4.4. SR 03-18-2013 Eli REQUEST FOR ACTION
River
TO ITEM NUMBER
Mayor and City Council 4.4
AGENDA SECTION MEETING DATE PREPARED BY
Consent March 18,2013 Tim Simon, Finance Director
ITEM DESCRIPTION REVIEWED By
Resolution Appointing Insurance Agent of Record Cal Portner, City Administrator
REVIEWED BY
ACTION REQUESTED
1. Adopt resolution appointing Northern Capital Insurance Group as the Insurance Agent of
Record for July 1,2013, through June 30,2018.
2. Authorize the Mayor and City Clerk to execute the city's standardized professional services
agreement and any other documents related to the Insurance Agent of Record.
BACKGROUND/DISCUSSION
With the League of Minnesota Cities Insurance Trust(LMCIT),the City of Elk River must have an
insurance agent of record. On January 22,2013, the City Council authorized staff to issue a Request for
Proposals (RFP) for professional insurance agent of record services for the renewal year of July 1,2013,
through June 30,2018 (5 years).
Proposals were due at 4:00 p.m., on February 15 and nine proposals were received. Two proposals were
received after the deadline and were not considered. City and Elk River Municipal Utilities (ERMU) staff
reviewed the proposals and the four highlighted firms were interviewed by the committee:Arthur J
Gallagher,Bearence,RJF,Northern Capital Insurance Group.
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North Central Insurance Agency $ 155,150
Proverus $ 150,000
Oakwood Insurance Agency $ 238,910
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*Base proposal includes city and ERMU
NCIA proposed commission,RFP required fixed fee
The four firms interviewed with a committee comprised of the finance and assistant finance directors, fire
chief who facilitates the city's safety and loss control program,HR representative who facilitates the city's
workers compensation program, and ERMU finance manager. The committee based its review of the
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firms on compliance with mandatory elements,municipal experience, expertise, customer service,
transition approach,and quality of interview responses and made a recommendation to the city
administrator.
As the City Council is aware,under state statute,the selection of an insurance firm is considered a
professional service. The purpose of this process is to select the firm that will provide the most value to
the city,not just in terms of costs.
Below are some of the reasons why Northern Capital Insurance Group was selected:
• The fee is the lowest of the nine proposals
• Fee includes workers compensation analysis,not an extra charge
• Transition phase includes physical and photographic audit of all facilities and equipment
• Had done their research about the City and Utilities for the interview
• Many city clients
• Outlined a multi-year trend analysis for deductible recommendations example
FINANCIAL IMPACT
Staff prepared the RFP to include a compensation system based on an annual fee rather than a
commission. The annual fee will be paid directly by the city to the firm. Previously, the commission was
included in the cost of the premium and paid by the LMCIT to the insurance agent of record. Staff
believes switching from commission-based to fee-based services provides greater budget certainty and
transparency.
Over the past three years,with a commission rate of 7.5% for property/casualty and 2% for workers
compensation,the amount paid by the city and ERMU was:
2012-$33,361 ,
2011 -$29,682 2014 $ 9,000 $ 3,500 $12,500
2010- $29,733 2015 $ 9,000 $ 3,500 $12,500
2016 $ 9,000 $ 3,500 $12,500
The chart to the right shows Northern Capital's proposed fees 2017 $ 9,000 $ 3,500 $12,500
for services. The city and ERMU will see substantial savings 2018 $ 9,000 $ 3,500 $12,500
over the next five years. Total $45,000 $17,500 $62,500
Regarding the savings,the committee felt it was important to invest some of the savings to enhance our
safety and wellness programs. The fire chief is reviewing the program and will bring recommendations to
the council to review later in the year or in the 2014 budget.
ATTACHMENTS
• League memo on"The Agent's Role and Compensation in LMCIT"
• Resolution appointing Northern Capital Insurance Group as insurance agent of record
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LEAGUE OF CONNECTING & INNOVATING
MINNESOTA sty( ' )`''
CITIES
RISK MANAGEMENT INFORMATION
THE AGENT'S ROLE AND COMPENSATION IN LMCIT
The League of Minnesota Cities Insurance Trust(LMCIT)property/casualty and workers'
compensation programs are designed to operate through a local agent. The city must designate
an agent as a condition of participating in the property/casualty program. The selection of the
agent is entirely up to the city, and any licensed agent is eligible to participate. The city has the
option not to use the services of an agent for the workers'compensation program, although most
but not all cities do work with an agent on workers'compensation as well.
Agent Formalization
LMCIT is a cooperative self-insurance pool of cities and is not an insurance company by
traditional standards. Because of this,there sometimes is confusion and uncertainty about the role
of the agent. Not everyone is completely aware of the flexibility and options that are available for
structuring the relationship between the city and the agent.
LMCIT believes it's important for city officials and agents to periodically discuss the agent's role.
The critical points are to make sure that everyone involved understands and agrees on what duties
and responsibilities the agent will perform, and to make sure that both parties are comfortable with
the compensation the agent receives for those services.
LMCIT recommends the selection of the agent and the establishment of the agent's duties and
compensation be addressed at the city council level. A good way to do this is through a council
motion or resolution. The resolution should not only name the agent, but should also specify what
services the agent is expected to provide and what compensation the agent will receive for those
services.
Another approach is to develop a formal written contract between the city and the agent addressing
these same points. Such a contract might also address the role the agent might play in overseeing
the insurance options a city might purchase from sources other than LMCIT, such as specialty
liability coverage for a hospital or nursing home.
To help cities and agents address these points, LMCIT and the Minnesota Independent Insurance
Agents (MIIA) developed the attached model resolution for appointing an agent. This model is
intended only as a starting point. Some cities may be able to use it nearly verbatim, while others
may wish to make substantial changes in the list of services to be provided by the agent, in the
amount or basis of the compensation the agent receives, or both.
LEAGUE OF MINNESOTA CITIES 1^t UNIl RqiYAVP ‘\lSr l'110N U') )281-1200 AX (651) 281-1298
INSURANCE TRUST sr. PAtrt. MN Silo,-axoi 101 t RI (800) 925.1122 )A, I) tiNvwAvI Anc:.Ui&c,
Agent Selection, Compensation, Service
The selection of an agent is determined by the city.
Any licensed agent can be selected to work with the city on LMCIT coverages. If the city
considers changing agents, LMCIT recommends the process begin well in advance of the city's
coverage renewal date. This will ensure that the new agent selection is resolved before work
begins on the renewal and that the new agent is in place to handle the renewal work.
The agent's fee is negotiable between the city and the agent.
LMCIT's practice is to include an allowance for a 10 percent agent's fee in the premium for
property/casualty coverage. LMCIT then pays that fee to the agent. However, the city and the
agent are free to agree on a higher or lower percentage fee,or on a different basis for compensating
the agent.
If the city and agent agree on a different percentage fee, the city should notify their LMCIT
underwriter. The premium quote will then reflect that change. Any increase or decrease in the
agent's compensation will flow through directly as a dollar-for-dollar increase or decrease in the
city's premium.
Another possibility is for the city and agent to agree on a different compensation basis instead of
the percent-of-premium approach. A flat annual or monthly retainer fee or hourly rate for services
performed are some of the possibilities. When the city and agent move to this sort of arrangement,
it generally works best for the city to compensate the agent directly. In that case, LMCIT would
provide the property/casualty coverage quote on a "net of commission" basis.
LMCIT workers' compensation rates include an allowance for a 2 percent agent's fee. If the city
chooses not to use an agent for workers' compensation, or if the agent's services on workers'
compensation are included and compensated under a direct contract for service, the 2 percent agent
fee allowance is refunded to the city.
The services an agent provides is negotiable between the city and the agent.
From an LMCIT standpoint, the agent's role is more of as an adviser and service provider to the
city, rather than as a salesperson for LMCIT. The
attached model resolution includes a suggested list of
services which an agent would typically provide. This list Your League Resource
of services was developed in cooperation with MIIA. For additional information and
However, the city and agent are free to negotiate their materials such as sample city-agent
own arrangement with either a broader or narrower range service contracts and RFPs,contact
of functions to be performed by the agent. What services Laura Honeck at 651-281-1280 or
the city needs and wants will vary from city to city. The lhoneck@lmc.org
important thing is that the city and the agent discuss and
agree on what the expectations are.
Laura Honeck 1/11
2
RESOLUTION 13-
A RESOLUTION OF THE CITY OF ELK RIVER
A RESOLUTION APPOINTING INSURANCE AGENT OF RECORD FOR
LEAGUE OF MINNESOTA CITIES INSURANCE TRUST
WHEREAS, the League of Minnesota Cities Insurance Trust (LMCIT) requires cities to
use the services of an agent in order to participate in the LMCIT
property/casualty program;and
WHEREAS, the City Council has reviewed and considered the written materials from
LMCIT discussing the agent's role and compensation in LMCIT;and
WHEREAS, Northern Capital Insurance Group has agreed that they are willing to provide
to the city the services listed below under the terms and conditions listed
below; and
NOW, THEREFORE, BE IT RESOLVED THE FOLLOWING:
Appointment
1. The City of Elk River hereby appoints as its agent for purposes of the city's
participation in the LMCIT property/casualty and workers' compensation programs.
Northern Capital Insurance Group
Term: five (5 years)
2. This appointment shall remain effective until June 30,2018.
Compensation
3. As compensation for the services provided to the city as described in Paragraph 4
below,the city will pay to the agent a fee of$9,000 annually. The city hereby directs
LMCIT not to include any allowance for an agent's fee in quoting and billing the
city's premiums for property,liability,and automotive coverage and to refund the
two percent workers' compensation coverage agent fee allowance to the city.
Services
4. The agent will perform the following services:
a. Advise and asset the city in assembling and accurately reporting underwriting
data,including updating property values, for rating purposes.
b. Advise and assist the city in evaluating and selecting among coverage alternatives
such as deductibles,limits,optional coverages,and alternative coverage forms,
etc.
c. Review coverage documents and invoices to assure coverage has been correctly
issued and billed.
d. Advise the city on potential gaps or overlaps in coverages.
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e. Assist the city as requested in submitting claims and interpreting coverage as
applied to particular claims.
f. Review loss reports for correct reporting,appropriate reserves, etc.
g. Assist as requested with safety and loss control activities.
h. Assist the city in identifying risk exposures and developing appropriate strategies
to address those exposures.
Passed and adopted this 18th day of March 2013.
John J. Dietz,Mayor
ATTEST:
Tina Allard,City Clerk
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