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.