Loading...
HomeMy WebLinkAbout33-Risk Management CiTY Of SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: EDWARD RAYA Subject: REVIEW OF OPTIONS TO CONTINUE PARTICIPATION IN BICEP Dept: RISK MANAGEMENT Date: SEPTEMBER 15,1997 r Ci :~Gi; :!4l Synopsis of Previous Council Action: On July 7, 1997, the City Council authorized the renewal of the City's excess liability insurance coverage through the BICEP program and instructed staff to review options to continued participation in the BICEP Programs. Recommended Motion: I. That the Mayor and Common Council authorize the continued participation in BICEP. ~~s~ Contact person: Edward ~a Phone: 909-384-5103 Supporting data attached: Ward: FUNDING REQUIREMENTS: Amount: Source: (Acet. No.) (Acct. Description) Finance: Council Notes: Agenda Item No. #33 '1/15/97 CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION STAFF REPORT At the July 7,1997, City Council meeting, staff was directed to review alternatives to the City's continuing participation in the Big Independent Cities Excess Insurance Pool (BICEP). The following is a review of the BICEP Program, and the options available to the City of San Bernardino. BICEP Proaram The Big Independent Cities Excess Pool (BICEP) was formed as a Joint Powers Authority of California cities on October 1, 1988. BICEP was formed with five cities of similar size and operation, San Bernardino, Santa Ana, Pomona, Huntington Beach, and Oxnard. The group agreed that each member would self-insure for the first $1,000,000 of each loss. The losses between $1,000,000 and $3,000,000 would be shared by the five members, and losses over $3,000,000 up to $20,000,000 would be reinsured by traditional commercial insurance. Losses between $20,000,000 and $25,000,000 are also risk shared. The pool had to develop a source of funds to pay for the losses which it chose to risk share. The group utilized Certificates of Participation (COP's) in the amount of $20,000,000 to capitalize the risk sharing portion of the pool. The funds from the COP's are kept in an interest earning account and may only be used to pay for claims. Each year the members pay premiums which consist of four components: 11 Debt Service on the COP's - members annual cost is based on its percentage of the total pool at the time the COP's were issued. The City of San Bernardino cost is 19.09% of the BICEP's annual dept service. 21 Risk Sharing Assessments - repayment of any bond proceeds which were utilized or may be utilized for any losses paid in the layer which the group risk shares. Cost is determined by dividing each member's payroll by the total BICEP payroll. The City of San Bernardino's percentage is currently 20.2. 31 Commercial Insurance Coverage - the cost of purchasing commercial reinsurance for claims above $3,000,000. This charge is also based on a percentage of payroll. 41 Administrative Cost - the cost for pool administration, audits, legal counsel, etc. Also based on a percentage of payroll. Over the years, BICEP Board lias been able to purchase commercial insurance for a portion of the $1,000,000 to $3,000,000 layer, and since July 1, 1994, the Board has purchased commercial insurance for all losses above each member's $1,000,000 retention. The net effect of this decision is that as the claims which were covered under the risk sharing portion of the program are settled, the members will no longer have to pay assessments. While the cost of participating in BICEP is allocated to its members based on size, each agency is entitled to one equal vote through its representative on the Board of Directors. Ootlons to BICEP Review of the City's option to continued participation in BICEP involved obtaining price quotes from various insurance carriers, and conducting an analysis of the cost of withdrawal form BICEP. The City's cost for coverage through BICEP for fiscal year 1997-98 is $443,046. This cost consists of the four components detailed in the second section of this report; dept service, $120,801; risk sharing assessments, $82,193; excess commercial insurance, $208,470; administrative cost, $33,582. Detailed underwriting packages and a claim history were submitted to two of the largest insurance brokers in California, who specialize in public entity placements, the Robert F. Driver Company, and Segwick James Company. They approached a number of carriers willing to insure a large municipality and requested premium quotes. The Robert F. Driver Company contacted the Insurance Company of the State of Pennsylvania, and admitted A+ carrier. The carrier indicated an annual premium of $1,000,000 for coverage with limits of $25,000,000 above a $1,000,000 self- insured retention. They did indicate a premium of $450,000 if the City were willing to raise its retention to $2,000,000. Segwick James contacted a number of A + admitted carriers, including: Discover Reinsurance, which could not provide limits required by the City and therefore did not provide a quote; Municipal Mutual Insurance Company, which did not produce a quote; American Reinsurance, which indicated a premium of $1,200,000 for $9,000,000 coverage above the City's $1,000,000 retention; Genesis insurance will provide coverage with limits of $9,000,000 above the City's retention of $1,000,000 for $320,000. They would be willing to provide additional limits up to $20,000,000 for a total premium of $390,000. PREMIUM INDICATION and PROGRAM SUMMARY CARRIER POLICY LIMITS X mB PREMIUM BICEP $25,000,000 X $1,000,000 $443,046 ISOP $25,000,000 X $1,000,000 $1,000,000 $25,000,000 X $2,000,000 $450,000 MMIC REFUSED TO QUOTE AMRE $ 9,000,000 X $1,000,000 $1,200,000 GENESIS $ 9,000,000 X $1,000,000 $320,000 $20,000,000 X $1,000,000 $390,000 While the Genesis premium appears to be competitive with the cost of continued participating in BICEP, they have attached conditions which they would have to satisfy before committing to their price. These include (1) a review of the City's most recent financial audit, (2) a review of the City's loss control techniques, and (3) approval of the City's liability claims administrator. Additionally, the fact that it is significantly lower than the price quotes from the other carriers may be an indication that the rate may be designed to attract new business. When this occurs, it is not unusual to see significant increases in subsequent years. The most significant cost of the BICEP program is the cost of the reinsurance. The carriers have committed to hold the rate for three years, which will provide rate stability which may not be available from Genesis. The cost of withdrawal from BICEP must also be addressed. The JPA Agreement, Coverage Agreement, and Bond Documents all required each member to commit to BICEP for a period of three years at the time they were signed. The Liability Risk Coverage Agreement was amended in July of 1991, and it requires the City to give 2 years written notice once the initial 3 year commitment has been satisfied. While the City may be able to withdraw from BICEP with the proper notice, the documents require the City to payoff its portion of the COP's. The outstanding balance of the COP's, approximately $13,500,000 was refinanced in 1996. The City would be required to pay its share, 19.09% ($2,500,000) priorto withdrawing from BICEP. Even if the City were able to spread cost out over time it would still drive the total cost of insurance coverage above what the City is currently paying BICEP. It is also important to understand that if the City were to remain in BICEP until the COP's are retired in the year 2008, the City would be entitled to its share of whatever Bond proceeds remain. Recommendations: Based on the cost of commercial insurance. the instability of the commercial marketplace. and the cost of withdrawing from BICEP. it is recommended that the City continue to obtain its liability coverage through participation in BICEP. \ , \ Attachment 1 MuniciDal Insurance Pools In the late 1970's and early 1980's, traditional commercial insurance was either unavailable or cost prohibitive for municipalities in California. In response to this insurance crisis, the concept of municipal insurance pools was developed. Municipal insurance pools were formed as legal public entities under California law. They were structured to allow separate agencies to join together to .pool. or risk-share against losses which had traditionally been covered by a liability insurance policy. The pools are governed by a Board of Directors appointed by the member agencies. Since municipal insurance pools are not insurance companies, they provide coverage by offering a document called a Memorandum of Coverage, rather than an insurance policy. The Memorandum of Coverage is written to provide coverage similar to that found in a commercial liability policy, however because the members write the document itself, pools often offer much broader coverage than what is found in a traditional insurance policy. Pools generally offer other advantages over commercial insurance. The following are some of the advantages: .. Pool premiums are generally more stable since pools are some what insulated from the fluctuations traditionally found in the insurance market. .. Pool members have a voice in how the pool is operated because they appoint the Board of Directors. .. Pool participants retain ownership of any equity a pool may accumulate as the result of a positive history. While pools offer some advantages over traditional insurance, there are some disadvantages: .. Premiums in a pool may not always be less than traditional insurance, especially when the insurance market is soft. .. Pools usually require long term commitments before members can take advantage of return equity. .. Pools may require a substantial investment at their inception to insure financial stability . The California institute for Public Risk Analysis (CIPRA) a tax exempt, non-profit organization, reported in 1995 that 427 cities obtained their liability coverage by participating in a municipal pool. , ... CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION From: EDWARD RAYA Subject: REVIEW OF OPTIONS TO BICEP Dept: RISK MANAGEMENT Date: SEPTEMBER 2, 1997 Synopsis of Previous Council Action: On July 7, 1997, the City Council authorized the renewal of the City's excess liability insurance coverage through the BICEP program and instructed staff to review options to continued participation in the BICEP Programs. Recommended Motion: 1. That the Mayor and Common Council continue this item until the September 15, 1997 Council Meeting. b(~ol ~CL- Signalure Contact person: Edward R1\ya Phone: 909-384-5103 Supporting data attached: Ward: FUNDING REQUIREMENTS: Amount: Source: (Acet. No.) (Acct. Description) Finance: _ . Previously - . 57- ""/Oy-Ia? Council Notes: _ "/ Y ^- -" ,.f'" ~ ..~I" Agenda Item No. 1133 ? ;;'7-/77 I I -.. CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION STAFF REPORT On July 7, 1997 the City Council authorized the renewal of the City's excess liability insurance coverage through the BICEP Program and instructed staff to review options to continued participation in the BICEP Programs. Information packets have been submitted to two of the largest insurance brokerage firms in the state, the Robert F. Driver Company, and Segwick James. These firms specialize in placing insurance coverage for public agencies and combined, they represent over two hundred public entities. Both brokers requested at least 45 days to prepare their recommendations. Their premium quotes will be submitted by 9/3/97. Recommendations: 1. That the Mayor and City Council continue this item until the September 15, 1997 Council Meeting. CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION 'rom: EDWARD RAYA Subject: AUTHORIZING THE RENEWAL OF THE CITY'S CONTINUED PARTICIPATION IN THE BICEP PROGRAM le_ RISK MANAGEMENT late: JUNE 25, 1997 ynopsis of Previous Council Action: JUN 2 6 1997 i ! tecommended Motion: 1. Authorize the payment of $442,956 as the City's cost of continuing participation in the BICEP program. e ~~() S;~ ~~ Signat e :ontact person: Edward Rl\Ya Phone: 909-384-5103 ;upporting data attached: Ward: ~UNDING REQUIREMENTS: Amount: $442.956 Source: (Ace!. No.) 629-453-5161 ~ (AOCL~~I~' Fmance: . . / . Previously - t ~/- ~7/o7/"l7 :::ouncll Notes: -previously - t 87-t1't/o1./97 ___~.,... 7ZJ /1.tt!~o"" ~"lI N'i7/e;3 '.3l.i'.;\,<!r Agenda Item No. 9/1S'/17 #55 l e e e CITY OF SAN BERNARDINO - REQUEST FOR COUNCIL ACTION .' STAFF REPORT The Big Independent Cities Excess Pool was formed as a Joint Powers Authority of California cities (San Bernardino, Santa Ana, Pomona, Huntington Beach, and Oxnard) on October 1, 1988. The pool provided member cities a means of insuring their catastrophic liability losses. The program provides protection up to $25,000,000. The group utilizes Certificates of Participation in the amount of $20,000,000 to capitalize the pool. The pool was structured so that each member city retained the first $1,000,000 of each loss and shared the risk for losses between $1,000,000 and $2,000,000. Commercial insurance was purchased by BICEP to cover losses between $2,000,000 and $10,000,000, and the group risk shared for losses between $10,000,000 and $25,000,000. Since July 1, 1994, the group has been able to purchase commercial insurance for all losses between $1,000,000 and $20,000,000, and continues to risk share for losses between $20,000,000 and $25,000,000. The City's cost for the coverage for fiscal year 1997-1998 is $442,956. This figure includes $120,801 for debt service on the COP's, a $206,470 cost for the commercial insurance, a $82,103 cost for the City's portion of the risk sharing for those losses still carrying reserves or paid losses which were not covered by commercial insurance. There is also a $33,582 charge for administrative cost. The BICEP bylaws require the City to provide three years written notice prior to leaving the pool. In spite of this requirement, alternatives to the City's continued participation in BICEP were reviewed. Informal discussions with commercial insurance carriers indicated that coverage simillir to that provided by BICEP might be available at a cost of approximately $300,000. This cost would be dependent on a strict underwriting review and would of course be subject to market fluctuations. The City's obligation on the debt service which extends until the year 2008, coupled with the City's portion of the risk sharing assessments, which both have to be paid in addition to the cost for stand alone coverage, eliminate any fmancial advantage to leaving BICEP. Recommendations: 1. Authorize the payment of $442,956 as the City's cost of continuing participation in the BICEP program.