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Home My WebLink About5G 2018 Insurance Policies with LMCIT Report 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: APRIL 2, 2018 AGENDA #: 5G PREPARED BY: DANIELLE AMIRA, ACCOUNTANT PRESENTED BY: CATHY ERICKSON, FINANCE DIRECTOR AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE 2018 INSURANCE POLICY RENEWALS DISCUSSION: Introduction The purpose of this agenda item is to consider approval of the 2018 insurance policy renewal with the League of Minnesota Cities Insurance Trust (LMCIT) for the period 02/01/2018 – 02/01/2019. 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 2017 coverage year, the LMCIT provided the City with a $21,746 dividend on the property/casualty program. The dividend amount was due primarily to two 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, 2016 were less than LMCIT projected. The City also received a $117,347 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. While the City received $117,347 this year, preliminary 2/1/17 to 2/1/2018 Workers Compensation loss reserves indicate a strong potential the city will be paying additional premium on the Retro Adjustment at the end of this year or early next year. Accordingly, the property/casualty dividend and the retro adjustment refund has been retained in our Insurance Internal Service Fund as a reserve to cover additional premium that may be required on prior year claims. 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 2017 and 2018 insurance premiums for: Premium Coverage 2017 2018 $ Chg. % Chg. Property 74,415 77,745 3,330 4.5% Equipment Breakdown 8,950 9,232 282 3.2% Mobile Property 5,109 5,738 629 12.3% Faithful Performance Bond 1,466 1,414 - 52 -3.5% Municipal Liability 84,715 88,422 3,707 4.4% Automobile 24,019 25,451 1,432 6.0% Total P/C Premium 198,674 208,002 9,328 +4.7% Workers Compensation 194,477 204,022 9,545 +4.9% Total Premium 393,151 412,024 18,873 +4.8% 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 .68 or 32% credit to .65 or 35% credit (1.00 considered average) which is excellent. Without this change, the 2018 premium would have been about $210,000 due to increased rates and estimated payroll. 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 increases: • Overall Workers Compensation and Property& Casualty Rate Adjustments • New rating method for Auto Physical Damage due to loss trending, especially police vehicles. • Municipal/Auto Experience Premium Modifier dropped slightly from a 0.952 credit to a 0.961 credit. • Aggregate loss limit factor increased slightly from 1.082 to 1.105. • WC Experience modification decreased from a .68 credit to a .65 credit (1.00 is considered average). • Property: Buildings, Contents, Property in Open, Replacement Cost Values from $70,525,134 to $73,477,518 (including lift stations). FINANCIAL IMPACT: The 2018 budget (all funds) includes approximately $224,262 for general liability, property, automobile and bond insurance. Based on the current quote for Property/Casualty ($208,002), the premium would be less than budget by approximately $16,260. The 2018 budget (all funds) includes approximately $263,513 for worker’s compensation insurance which is about $59,491 less than the current quote. This is due primarily to budgeting an experience modifier of .80 as compared to an actual experience modifier of .65. Staff did not want to assume that we could maintain such a low mod rate. As it turns out, our experience to date for the 2017-2018 policy year indicates we may need to pay additional premium to cover losses. 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 which has a present balance of $280,000 allows us to address this year’s premium deficit, future Property/Casualty premium increases and 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 as part of the consent agenda to approve the resolution authorizing the 2018 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 18-___ A RESOLUTION AUTHORIZING THE 2018 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 02/01/201 8 through 02/01/2019; and WHEREAS, Premium costs for the respective coverage are as set forth in the April 2nd, 2018 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 costs of the 2018 insurance policy renewals as set forth in the 4/02/2018 agenda report. 3. Staff is authorized to transfer to the internal services Insurance Fund any property/casualty dividends and work comp retro adjustments received. PASSED AND ADOPTED THIS 2nd DAY OF APRIL 2018 VOTE Briggs McGuire Thompson Burkart Braid Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ Frank Boyles, City Manager