5.1. SR 11-06-2006
City of Elk River
REQUEST FOR COUNCIL ACTION
Agenda Section Meeting Date
Administration November 6, 2006
Item Description
Insurance Renewal Presentation from Ma
Administrator
Introduction
Mary Eberley of First National Insurance Agency will present the July 1, 2006, League of Minnesota
Cities insurance Trust (LMCIT) renewal, which was just received from LMCIT. Coverage has been
bound since July 1 even though the renewal documents and rates were just received. The workers'
compensation insurance renewal is included as well; that policy renewed on October 1. Other than
considering deductible options, the policies remain basically unchanged.
Discussion
The details of the proposal are included in the attached memo from Mary Eberley. I do, however, want
to highlight a few items from the renewal. The fIrst being the city's experience modifIcation factor for its
workers' compensation insurance which dropped from an already excellent rate of .81 to .68. This is a
huge savings in premium for the upcoming year. Credit for this good rating goes to many including Bruce
West, Safety Coordinator, the Safety Committee, the department heads for promoting safety and holding
their employees to our safety standards, and, especially, to every city employee for practicing good safety
habits while at work. This rating results in a substantial premium savings for the city. Second, part of the
premium increase in the renewal is due to the lawsuit with the Builder's Associations. This additional cost
has been isolated and will be charged to the building inspection division for the next three years. The
cost for the 2006-2007 renewal is $25,000.
As I stated, we are recommending that the Council consider two deductible options. Please review the
options attachment presented by Ms. Eberley outlining deductible options. She will give a brief overview
of the options at the meeting.
Financial Impact
Attachments
· Letter from Mary Eberley-First National Insurance Agency
· City of Elk River Premium Summary & Comparison
· Deductible Options
Action Requested
The City Council is asked to consider renewal of the city's insurance policies with LMCIT including a
change in the deductible.
s: \ Council\Lori\2006\Insurance Renewal.doc
Council Action
Follow Up
Motion by _
Second by _
Vote
S:\Council\Lori\2006\Insurance Renewal.doc
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3) The recent builders' associations claim against the City has now resulted in a
significant impact on the City's LMCIT pricing, beginning \vith the 2006
renewal. TlUs matter is considered a "land use" coverage claim. and is
counted twice in the experience rating factor fonnula. And although the suit
was settled successfully, defense costs were very significant and also count
twice in the formula. The 'bottom line' is that this matter counts for about
$25,000 in this year's Municipal and Auto Liability premium increases. It
will impact the City's premium costs for the next two years as well.
Two previous land use claims also have some impact in this year's premium
calculations, but will fall off the experience period with the 2007 renewal.
Overall, the City's claim experience has been excellent, as indicated by
substantial dividends and the City's Workers Compensation experience.
Loss control and risk management efforts are paying off. and the City
continues to receive favorable inspection reports from the League. Claim
frequency is low, which is what we all want to see.
4) Westbound Liquor was brought 'on-line' last fall, and now is being charged
[or a full year's activity and exposure. Several other additions to the City's
Property schedule have been made, including Pinewood Golf Course, several
public works facility upgrades. as well as an approximate 6.5% inflationary
increase recommended for this year by the League.
Coverage for the construction of the new Library will be added as soon as the
project is ready to go. Coverage needs and details for the new YMCA will
also be considered when the time comes.
The single most significant factor in this year's Property premium costs and
coverages is the League's requirement that all "Property in the Open" (PIO)
be scheduled, and a decision made as to what should be insured under the
LMCIT policy, or self-insured. This activity resulted in an increase from
previous years' PIO limits of about $1.6 Million additional asset value on the
Property schedule, and about $9,300 in additional premium cost. PIO
generally includes such items as athletic complex assets, playground
equipment. skate parks, fencing, signs, etc.
A copy of the spreadsheet for this year's property assets insured under the
attached premium summary for 2006 is attached for your review.
5) The City is to be commended for its excellent safety and risk management
efforts in the area Workers Compensation co\"erage and employee safety.
The City's experience modifier was good last year, but is even better this
year. The Modifier is .68, which translates into a 32% discount from the
League's base rates, and an increase of 18% in the City's credit over last year.
We have not included Workers Compensation coverage on the enclosed
summary, as the renewal has already been processed; but we wanted to point
out the importance of the new Modifier. It is rare to see one as low as .68.
The League's base rates increased for 2006 by about 5%, and the City's
projected payroll also increased from last year by about 5700,000, With these
changes in mind, the improvement in the Modifier is saving the City about
$25,000! Together with the City's election of a $10,000 deductible and this
excellent Modifier. Workers Compensation coverage is very well-priced for
2006. Good job on the loss control and emphasis on employee safety!
6) An optional quote for Excess Liability coverage has again been secured. At
$ LOOO,OOO limits, the additional cost would be 567,520. At a 52,000,000
limit, the annual additional cost would be $ 101,280. These premiums are
higher than last year, and arc also impacted by the recent land use claim.
The City has decided against the purchase of excess limits in the past. relying
on the statutory municipal tort liability limits. The City has elected the
League's waiver option, and generally has a total of$I,OOO,OOO available for
anyone "occurrence". There are some special exceptions, and in some cases,
separate limits for special types oflosses, but in general, the figure to
remember is $1.000,000.
Should the Council decide to go ahead and purchase these additional limits,
we will add the cost to the final proposal. We discussed these options last
year in workshop, and the Council decided to stay with the $1,000.000
general limit. We just want to offer again that higher limits are available.
7) This year's Vehicle schedule includes 147 units. When preparing information
for this year's renewal, a decision was made to drop Comprehensive and
Collision coverages on some of the older units with approximate market
values at $5,000 or less. Since claim payments on such older units would be
on a depreciated basis, it was detennined that it was not cost effective to
continue to insure these units for physical damage coverage. Although the
premium savings is not really significant, it made good sense to change the
strategy for insuring older vehicles.
8) The City changed to a 52,500 deductible in 2004. With this year's premium
increase, the Council may want to consider purchasing a larger deductible, if
not for a long-term strategy, then perhaps for the peliod oftime the Builders'
Association claim impacts premium costs. But for tIus claim, we would likely
have recommended at least one more year at the $2,500 deductible level.
A "Deductible Option" page follows this memo, and will outline the potential
premium savings associated with several reasonable deductible choices.
9) After a thorough review of the League's "No-Fault Sewer Back-up" coverage
last year, it was our recommendation that the City decline the coverage and
continue to self-insure any "No-Fault" incidents. We did not secure a quote
this year, but if there is interest again this year, the cost \vould be
approximately S 14,700. We would need to secure a quote and offer of
coverage from the League in order to make the purchase.
These are just some of the major points in this year's insurance plan, but if the Council
would like to see any other options. or has any other questions, we'd be happy to
complete research, answer questions, or review in more detail.
Since the costs for this year are significantly higher than last, we have a recommendation
for the Council:
For 2006, we recommend the Council purchase the LMCIT proposal at a hi2her
deductible to achieve oremium savings. The 'Ootions' memo enclosed olltlines two
reasonable choices. We believe the $10.000 Deductible Omion is a reasonable choice.
however. Ihe COllncil mal' be more comfortable with the $5.000 Option. Based 011 past
historv. either choice should lJrovide premium savings.
Approximate Net savings. based on past 3 years' loss experience, would be approximately
S10,OOO on the package, and another $900 011 EquipmenT Breakdown. There may also be some
additiollal premium savings as we would review the Property schedule and remove any items or
locations valued at less Than The new dedUCTible.
This straTegy would again be carefully reviewedfor The next two years, unTil the impact of the
land use claim has expired. We will allalyze loss e.xperience and approximate savings for each
year. and make a new recommendation to the Coullcil. And if. after the surcharge for The claim
expires, the Council decided to reverT To a lower deductible again. iT can be done at any renewal
point.
If the Council has any other questions, I will be happy to address them at your meeting,
with Staff, or at any other time convenient for you. If the Council is in agreement with
our recommendation. it may pass a motion to accept the LMCIT renewal offer an
approximate cost of$313,000 for the period from July 1, 2006 to July 1, 2007.
I appreciate the opportunity to work with, and for, the City of Elk River, and thank you
[or your business.
L----
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CITY OF ELK RIVER
OPTIONS - 2006
DEDUCTIBLE OPTIONS
1) $5,000 Per Accident Equipment Breakdown (currently at $1,000) - Save approx.
$ 929 in premium.
2) $5,000 Per Occurrence (except equipment breakdown) with no aggregate-
Save approximately $19,200 in premium. Based on 3-yr average claim history,
NET savings would be approx. $10,000 after increased deductible expenses.
3) $10,00 Per Occurrence (except equipment breakdown) with no aggregate -
Save approx. $ 45,500 in premium. Based on 3-yr average claim history, NET
savings would be approx. $ 21,600 after increased deductible expenses.