $9,000/year fixed fee for insurance agent of record services versus a commission based on the premium which amounted to about $20,000 yearly. The agent also provides services related to the workers compensation insurance which was not the case in prior years. One of the primary drivers of the decrease in the City’s premium was the Insurance Services Office (ISO) Fire Protection Class rating which improved from a 5 to a 4. This rating puts Prior Lake in the top 20% of the 49,000 communities evaluated in 2014 for fire protection. The Workers Compensation premium increase occurred primarily due to higher medical treatment costs. The city continues to have a great safety record as shown by a reduction in our experience modification from .85 to .81 (1.00 considered average). Northern Capital Insurance (NCI) Group prepared the following summary of the other drivers of the renewal premium change: Property/Casualty Premium Rates, renewals effective after November 15, 2015  Property rates: 4% decrease.  Average Liability rates: 3% decrease.  Auto Physical Damage/Liability rates: unchanged.  All other rates were unchanged.  The new liability rating system that started in 2012 has now been implemented. For the coming year, the LMCIT will no longer cap premium changes. City of Prior Lake Property/Casualty Renewal Factors  Property: Buildings, Contents, Property in Open Replacement Cost Values from $68,173,228 to $69,307,007 (including lift stations).  Municipal/Auto Experience Premium Modifier increased from a 0.955 credit to a 0.992 credit (3.9% increase). Workers Compensation Premium Rates, renewals effective after November 15, 2015  Overall premium rates increased 3%.  Volunteer firefighters and police rates for all insureds increased an additional 9%.  Prior Lake’s WC Experience modification decreased from a .85 credit to a .81 credit (1.00 is considered average). FINANCIAL IMPACT: NCI and staff are recommending the following changes to the insurance policies: Insurance Type 2015 2016 Recommended $ Change % Change Property & Casualty, Etc. $217,601* $206,416* -$11,185 -5.14% Workers Compensation Premium $203,636 $211,889 $8,253 4.0% *Based on $25,000 / $50,000 / $1,000 Deductibles The 2016 budget (all funds) includes approximately $230,000 for general liability, property, automobile and bond insurance. Based on the current quote for Property/Casualty ($206,416) at the recommended $25,000 / $50,000 / $1,000 deductible, the premium would be less than what was budgeted by approximately $24,000. Staff had budgeted for an increase, and the quote came in with a 5.14% decrease from the prior year. The 2016 budget (all funds) includes approximately $234,000 for worker’s compensation insurance which is about $23,000 less than the current quote. In the past, NCI has recommended that an Internal Services Insurance Fund be setup to absorb the shock of any forthcoming additional Work Comp Retrospective Adjustments. This fund could also be used for future Property/Casualty claims that have a $25,000 per occurrence deductible, subject to $50,000 annual aggregate deductibles, and $1,000 per occurrence claim deductible thereafter. Staff recommends that this fund be established at year-end 2016 with any remaining balances in the insurance accounts (51477, 53610-30) and any dividends received (5-year historical average totals $42,000). ALTERNATIVES: 1. Motion and second to approve the resolution authorizing the 2016 insurance policy renewals incorporating the modifications recommended herein as part of the consent agenda. 2. Remove this item from the consent agenda for additional discussion. 3. RECOMMENDED MOTION: Alternative #1. 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 16-xxx A RESOLUTION AUTHORIZING THE 2016 INSURANCE POLICY RENEWALS Motion By: Second By: WHEREAS, The City of Prior Lake participates in the League of Minnesota Cities Insurance Trust (LMCIT) for the purpose of securing its liability, property, casualty, automobile, employee faithful performance (bond), open meeting law defense, equipment breakdown and workers compensation insurance coverage; and WHEREAS, WHEREAS, The insurance renewal period is 02/01/201 6 through 02/01/2017; and Premium costs for the respective coverage are as set forth in the April 11, 2016 agenda report; and WHEREAS, The insurance includes a $25,000/$50,000/$1,000 deductible amount for liability coverage. NOW THEREFORE, BE IT HEREBY RESOLVED BY THE CITY COUNCIL OF PRIOR LAKE, MINNESOTA as follows: 1. The recitals set forth above are incorporated herein. 2. The City Council hereby approves the 2016 insurance policy renewals. 3. Staff is authorized to create an internal services Insurance Fund at year-end 2016 with any remaining balances in the insurance accounts (51477, 53610 -30) and any dividends received. PASSED AND ADOPTED THIS 11th DAY OF APRIL 2016 VOTE Hedberg Keeney McGuire Morton Thompson Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ Frank Boyles, City Manager