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Home My WebLink About5E 2019 Insurance Policies with LMCIT Report 4646 Dakota Street SE Prior Lake, MN 55372 CITY COUNCIL AGENDA REPORT MEETING DATE: APRIL 1, 2019 AGENDA #: 5E PREPARED BY: DANIELLE AMIRA, ACCOUNTANT PRESENTED BY: CATHY ERICKSON, FINANCE DIRECTOR AGENDA ITEM: CONSIDER APPROVAL OF A RESOLUTION AUTHORIZING THE 2019 INSURANCE POLICY RENEWALS GOAL AREA AND OBJECTIVE: High-Value City Services 1. Establish financial stability for all funds. DISCUSSION: Introduction The purpose of this agenda item is to consider approval of the 2019 insurance policy renewal with the League of Minnesota Cities Insurance Trust (LMCIT) for the period 02/01/2019 – 02/01/2020. 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, and $10,017 for the 2018 coverage year. The 2018 dividend amount was lower due primarily to two factors: 1. During 2017 and 2018, overall member property claims were higher than anticipated, largely because of a few large fire losses and several weather- related events. 2. There have been no Workers Compensation program dividends declared since the 2012 coverage year, mainly due to rising medical costs and membership overall loss experience. For Workers’ Compensation coverage, the City has historically chosen the LMCIT’s Retrospective Rating option. 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. The policy year is evaluated annually at the 18-month mark and remains open for 16 years. While the City received $117,347 last year for the 2/1/16-21/17 policy year, the city will pay $89,959 additional premium on the Retro Adjustment for the 2/1/17-2/1/18 policy year based on Workers Compensation paid and pending loss reserves. Based on the 2/1/2018 to 2/1/2019 retrospective rating plan claim loss experience through December 31st, current indications forecast a $20,000 dividend if there are no more claims or increase in loss reserves. Due to the city’s upward trending Workers Compensation claims frequency and loss costs, the higher risk Work Comp Retrospective Rating plan has been stopped in favor of the standard premium option that is subject only to a payroll audit adjustment at year end. The coverages included in the City’s Property & Casualty coverage are: 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. The cost for these same coverages at the $500 minimum deductible would be $300,345 premium, or $89,959 additional premium. Maintaining the same deductible amount for Property & Casualty coverage, the following table provides a comparison between the 2018 and 2019 insurance premiums: Premium Coverage 2019 2018 $ Chg. % Chg. Property 80,801 77,745 3,056 3.9% Equipment Breakdown 9,565 9,232 333 3.6% Mobile Property 5,911 5,738 173 3.0% Faithful Performance Bond 1,443 1,414 29 2.0% Municipal Liability 86,465 88,422 -1,957 -2.3% Automobile 23,617 25,451 -1,834 -7.3% Total P/C Premium 207,002 208,002 -1,000 -0.48% Workers Compensation 294,987 204,022 90,965 +44.6% Total Premium 501,989 412,024 89,965 +21.8% 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. The LMCIT Workers Compensation premium went up due to an increase in our experience modification from .65 or 35% credit to .89 or 11% credit (1.00 considered average) which is still very good, but not as good as prior years. Without this experience modification increase, the 2019 Workers Compensation premium would have been $216,215. 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 • Liability Experience Premium Modifier improved slightly from a 0.961 credit to a 0.927 credit. • Property & Casualty annual aggregate $50,000 loss limit cost factor went down slightly from 1.105 expiring, to 1.083 on the renewal. • WC Experience modification credit went down from a .65 or 35% credit, to .89 or 11% credit (1.00 is considered average). FINANCIAL IMPACT: The 2019 budget (all funds) includes $222,130 for general liability, property, automobile and bond insurance. Based on the current quote for Property/Casualty ($207,002), the premium would be less than budget by approximately $15,128. The 2019 budget (all funds) include $295,828 for worker’s compensation insurance which is within $1k of the premium quote. The City has an Insurance Internal Service Fund, previously approved by the City Council, 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 as part of the consent agenda to approve the resolution authorizing the 2019 insurance policy renewals incorporating the modifications recommended herein. 2. Motion and a second to remove this item from the consent agenda for further discussion. RECOMMENDED MOTION: Alternative #1. 4646 Dakota Street SE Prior Lake, MN 55372 RESOLUTION 19-___ A RESOLUTION AUTHORIZING THE 2019 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 9 through 02/01/2020; and WHEREAS, Premium costs for the respective coverage are as set forth in the April 1st, 2019 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 2019 insurance policy renewals. 3. Staff is authorized to transfer to the internal services Insurance Fund at year-end 2019 any property/casualty dividends and work comp retro adjustments received. PASSED AND ADOPTED THIS 1st DAY OF APRIL 2019 VOTE Briggs Erickson Thompson Burkart Braid Aye ☐ ☐ ☐ ☐ ☐ Nay ☐ ☐ ☐ ☐ ☐ Abstain ☐ ☐ ☐ ☐ ☐ Absent ☐ ☐ ☐ ☐ ☐ Michael Plante, City Manager