HomeMy WebLinkAbout5D 2017 Insurance Policies with LMCIT Report
4646 Dakota Street SE
Prior Lake, MN 55372
CITY COUNCIL AGENDA REPORT
MEETING DATE: APRIL 10, 2017
AGENDA #: 5D
PREPARED BY: DON URAM, FINANCE DIRECTOR
PRESENTED BY: DON URAM
AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE 2017
INSURANCE POLICY RENEWALS
DISCUSSION: Introduction
The purpose of this agenda item is to consider approval of the 2017
insurance policy renewal with the League of Minnesota Cities Insurance
Trust (LMCIT) for the period 02/01/2017 – 02/01/2018.
History
The City of Prior Lake participates in the LMCIT for securing 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 2016 coverage year, the LMCIT provided the City with a
$84,287 dividend on the property/casualty program. The dividend amount
was due primarily to three factors:
1. An actuarial study determined that the LMCIT could decrease its
estimates for outstanding liabilities on old claims.
2. The cost of new claims that were incurred after May 31, 2015 were
less than LMCIT projected.
3. The uncertainty surrounding claims alleging violation of the Drivers
Privacy Protection Act (DPPA) have decreased allowing for a
reduction in reserves set aside to pay new claims.
The City also received a $63,764 worker comp retro adjustment refund.
Under the retrospective rating option, the City pays an estimated premium
amount at the beginning of the agreement period. The final premium is
determined based on the City’s actual losses during the claim period. The
City is then either billed or refunded the difference between the two. These
reimbursements will be placed in the insurance services fund to assist in
paying the premiums for city insurance coverages.
ISSUES: The coverages included in the City policy is municipal liability, property,
automobile, open meeting law, and public employee faithful performance
as required by State Statutes. Since 2014, the City has carried a
deductible of $25,000 per occurrence/$50,000 annual aggregate/ $1,000
per occurrence.
Maintaining the same deductible amount for liability coverage, the following
table provides a comparison between the 2016 and 2017 insurance
premiums:
Premium
Coverage 2016 2017 $ Chg. % Chg.
Property 75,999 74,415 (1,584) -2.1%
Equipment Breakdown 9,185 8,950 (235) -2.6%
Mobile Property 6,354 5,109 (1,245) -19.6%
Faithful Performance Bond 1,466 1,466 - 0.0%
Municipal Liability 89,801 84,715 (5,086) -5.7%
Automobile 23,611 24,019 408 1.7%
Total P/C Premium 206,416 198,674 (7,742) -3.8%
Workers Compensation 211,889 194,477 (17,412) -8.2%
Total Premium 418,305 393,151 (25,154) -6.0%
Since 2013, the City has paid 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.
As shown above, the LMCIT also provides workers compensation
insurance coverage for the City. The Workers Compensation premium
decreased due to a reduction in our experience modification from .81 to .68
(1.00 considered average) which is excellent. Without this change, the
2017 premium would have been about $231,850. The City continues to
have a great safety record due to the efforts of the staff and Safety
Committee.
Following is a summary of the drivers of the renewal premium decreases:
• Overall Rate Adjustments
• New rating method for Mobile Property (umbrella policy).
• Municipal/Auto Experience Premium Modifier decreased from a
0.992 credit to a 0.952 credit.
• Aggregate factor decreased from 1.094 expiring to 1.082.
• More claims dropped than added.
• WC Experience modification decreased from a .81 credit to a .68
credit (1.00 is considered average).
• Property: Buildings, Contents, Property in Open, Replacement Cost
Values from $69,307,007 to $70,525,134 (including lift stations).
FINANCIAL
IMPACT:
The 2017 budget (all funds) includes approximately $238,000 for general
liability, property, automobile and bond insurance. Based on the current
quote for Property/Casualty ($198,674), the premium would be less than
budget by approximately $39,000. Staff had budgeted for an increase, and
the quote came in with a 3.8% decrease from the prior year.
The 2017 budget (all funds) includes approximately $233,000 for worker’s
compensation insurance which is about $38,500 less than the current
quote. This is due primarily to the reduction in the experience modification
factor.
As recommended by the City’s agent (Northern Capital Insurance) and
approved by the City Council, an Internal Services Insurance Fund has
been setup to absorb the shock of any forthcoming Work Comp
Retrospective Adjustments or increases in the experience modification
factor. The fund will also be used to help offset any future
Property/Casualty premium increases and to maintain funding to cover the
$50,000 annual aggregate deductible. Funding sources include any
property/casualty dividends and work comp retro adjustments received.
ALTERNATIVES: 1. Motion and a second to approve the resolution authorizing the 2017
insurance policy renewals incorporating the modifications
recommended herein.
2. Motion and a second to remove this item from the consent agenda for
additional discussion.
RECOMMENDED
MOTION:
Alternative #1.
4646 Dakota Street SE
Prior Lake, MN 55372
RESOLUTION 17-___
A RESOLUTION AUTHORIZING THE 2017 INSURANCE POLICY RENEWALS
Motion By: Second By:
WHEREAS, The City of Prior Lake participates in the League of Minnesota Cities Insurance
Trust (LMCIT) for securing liability, property, casualty, automobile, employee
faithful performance (bond), open meeting law defense, equipment breakdown and
worker’s compensation insurance coverage; and
WHEREAS,
The insurance renewal period is 02/01/2017 through 02/01/2018; and
WHEREAS, Premium costs for the respective coverage are as set forth in the April 10, 2017
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 2017 insurance policy renewals as presented in the
April 10, 2017 report.
3. Staff is authorized to transfer to the internal services Insurance Fund at year-end 2017 any
property/casualty dividends and work comp retro adjustments received.
PASSED AND ADOPTED THIS 10th DAY OF APRIL 2017
VOTE Briggs McGuire Thompson Burkart Braid
Aye ☐ ☐ ☐ ☐ ☐
Nay ☐ ☐ ☐ ☐ ☐
Abstain ☐ ☐ ☐ ☐ ☐
Absent ☐ ☐ ☐ ☐ ☐
Frank Boyles, City Manager