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HomeMy WebLinkAboutItem 12 Risk Insurance Contract Renewal AGENDA ITEM SUMMARY Meeting Date: 6/25/2018 Meeting Type: Regular Meeting Staff Contact/Dept.: Tom Mugleston/HR Staff Phone No: 541-726-3724 Estimated Time: Consent Calendar S P R I N G F I E L D C I T Y C O U N C I L Council Goals: Provide Financially Responsible and Innovative Government Services ITEM TITLE: RISK INSURANCE CONTRACT RENEWAL ACTION REQUESTED: Adopt or reject the following motion: APPROVE RENEWAL OF LIABILITY, PROPERTY AND WORKERS’ COMPENSATION COVERAGE CONTRACTS AND AUTHORIZE THE CITY MANAGER TO EXECUTE AGREEMENTS ISSUE STATEMENT: According to the City’s purchasing guidelines, City Council approval is required for contracts in excess of $100,000. ATTACHMENTS: 1. Council Briefing Memorandum DISCUSSION/ FINANCIAL IMPACT: The City of Springfield contracts for liability, property and workers’ compensation coverage on an annual basis and seeks renewal bids in anticipation of the June 30 expiration. The City’s risk insurance broker, Brown & Brown Northwest, has received acceptable renewal proposal for all lines of coverage from City County Insurance Services (CIS). Per our broker, CIS is the best carrier for fully-insured public entities in the market at this time. Overall premiums are anticipated to increase from $851,864 to $941,200 a difference of $89,334 or 10.5%. Workers’ compensation coverage is the primary source of the increase. We are on a paid loss retro plan, which is similar to a high-deductible plan. This means that we pay a reduced premium in exchange for a larger share of the overall claim costs. CIS has decided to require a larger base premium with a corresponding reduction in the maximum liability exposure. We have historically managed claims well below the maximum liability so this represents a significant increase in cost without a large probability we will reach the maximum exposure. We were able to negotiate a lower premium than CIS originally desired. As an offset for the higher up-front premium, CIS has reduced the cost to close out any open claims at 5 years. The net effect is an increased premium up front, with the possibility of lower costs when claims close. At this time CIS is the best viable coverage for workers’ compensation coverage, but we plan to investigate other options this next plan year. We propose that the City Manager be given authority to execute the contracts. Attachment 1 Page 1 of 2 M E M O R A N D U M City of Springfield Date: 6/25/2018 To: Gino Grimaldi COUNCIL From: Tom Mugleston, Human Resources BRIEFING Subject: Risk Insurance Contract Renewal MEMORANDUM ISSUE: The City contracts for liability, property and workers’ compensation coverage on an annual basis and seeks renewal bids in anticipation of the June 30 expirations. The City’s risk insurance broker, Brown & Brown Northwest, has received acceptable renewal proposals for all lines of coverage. We propose that the insurance contracts be approved. COUNCIL GOALS/MANDATE: Provide Financially Responsible and Innovative Government Services BACKGROUND: The City contracts for liability, property and workers’ compensation coverage on an annual basis. Our risk broker advises us on insurance plan design, deductibles and limits based on changes to our potential exposures and trends in the insurance market. They then pursue insurance proposals for all lines of coverage. Coverage Overview - Many of our coverages such as workers’ compensation are mandated by law. An overview of our major coverages can be found in table 1. Table 1 Coverage Limit Deductible General Liability (GL) $10M Per Occurrence $30M Aggregate $100,000 annual Cyber Liability $200,000 5,000 Excess Crime $1M Included in GL Auto Liability Included in GL limits Included in GL Auto Physical Damage Per schedule $1,000 Property Per schedule (trended value) $10,000 Excess Earthquake $5M Included in Property Excess Flood $5M Included in Property Workers’ Comp $3M $1.14M Plan Marketing. Brown & Brown Northwest, our risk insurance broker approached the market and sought insurance proposals. We received an acceptable renewal proposal from the City County Insurance Services (CIS) insurance pool for all lines of coverage. CIS covers nearly 100% of all of Oregon cities and counties. The policy forms, pricing and service level that CIS can provide is superior to what the market provides at this time. We also receive significant discounts for carrying multiple lines of coverage, and our claim processing experience with them has been excellent. We appreciate their understanding of public sector work and the inherent risks therein. Attachment 1 Page 2 of 2 Market Conditions & Premiums. This year our overall premiums will increase by 10.5%. Our premium changes can be found in table 2. Table 2 Premium Summary 2018-2019 2017-2018 Difference % Change Property/Inland Marine $113,454 $104,582 $8,872 8.5% Excess Earthquake/Flood $59,500 $59,500 $0 0.0% Excess Crime $2,534 $2,534 $0 0.0% General Liability $571,759 $573,417 ($1,658) -0.3% Excess Cyber Liability $10,800 $7,840 $2,960 37.8% Auto $135.938 $137,635 ($1,697) -1.2% High Risk Activity Charge $2,445 $2,445 $0 0.0% Workers’ Comp $258,056 $175,937 $82,119 46.7% Discounts & Credits ($213,288) ($212,026) ($1,262) 0.6% Total Premium $941,200 $851,864 $89,334 10.5% The increase in workers’ compensation premium is of particular note. We are on a paid loss retro plan, which is similar in concept to a high-deductible plan. This means that we pay a reduced premium in exchange for a larger share of the overall claim costs. CIS has decided to require a larger base premium with a corresponding reduction in the maximum liability exposure. We have historically managed claims well below the maximum liability so this represents a significant increase in cost without a large probability we will reach the maximum exposure. We were able to negotiate a lower premium than CIS originally desired. Additionally, as an offset for the higher up-front premium, CIS has reduced the cost to close out any open claims at 5 years. The net effect is expected to zero out the cost of this premium increase. However, time will tell if this is actually the case. At this time CIS is the best viable coverage for workers’ compensation coverage, but we plan to investigate other options this next plan year. Claim and Deductible Costs. Average, out of pocket claim and deductible costs are anticipated to hold steady this year thanks to safety and prevention programs. One positive example is in the workers’ compensation program. Our 6-year total incurred loss claims cost on average $305,658. By participating in a paid loss retro with a high deductible and aggressively managing claims, we are saving approximately $293,706 per year compared to a guaranteed cost workers’ compensation program. (i.e., WC program without the paid-loss retro) RECOMMENDED ACTION: Approve renewal of insurance contracts for the 2018-2019 year.