sr-011376-11g/ ~ri
~.
~~
`~ TO
FROM:
SUBJECT:
Santa Monica, California,-January 6, 1976
~~ ~ a
Mayor and City Council ~*~~ ~~
City Staff ~ JA~ ~, eD iuf'D
TH35~d'd~~T ~~
Insurance Premiums ~ RE7UtiNED 74 T:7f
~7TY CI.£RK'S G7FF
•F~H F14;lA~.
Introduction
This report examines the rising municipal insurance premii~n phenomenon. as it
relates to the City of Sarta Monica..
Backg-~ound
Each year as the :cndgetis approved an estimate is included therein £or the pay-
ment o£ premiums cn several insurance policies. This past year was no exception
to th= pra-=:.ice; however, the municipal insurance picture has radically changed
_._, _...._ ~z.s=: s~.x mcnrhs.. Un~recendented premium increases have occurred..
The first evidence of the nee:: for additional funds was the comprehensive 1ia-
bility excess coverage which was presented to the Cour_cil on October 28, 1975.
The Council approved a $23,000 appropriation from the unappropriated reserves to
pay the premium £or the balance of the fiscal year. In that case the premium
increased from $15,000 for $10,000 deductible to $52,000 for $100,000 deductible.
The dif£erencebetween theold premium and the new premium is~$37,000
($52,000 - $15,000). The Staff recommendation was. to appropriate the $37,000
fro*n the unappropriated surplus to pay the new premium. However, the Staff also
recommended that the pclicy expiration date be changed to clay 15, 1976. After
Council discussion it wasdetermined that only $23,000 wasnecessary as being
the prorated premiLUn to May 15, 1976. The-insurance company refused to prorate
the premium, requesting payment o£ the full premium of $52,000.
The prorated amount will be refunded when the City reinsures in Dray, 1970.
~r ~
TO: Mayor and Council -2- January 6, 1976
The City has been advised of additional increases in insurance premiu.'ns.-
1. Fire and extended coverage on City ormed.buildings and structures
(except parking structures and Santa hIOhica Pier) . The premium for
1974-75 ~:ras $3.2;1-^•0 based on approximately $17,000,000 valuation of
City bl..~ldi_~gs°..; contents. The premium for 1975-76 is $20,1.40 based
,.., approxi!nat-zlp ;25,000,000 valuation. 'Phevaluationwas done by the
izaa~~aace ce:-:,pa;, representative.
2. ~._~;ivipal Parxine Lots (Parking ~uthorityl comprehensive liability
,:,_~;erage. __~ pr~as~i~,~-n for 1974-75 was 52,586 while the nremiumfor
13'?5-76 w3_tl be `I =53 for t1:e same coverage.
;, .__,..=;13oi1er Po 1.i.:•~ covering repair or replacement of steamboi3.ers at-
~:.~: ?gain City Library and cn the municipal s~r~i.nming pool. The premium
Lc,r 1974-75 was as"2~5 while the premirsn for 1975-76 will be $399 per
=;ea:c for tl:e sarz:e coverage.
4. The City bus fleet excess coverage on public liability and property
damage premium is up significantly. The present levelof deductible
is $15,000 but this level was not even offered for 1975-76. Only -.
$50,000 and $100,000 deductible Caere offered. The premium for 1974-75
on $15,000 deductible was $33,360. The premium for, 1975-76 will be
$39,781 per year for $100,000 deductible.
TOc idayor and Council -3- - January 6, 1976
5. The City's worker's compensation insurance premium inereasedsubstan-
tially for the current fiscal year. The City Staff budgeted $720,000
for the prem3.usn; however, the actual premium is $864,000.
6, The premium on City automobile fleetexcess coverage on public liability
and property damage insurance was budgeted at$23,500 far. 1975-76; however,
the premiu.-a on thisinsurance will cost the-City $100,000 for the
1977-76 fis::al year. ..
7. _wo additional insurance policies are due for renewal in this fiscal
year. The Civic P-,uciito-'ium p.inlic liability and property damage coverage
is •dne for .renewal on February 1, 1976 and the City bus fleet comprehen-
sz;~e insurance on ';arch 23, 1976. The staff is unable to. determine how
'{c:.ct? __ use ;?remiw~s w.i11 go r~.p; however, the existing premiums are compar-
~...:~.vely s_~,ai1 (:1:500 .~ $3,575 respectively annual premiums) .
=~~l pr ,.,,v ~?~ove ~~~._.,u firr., prr~>nium increases (except worker°s compensation) were
aresented avid recommended to theCity by the Independent Insurance Agents Association.
of the City of Santa N,onica without advarcenotice as to possible premium increases.
The City Staff is of tYeeopinion that, with some diligence on the .part of the
Insurance Agents Associaticn, an indication of these inereasesand the extent there-
of, could have been given to the City.
Locker's compensation premiums were increased due to a number of factors discussed
belotr a
PAYROLL - Since the premium is based on the City payroll, each time there is
a general pay increaseor individual adjustments, premiumsincrease.
LEGISLATION - The State Legislature continually approves mandated costs w'nich
provide liberalized death, rehabilitation, medical expense, temporary dis-
ability, and permanent disability benefits. The City applied for and received
TO: Piayor and Council -4- January 6, 1976
$10,130.39 last fiscal year (1974-75) f:com the State for a portion of these
mandated casts.
EXPERIENCE i~'.ODIFICATIODi - The experience modification factor was increased
because of increased claims over the past three years_ Further, in previous
years the City has recei~,red dividends to partially offset premiu[ct expense
because of law claims ~-cperience; ho~eever, dividends have ceased because of
the claims increase.
L~iALP?ACTICE CRSS:S _ ~~- should be noted that if the current doctor's mal- _.
practice insurance situation results _inpatients paying higher medical bills
the i~~pact or. ~ao~.§=~r`s.comnensation irsurcance could be quite significant.
The ca aw-.y ~nsi-z..ca p -,._.,:^s are increased because of the alleged increase in
fo..:. ,_.. ^u,~lyer and ~ ~_ __ _...=?ms. The insurance company's attitude is to
charge sufficiez:t p-remi~v*a t^ maintain a reasonable prafit or no larger F;rite a
pa-rticula-t type of coverage. Lvhile the City of Santa Moni.ca's claims ayais?st
excess ca'rziers has been mini;nal it is alleged that other municipalities havehad
a larger number of claims whier. in turn affects premium amounts for-all cities.
Recommendation
1. Appropriate $95,611 from unapprcpriated reserves tovarious department
insurance accounts to cover additional premium cost on£ire and extended
caverage of City buildings, municipal parking lots comprehensive coverage,
steam boiler coverage, and automobile fleet excess coverage.
2. Appropriate $la4,pg0from unappropriated reserves to the various depart-
. mental workman's compensation to cover the additional premium for the
current fiscal year.
TO:riayor and Council -5- January 6, 1976
3,n~prove expenditure o- $5,21 for additional premimm on City bus Fleet
public liability and property damage"coverage from sales tax revenues
held ir. trust fcr transportation operations.
Tne-staff insurancepiacement study is underway and will be concluded on-
January 30, 1975. ,.his study will cover alternatives to the current _.
insurance placement method, including the feasibility of a risk management
- audit, .,_"_.ch woa3_d includ-z revels o£ coverage and deductible Graunts.
Prepared a=a: D. P. bolter
DPD/P.4J/sj 3