Loading...
9.c Renewal of Liability and Property Insurance Coverage with League of Minnesota Cities Insurance Trust Staff Report Date of Meeting: November 21, 2017 To: City Council From: Neil Soltis, City Administrator Re: 2018 Insurance Coverage Renewal Background: The City purchases liability and property insurance coverage through the League of Minnesota Cities Insurance Trust (LMCIT). LMCIT is a cooperative, member-owned organization founded in 1980 that provides property, liability, workers' compensation and employee benefit needs to Minnesota cities. Members contribute premiums to a jointly-owned fund rather than paying premiums to buy insurance from a private insurance company. The funds are used to pay for members' claims, losses and expenses. LMCIT's property/casualty program has more than 1,100 members. LMCIT coverage is designed specifically for Minnesota cities. The city has not recently solicited other quotes since the coverage provided to by LMCIT is specifically tailored to the cities risk exposures. The City Council must decide each year whether to waive the statutory monetary limit on tort liability. If the city does not waive the limit, an individual claimant would be able to recover no more than $500,000 on any claim to which the limits apply, with a total limit on a single occurrence of $1.5 million. If the city does waive the limit, an individual claimant could potentially recover an amount up to $2.0 million, plus any excess liability insurance coverage (Scandia currently carries $1 million). It is estimated that the City saves approximately $500 per year on liability insurance premiums by not waiving the limit. In 2012, the Council raised the deductible from $500 to $1,000 for liability and property insurance. The deductible is proposed to remain at $1,000 for 2017. In the past the City has not insured property in the open. This would include items such as playground equipment, bleachers, fences, and lighting. The cost of this coverage is $1 per $100 of coverage, which is an expensive coverage. Pursuant to the memorandum agreement with the Scandia Veteran Memorial Committee and the Scandia Lions Foundation, the City will provide for property coverage for the memorial. Issue: Should the City renew with LMCIT for 2018? Should the tort liability limit be waived? Should the City purchase coverage on property in the open for items other than the Veterans Memorial? Proposal Details: Fiscal Impact: Rates for 2018 are not yet available. The proposed budget provides for $34,000 as the total premium spread over the various cost centers. The final cost will be determined based on coverage selected by the City. In 2017, the total premium paid to date for liability ($9,877), auto ($6,660), and property coverage (12,550) was $29,087. The premium amount is subject to audit at the end of the year based on the City’s actual expenditures. Each year, LMCIT returns dividends to its members. The dividends vary significantly year-by-year. Options: 1) Renew insurance coverage with LMCIT for 2018, and pass a motion to not waive the tort liability limits. 2) Renew insurance coverage with LMCIT for 2018, and pass a motion to waive the tort liability limits. 3) Seek other quotes 4) Take no action Recommendation: Staff is recommending the City renew liability insurance with LMCIT for 2018. The renewal date is 1/1/18 and the rate information will be available in mid-December. Staff is further recommending the Council not waive the limit on tort liability. 2017-18 CHANGES Every year, the League of Minnesota Cities Insurance Trust (LMCIT) Board of Trustees reviews LMCIT’s coverages to ensure those coverages respond to the unique exposures faced by Minnesota’s cities. Many suggestions come from LMCIT members and their insurance agents. This year, the Trustees are pleased to announce several enhancements to address cities’ ever-changing needs. Changes go into effect for property/casualty coverages renewing on or after Nov. 15, 2017 and for workers’ compensation coverage renewing on or after Jan. 1, 2018. CONTACT If you have questions about the coming year’s coverage changes, or if you have ideas for future coverage enhancements, contact your assigned underwriter at (651) 281-1200 or (800) 925- 1122. LEAGUE OF MINNESOTA CITIES INSURANCE TRUST 2017-18 COVERAGE CHANGES AUTO PHYSICAL DAMAGE COVERAGE Auto physical damage caused by a hacker or a virus A change was made to the auto physical damage coverage to ensure coverage of auto damages caused by a computer virus or hacking attack. EQUIPMENT BREAKDOWN COVERAGE (OPTIONAL COVERAGE) Various enhancements A few low-limit enhancements have been added to the equipment breakdown coverage. First, coverage now includes 10 percent, or up to a $10,000 maximum, for the cost to improve power quality after a loss. Second, up to $5,000 is in place for the loss of perishable goods after loss, if the property holding the perishables can be resolved by calibrating, resetting, tightening, adjusting, or cleaning. Third, coverage includes up to $25,000 for the loss or damage to some types of mobile property that may be temporarily located away from a covered location (e.g., portable generators, chainsaws, jaws of life, portable air compressors, and push lawnmowers). LIABILITY COVERAGE Data and computer system security breaches The existing liability coverage protects against damages stemming from a data security breach claim involving the unauthorized acquisition of data that compromises the security of personal or confidential information. A $3 million annual aggregate limit applies for claims that fall within the data security breach definition. This limit now applies for other types of system security breach claims that don’t necessarily involve the unauthorized acquisition of personal or confidential data, such as a member’s failure to prevent a hack into an emergency dispatch, traffic light, or water tower system (coverage applies even if the system doesn’t necessarily contain personal or confidential information). 2 ABOUT LMCIT LMCIT’s unique partnership with the League of Minnesota Cities results in a holistic, one-stop-shop of services for members. In addition to workers’ compensation and property/casualty coverage, services provided range from loss control, to legal guidance, to advocacy, to media relations assistance. CONTACT If you have questions about the coming year’s coverage changes, contact your assigned underwriter at (651) 281-1200 or (800) 925- 1122. Joint powers entities In those cases when governmental entities in other states are acting on behalf of a joint powers entity who is an LMCIT member, the out-of-state entity will be considered a covered party by LMCIT only if allowed by pooling or insurance laws of the other state. Land use coverage The intent of the land use and special risk litigation coverage is reinforced to state that it does not respond if litigation is brought by an LMCIT member against a regulatory entity when that member’s own property is not affected. Pollution exclusion and limited contamination The coverage form is restructured to make it easier to evaluate which claims are excluded under the pollution exclusion and which claims are covered under the limited contamination coverage. That is, there’s a broad exclusion in the liability coverage for any pollution claim, but there are a few exceptions. One of those exceptions is any limited contamination claim, which is defined by a list of pollution-type or contamination-type exposures. Examples include claims arising out of pesticide or herbicide application operations, lead and asbestos claims, mold claims, claims arising from disease-producing organic agents, and sewer backup claims. There is a $3 million annual aggregate limit for all damages and defense costs incurred in a single coverage term for all limited contamination claims. Wastewater lagoon embankments There’s an exclusion in the liability coverage for damages arising out of the failure of any dike, levee, or similar structure, or Class I or Class II dams as defined by the Minnesota Department of Natural Resources, although coverage can be granted for certain structures upon review by LMCIT. Coverage intent is clarified to state that damages arising out of the failure of a wastewater lagoon embankment is not subject to this exclusion. PROPERTY COVERAGE Power surges Coverage intent is clarified to state that damage due to a naturally caused power surge, such as lightning, is covered under the property coverage; while damage due to an artificially caused power surge, such as arcing between two electrical wires, is covered under the equipment breakdown coverage. However, because the equipment breakdown coverage is optional to members, a nominal amount of coverage - $25,000 per occurrence, per location for artificially caused power surge claims - is now 3 included in the property coverage as a fallback for members who have not purchased equipment breakdown coverage. WORKERS’ COMPENSATION COVERAGE Infectious disease diagnostics testing OSHA requires that an employer provide diagnostic testing to an employee who has been exposed to, but hasn’t contracted, an infectious disease such as AIDS, hepatitis, tuberculosis, or anthrax. Since this type of situation isn’t considered an injury or occupational disease under workers’ compensation, most standard insurance policies won’t pay for the diagnostic testing. LMCIT does provide coverage for diagnostic testing, and the limit is increased to $5,000 per employee per infectious exposure incident. 2017-18 RATES The League of Minnesota Cities Insurance Trust (LMCIT) Board of Trustees annually reviews members’ projected losses and expenses to determine premium rates. Rates are then designed to fund these costs. Usually a contingency margin is also incorporated to cover extra costs in case losses turn out to be more than projected. Funds not needed for claims, expenses, or reserves are returned to members as a dividend. RATE IMPACT This year’s rate changes don’t necessarily mean your premiums will increase or decrease by that exact amount. That’s because premiums are also affected by changes in city expenditures, property values, payrolls, experience rating, and other exposure measures. LEAGUE OF MINNESOTA CITIES INSURANCE TRUST 2017-18 PREMIUM RATES PROPERTY/CASUALTY PROGRAM The following rate changes will go into effect for property/casualty coverages renewing on or after Nov. 15, 2017. LMCIT is also changing its rating methodology for auto physical damage coverage, which means some members’ premiums will increase and others will decrease because of the transition to the new rating method. Learn more about the new auto physical damage rating system. For a member with a perfectly average mix of exposures, the average rate for all property/casualty coverages (property, liability, and auto) will remain flat. However, specific rates within each of the liability classes (as shown in the table) will fluctuate. The rate changes for 2017-18 reflect changing loss patterns in recent years, as well as the LMCIT Board’s decision to lessen the contingency margin that LMCIT holds to keep rates as low as possible for members. Because LMCIT holds a very strong fund balance, a solid contingency margin still remains. Coverage Rate Change Average liability rates Per household rate (land use liability) Per sewer connection rate (sewer backup liability) Per police officer rate (police liability) Per employee rate (employment liability) Annual expenditure rate (all other liability) 0% -10% -10% 5% 5% 5% Bond rates -5% Liquor liability rates -5% All other coverage rates 0% 2 ABOUT LMCIT The premium rates set by LMCIT are not influenced by volatile market swing, and a healthy fund balance is maintained to help members avoid rate fluctuations. New coverages are continually added to reflect the unique exposures faced by Minnesota’s cities. In addition to keeping premiums low, LMCIT offers voluntary risk management programs and training that helps to keep municipal employees safe, reduce liability claims, and avoid property losses. CONTACT If you have questions about the coming year’s premium rates, contact your assigned underwriter at (651) 281- 1200 or (800) 925-1122. WORKERS’ COMPENSATION PROGRAM Members with renewals on or after Jan. 1, 2018 will see a 2 percent average increase in overall workers’ compensation rate levels. In addition to the average increase, rates for volunteer firefighters will increase an additional 2 percent. One of the main reasons for the 2 percent increase is because of rising medical costs, which account for about 60 percent of LMCIT’s total workers’ compensation costs. Rates for 2018 assume medical costs will increase about 8 percent, which significantly outpaces the increase in wage levels. Wage levels have only been increasing at a rate of about 2-3 percent and except for volunteer firefighters, wage levels are what LMCIT uses to calculate premiums. Another reason for the increase is because a contingency margin was built into the workers’ compensation rates. The margin held for workers’ compensation coverage is smaller than what is built into the property/casualty rates because losses in the workers’ compensation program are typically much more predictable from year to year. Rates for volunteer firefighters will increase an additional 2 percent because rates are based on the population volunteer firefighters serve, rather than wage levels. Because population doesn’t increase with inflation like payrolls do, an additional adjustment is needed to keep volunteer firefighter rates from gradually falling behind the rates for other employee classes.