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HomeMy WebLinkAboutAGENDA REPORT 1986 0602 CC REG ITEM 10E MVUKYAKIi. ITEM !OE JAMES D. WEAK STEVEN KUENY Mayor City Manager THOMAS C. FERGUSON 4'���/`• • CHERYL J. KANE Mayor Pro Tern City Attorney ALBERT PRIETO Councilmember �� b� RICHARD MORTON Director of DANNY A. WOOLARD ���� Community Councilmember Development LETA YANCY-SUTTON R. DENNIS DELZEIT Councilmember City Engineer DORIS D. BANKUS JOHN V. GILLESPIE City Clerk MEMORANDUM Chief of Police THOMAS P. GENOVESE City Treasurer .pc) : The Honorable City Council F R O M - Thomas P. Genovese, Administrative Assistant�p�- D A T E : May 29, 1986 SUBJECT : Proposal Re Joint Powers Insurance Authority BACKGROUND: As the Council is aware, the City of Moorpark is currently insured for Basic Liability coverage, including errors and omissions, by the Planet Insurance Company. This policy provides coverage to $5 million dollars at a premium of $30,012 with a $5,000 self- insured retention coverage,at the $5 million to$10 million level was provided by NorthStar Insurance Company at a cost of $7,500. Unfortunately, like most other cities across the nation, this type of coverage at the same cost will not be available for the upcoming year. Because of the current insurance crisis, City staff has been investigating a number of alternatives to re-insure for the upcoming year. Last year, during the insurance renewal process, staff was directed to pursue the possibility of membership of the Southern California Joint Powers Insurance Authority. The City has since been notified that the Southern California JPIA is no longer accepting applications. Therefore, staff has pursued the two remaining options that are available for the City. These two options are: (1) re-insurance with Planet Insurance and (2) formation of a Joint Powers Authority for self-insurance. OPTION 1 Option one entails re-insurance with the only carrier presently offering insurance to cities, Planet Insurance Company. Through correspondance with the City's insurance broker, Tolman and Wiker Insurance, and other public agencies, staff has discovered that the insurance to be offered by Planet will contain several changes to the current policy. 799 Moorpark Avenue Moorpark, California 93021 (805)529-6864 Honorable City Council Insurance Information page 2 Changes in the policy include a minimum retention offer of $10,000 and the General Liability and Errors & Omissions coverage renewal on a claims made basis only. The maximum coverage to be offered will be $3 million and an aggregate form. The cost of the said coverage is expected to be approximately 65-70 thousand dollars. OPTION 2 Option two entails the formation of a Joint Powers Authority (JPA) with the cities of Carpinteria, Fillmore, Solvang, and Ojai for self-insurance to a limit of $250,000. Coverage above the $250,000 limit to the $10 million limit would be acquired through the JPA's admission into the California Joint Powers Insurance Authority, CJPIA. The basic concept behind the formation of a JPA is the pooling of resources to obtain coverage against claims and losses. The shared resources translates to the shared risk amoung JPA members. The coverage amounts, and discriptions are listed below: JPA PROPOSAL Item Loss Amount Deductable 0 - 1,000 Self-Insured Retention (SIR) 1,001 - 10,000 Shared Risk (JPA) 10,001 - 249,999 Shared Risk (CJPIA) 250,000 - 10,000,000 Deductable: represents that amount paid with General Fund. These losses are not reported to the JPA. SIR: represents that amount paid with the City's deposit amount with the JPA. The loss amount at this level are solely the City's responsibility. They are not shared expenses. Shared Risk (JPA) : represents that amount paid with the City's deposit amount with the JPA. The loss amount` at this level are shared losses with the JPA cities. Shared losses are all losses between the $10,000 Self-Insured Retention and the $250,000 Limit of Liability. They are based on each City's precentage dollar amount of losses greater than their $1,000 deductible but less than the Limit of Liability. y Honorable City Council Insurance Information page 3 Shared Risk (CJPIA) : represents that amount paid with the City's deposit amount with the CJPIA. The loss amount at this level are shared losses with all other cities in the CJPIA at the $250,000 to $10,000,000 level of coverage. The memorandum of coverage is very similar to our current existing policy. Therefore coverage would, in all likelihood, not be a determining factor in the selection of an option. It is expected that the first year deposit ("premium") would be approximately $45,000. The term deposit refers to the amount that the City places in the JPA Fund for coverage of any lossses/claims occurring during the year. These losses may be shared losses or unshared losses. The determination of the deposit amount is based on a rate of 7.5 times $100 of Worker's Compensation Payroll. This money paid into the JPA in the form of the deposit has no direct relationship to the expenses or the individual cities losses paid out. If a City is paying more in than necessary this money is retained in the account in their name, earning interest. DISCUSSION There are several concerns regarding both Option one and Option two. These concerns revolve around the limits of coverage, how losses/claims are paid, and ability to obtain coverage under each of the options. OPTION 1 Option one proposes traditional insurance (legal contract by which one party agrees to indemnify another party from financial loss) . The limits of coverage for traditional insurance would be a maximum of 3 million by the primary carrier. It is unknown at this point in time if the City will be able to obtain the excess coverage offered last year. With traditional insurance the insured agency does not directly pay for its losses/claims. Once the premium is paid, losses/claims, providing they are covered and above the SIR limits, are paid by the insuring company. This reduces the risk of catastrophic losses to insured agencies. The City will not be notified as to the details of coverage, providing insurance is offered, until the middle of June. Honorable City Council Insurance Information page 4 OPTION 2 Option two proposes a self-insurance mechanism, by means of the formation of the JPA, for coverage to $250,000. Additional coverage to $10 million is offered by means ofjoining the CJPIA. At this point in time the application of the JPA (named and herein after referred to as the Santa Barbara Area Joint Powers Authority- SBAJPA has been looked upon as favorable by the CJPIA. Acceptance into the 1 CJPIA will be known in the middle of June. With the SBAJPA losses/claims are paid directly from deposits of the City. These deposits are made to the SBAJPA and are held, earning interest, in a seperate account for the City. If the City incurrs a loss under the $10,000 SIR limit the account is depleted accordingly. If the City incurrs a loss above the $10,000 SIR limit but below the $250,000 SBAJPA limit, the City shares the losses with the other cities in the authority. The City's share of that loss is based on the City's precentage dollar amount of losses greater than its $1,000 deductible but less than the $250,000 Limit of Liability. Losses above $250,000 are shared on the same basis in the CJPIA group with the SBAJPA acting as a single entity. One of the major concerns of the SBAJPA is the risk sharing concept. Currently there are two cities, Fillmore and Carpinteria, that have their own police departments. In addition to this, the City of Carpinteria also has its own beach. These exposures, which are unique to the said cities, would be shared by other members of the SBAJPA. Because losses/claims are more likely to occur with such exposures, the City of Moorpark would be more susceptable to incurr an increase in losses/claims. SUMMARY: Currently the City of Moorpark is the only agency considering the formation of the SBAJPA that can obtain re-insurance. Due to this fact, the other cities forming the SBAJPA are proceeding with the application to the CJPIA, without the City of Moorpark. The other agencies are aware of the situation the City of Moorpark is facing and have expressed that, in all likelihood, they would be willing to accept the City into the SBAJPA after we have been notified of the details of re-insurance. RECOMMENDATION: 1. To proceed with the requirements necessary for re-insurance. 2. To notify the SBAJPA of the City's intentions and file the necessary paperwork for the City's consider evaluation of possible membership into the SBAJPA should it be necessary.