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8.3 Agr Risk ManagementCITY OF SALINA REQUEST FOR COMMISSION ACTION DATE TIME 11/16/8 4:00 P.M. AGENDA SECTION: Administration ORIGINATING DEPARll~IENT: APPROVED FOR NO. 8 RISK MANAGEMENT AGEND~: ~_ NO. 3 BY: Keith F. Rawlings BY: Attached is the formal proposal for the City's participation in the Kansas Intergovernmental Risk Management Agency (KIRMA). You will notice that the maximum cost of full membership for Salina has been estimated at $429,584 and may be as little as $397,365. It is scheduled to commence as of January 1, 1988. Also attached are several sheets of information comparing KIRMA with our present coverage, or where known, with estimates for 1988 renewals. As can be seen, joining KIRMA would reduce our premium costs at least $88,878 (18.4%) with maximum savings estimated at $121,097 (25.1%). You should remember that these potential "reductions" may not necessarily directly translate into dollar for dollar savings in the Risk Management budget. What it will do is stabilize or "level out" our insurance contributions and enable us to do a better job of budgeting in the future, continue our aggressive risk management approach, and possibly build some smaller local reserves while KIRMA is building much larger ones fog us. You should also keep in mind that of our KIRMA assessment, only about 30% of it (as much as approximately $119,000 to $129,000) is actually going for premiums, fees and administration. The remaining 70% ($278,000 to $300,000) goes into reserves in order to satisfy statutory funding requirements. This includes approximately 10% more than was originally needed, primarily due to changes in the enabling legislation as a result of heavy lobbying efforts by the insurance industry. You may note that other larger or similar sized cities will not be participating in KIRMA. There are a couple of reasons for this. First of all, Wichita, Kansas City and Topeka have not been invited to join. It was felt that they were large enough, and therefore, different enough, to warrant COMMISSION ACTION MOTION BY SECOND BY TO: CITY OF SALINA REQU ES T ,:OR COMM I S S I ON ACT I ON DATE T I ME Z+:00 P.M. AGENDA SECT)ON: ORIGINATING DEPARTMENT: APPROVED FOR NO, AGENDA: FTEM NO. BY: BY: exclusion as they might adversely affect the remaining cities' loss ratios. They are also large enough that they are self-insured to various degrees. Lawrence and Leavenworth are also self-insured to some extent and feel that they are unable at this time to justify joining. Lastly, another pool, the Kansas Eastern Region Insurance Trust (KERIT) is operational and available to all of the above mentioned cities, except Wichita, and some of the other larger Kansas City suburbs. While it is only a workers compensation pool at this time, they are expanding into property and casualty early in 1988. Some of the primary advantages to joining KIRMA include: - Comparable to better coverage than currently provided - Aggressive risk management, safety and training emphasis - Control over claims management - Owned and managed by "local" board of directors - Fully regulated by the Kansas Insurance Commissioner's Office - Lower cost - Stabilization of long-term costs - Establishment of reserves may result in future reductions in assessments Some of the disadvantages include: Pooling is new and unfamiliar in Kansas No commissions to local insurance agents In order for Salina to formally participate, the attached funding commitment resolution must be adopted and official and alternate representatives to KIRMA must be named. We would recommend that the Risk Manager and the Director of Finance, respectively, be the designated representatives. Attachments COMMISSION ACTION MOTION BY SECOND BY TO: League Mumc paht es November 4, 1987 To the City of Salina Attention: Keith Rawlings, P.O. Box 736 Salina, Kansas 67402 Risk Manager The Steering Committee of the proposed Kansas Intergovernmental Risk Management Agency (KIRMA) is pleased to present Salina with this proposal to become a contributing member of KIRMA. A similar letter is being sent to each of the 31 cities which have, to date, passed an ordinance to enter into the interlocal cooperation agreement to establish KIRMA, including the following: Arkansas city Kinsley Atchison Liberal Beloit Lyons Bonner Springs Marysville Chanute Coffeyville Columbus Derby Dodge City E1 Dorado Emporia Garden City Goodland Hays Hesston Mulvane Neodesha Newton Ottawa Pittsburg Russell Sabetha Salina Seneca Ulysses Valley Center Wamego While KIRMA and its consultants continue negotiations with the Kansas Insurance Department to establish KIRMA under the new Kansas Group-funded Municipal Pool Act, we are confident that the program can take effect on January 1, 1988. As noted below, a meeting of the official representative from each KIRMA contributing member will be held on December 9 to officially organize KIRMA to come into legal existence on January 1. The Steering Committee, which again last Thursday reviewed the program and the most recent fiscal and actuarial data, remains convinced that KIRMA will provide participating cities with a safe, cost-effective and stable source for municipal risk management needs. This includes broad "insurance-type" risk protection coverages, professional claims management, quality loss prevention consulting and risk management services. Enclosed is a summary outline of the risk protection coverages which will be provided to contributing members. While there are some special exceptions, such as liability for municipal gas systems or airports, the KIRMA risk coverage will be broad and comprehensive, designed to meet the needs of Kansas cities. Because of some additional requirements imposed by the new state Municipal Group-funded Pool Act, the funding for losses by KIRMA will be even more conservative than we originally planned. As a result, the costs will be somewhat higher, including the required payment of a premium tax. We now estimate that the cost of full KIRMA membership for the City of Salina for the year 1988 will not exceed $429,584, and may drop to a total of $397,365. Our consultant, the Arthur J. Gallagher & Co., one of the largest insurance consulting firms in the U.S. with considerable experience in municipal pools, is convinced that we are using a conservative approach which will leave surplus funds available at the end of the year for either reduced future contributions or for increasing the amount of the risk pool to stabilize future costs. You will, of course, want to compare the cost and benefits of KIRMA with your existing program. For most cities, the costs for 1988 will be significantly below actual premiums paid for coverage in 1986 or 1987. In this cost comparison, you will want to compare common coverages. For example, some cities are not now carrying full liability insurance, particularly liability protection for public officials, police professional lines and federal civil rights. Prospective costs for 1988 for private carrier coverages, including the new worker's compensation rates, should also be reviewed. As noted above, you will want to verify any savings from your own records, and project any savings with coverages comparable to KIRMA's. The Steering Committee also strongly suggests you evaluate the risk management services t? be ~rovided by KIRMA as a joint public agency of its member municipalities--one of the primary reasons why KIRMA is beinq formed. On the other hand, your city should realize that this objective imposes some local obligations: KIRMA cities will be required to maintain a high quality program of loss reduction and prevention. If your City does decide to join KIRMA as member, we need two thinqs: (1) evidence of commitment, and i2) a designation of your official as requested below: a contributing your financial representative, Financial Commitment. Under the interlocal agreement entered into by your City, KIRMA becomes operational only upon a determination by the Board of Trustees that a sufficient number of member municipalities have made contributions or written commitments sufficient to fully fund the proposed services and benefits. We now need this financial commitment (not a check) to proceed further. Enclosed is a resolution form which may be used for this purpose. We need to receive, by not later than December 7, either (1) a certified copy of such a resolution, or (2) a copy or the minutes of a Governing Body meeting which includes a similar motion, or (3) some kind of written commitment that your City will financially contribute to KIRMA, on its legal formation, for 1988. KIRMA Representatives--official Meetina. We need the name, title and address of your City's official KIRMA representative and alternate--see the attached form. Under the interlocal agreement, these official representatives will meet on December 9 to adopt the KIRMA Bylaws, elect the Board of Directors, and take such other action as may be necessary for the legal implementation of KIRMA. In your selection of your official representative, keep in mind that the KIRMA representatives in attendance will elect some of their members (probably seven) as members of the Board of Directors, which will require attendance at board meetings in the future. The meeting will be at the Jayhawk Towers in Topeka on Wednesday, December 9, beginning at 10:00 am. With your support, KIRMA will become one of over 200 public entity pools in the country. The Steering Committee is confident that KIRMA is a sound investment of public funds and will provide significant benefits to its member municipalities, in the same manner as has occurred for thousands of other cities across the U.S. If you have any questions, don't hesitate to contact Bernie Hayen at the League office. Scott Wightman of the Gallagher Co. (314-569- 1343) is also available for questions. We need your firm commitment bv December 7. If it will require a few weeks to obtain this formal commitment, please send us your official representatives so that we can invite them to the meeting, with the written financial commitment to follow. Sincere~yj ~ E.A. Mosner - League Executive Director For the KIRMA Steering Committee EAM:grs Encls. DESIGNATION OF. OFFICIAL K I R M A CITY REPRESENTATIVE To the Executive Director Kansas Intergovernmental of Directors: of the League of Kansas Municipalities and the~ Risk Management Agency (KRIMA) and its Board Pursuant to the interlocal cooperation agreement entered into by the City and other Kansas municipalities, to establish the Kansas Intergovernmental Risk Management Agency. known as K IRMA, the following, who are officers or employees of the City, are hereby designated as the City'.s official representative for KIRMA: I~el~semta/Jve (name. title, address, telephone number): Alternate Representative (name, title, address, telephone number) Submitted by: (name, title) Date: KANSAS K IRMA SUMMARY OF PROPOSED RISK COVERAGES INTERGOVERNMENTAL RISK MANAGEMENT AGENCY PART I--LIABILITY COVERAGES A. Comprehensive General Liability "Claims-made basis"* $500,000 of coverage for the Kansas Tort Claims Act $1.000,000 for liabilities imposed by Federal Code, including civil rights Limits apply per occurence, with no annual aggregate Broad wording Includes all employees, volunteers and ancillary boards and commissions No deductible Excludes pollution, gas utilities, asbestosis, airport liability and hospital malpractice, but includes ambulance malpractice B. Automobile Liability "Claims-made basis"* $500.000 of coverage for the Kansas Tort Claims Act $1,000,000 for liabilities imposed by Federal Code, including civil rights Limits apply per occurence, with no annual aggregate Uninsured and underinsured motorists Hired and non-owned No deductible No scheduling required Automatic coverages for changes C. Police Professional Liability "Claims-made basis"* $500.000 of coverage for the Kansas Tort Claims Act $1.000,000 for liabilities imposed by Federal Code, including civil rights Limits apply per occurence, with no annual aggregate Broad wording Includes ali employees, volunteers and ancillary boards and commissions No deductible Public Officials Liability "Claims-made basis"* $500.000 of coverage for the Kansas Tort Claims Act $1,000,000 for liabilities imposed by Federal Code, including civil rights Limits apply per occurence, with no annual aggregate Broad wording No deductible Includes all employees, volunteers and ancillary boards and commissions -OVER- PART II--PROPI=RTY COVERAGF__.~ A. Buildinq and Contents 100% replacement cost No coinsurance $1000 deductible per occurence "All-risk" form Boiler and machinery not included B. Contractor-Type Equipment 100% replacement cost No coinsurance $1000 deductible per occurence "All-risk" form C. Automobile Physical Damac~e No scheduling required Automatic coverage for changes $1000 deductible per occurence Comprehensive and collision D. Crime $100.000 limit Money and securities Employee fidelity No deductible PART III--~I~ORKERS COIIPI::NSATION A. Statutory Benefits $500,000 employers liability Not subject to annual audit * "Claimms-~ Basis. In order to have a claim covered under a "Claims-Made" policy, the occurence has to happen and the claim has to be presented to the city during the period of KIRMA membership. If a city would withdraw from KIRMA, an option to be able to present future claims that occurred while you were a member (Extended Discovery Period Endorsement) will be provided to that city for an additional cost. ** Info~. For detailed questions about this coverage or its pricing, please call Bernie Hayen at the League of Kansas Municipalities ((913) 354-9565) or Scott Wightman at Gallagher ((314) 569-1343). KIRMA THE KANSAS INTERGOVERNMENTAL RISK MANAGEMENT AGENCY --A Protected Loss Coverage Pool and Risk Management Service for Kansas Municipalities-- Why KIILMA? Following is a brief explanation, and some advantages and objections, developed by a Steering Commit"cee selected by representatives of over 30 Kansas cities interested in developing KIRMA -- the Kansas Inter- governmental Risk Management Agency. KIRMA will not become a public agency unless legally formed by a suffi- cient number of municipalities to permit KIRM'A to efficiently, effectively and safely secure its public purposes. KIRMA is being formed under the Kansas Municipal Group-funded Pool Act, a comprehensive law enacted by the 1987 legislature. It is subject to certification and regulation by the Commissioner of Insurance -- and is even required to pay state taxes, notwithstanding its non-profit, governmental purpose. A Brief Explanation In brief, the Kansas Intergovernmental Risk Management Agency (KIP~MA) will be an official, state-regulated public agency, established to pro, fide risk management services and loss coverages for cities and other municipalities in Kansa& It will be created, owned and managed by those municipalities which enter into an interlocal coopera- tion agreement forming the agency, as authorized by Kansas statutes. While KLPuMA is sometimes referred to as a municipal insurance pool, and will provide comprehensive coverages for municipal losses, the focus of KIILMA is on risk management. Ouly those municipalities committed to maintaining an active local risk management pro- gram are invited to join KLR~MA. It ;viii be a protected program -- all potential losses not funded by the KIBMA joint risk management pool will be covered by loss protection agreements with private insurance companies. All income and assets of KIRMA v-ill be public funds, dedicated to the exclusive benefit of its member municipalities. Some Advantages · Makes possible an active and effective local safety and risk reduction program · Provides comprehemive loss coverage, specifically designed for Kansas municipalities, as determined by its members · Encourages the active involvement of those member municipalities which create, own and operate KIRMA · Provides for future and continued availability of needed loss coverages · Can result in savings of public funds compared to the costs of similar loss coverage now available · Helps stabilize long-term c~sts, based on the experiences of its Kansas members, not on national trends or in- surance underwriter experience in other states · Provides members with control over administrative costs of Joining KIB~MA · Secures computerized fiscal and claims information on a monthly basis · Permits an aggrt~ive claims defense strategy, with greater control over "courtesy" payments · Permits the use of claims personnel trained in the processing of claims against governmental units · Provides for the use of aetorne.vs specializing in the defense of governmental liability and civil rights claims · Permits the members to participate in the resolution of certain disputes that may arise, including claim set- tlements · Permits continued use of governmental tort immunity to the extent provided by law · Helps keep Kansas public funds in Kansas -- most municipal insurance policies are with out-of-state eOm- panics Some Objections · An intergovernmental risk management program like · KLRMA is new and unfamiliar in Kansas, though ex- tensively used in other states -- about o00 public pools · now exist in the U.S. · The KIRMA members must accept more risk manage- ment responsibility, and work harder to prevent losses to KIRMA Local insurance agents will not get a commission on policy sales Conflicts may occur over the adequacy of a member's safety and loss reduction program More Information The League of Kansas Municipalities is serving as the secretariat for those cities interested in forming KIRMA. For further information, contact the League at 112 West Seventh Street, Topeka, Kansas 66603. Insurance Type General Liability Police Professional Liability Public Official's Liability EMS Veh. & Prof. Liability Mobile Equipment Vehicles Radios, Sirens & Radar Portable Fire Equipment Buildings & Contents BiCenter Contents & Liability Museum & Contents Boilers Computer Workers Compensation Total Salina Insurance Coverage Without KIRMA C 0 S T 1985 I986 1987 26,567 132,274 87,685 16,037 35,I03 43,857 I5,266 9,475 15,311 8,068 16,622 I9,6gl 3,856 3,245 3,589 * 35,381 72,738 57,849 4,470 5,510 2,006 3,150 3,150 3,150 * 48,513 58,000 64,056 21,907 24,000 24,994 2,115 2,766 2,409 655 830 881 547 646 785 128,863 145,502 i63,102 315,395 509,868 482,626 % Change Estimated 1985-1987 1988 Cost 230% 100,800 173% 50,~00 0% 17,600 I44% 18,474 64% 66,500 55% 2,300 0% -- 32% 73,600 I4% 28,700 14% 2,800 35% 1,000 44% 900 27% 199,121 53% 562,195 Est. Change 1987-1988 + I5% + I5% 6% 15% 15% 15% 15% 15% 15% 15% 22% I6% * Did not renew and costs are not included in the !987 total. COVERAGE COMPARISONS Traditional Insurance (I9B7) vs KIRMA ComB. Gen. Liability Automobile Liability Police Professional Liability Public Officials Liability EMS Liability Building & Contents (General) Building & Contents (Museum) Building & Contents (BiCenter) Contractor - Type Equipment Present Coverage Present Description Cost Statutory Benefits $163,102 S500,000 liability Annual Audit Claims-made basis $ 87,685 $500,000 Kansas flab. -0- Federal liability No deductible $500,000 Annual aogregate $500,000 Each occ~rence (KS) $500,000 Each occurence (Fed.) Occurence basis $500,000 Kansas liability -0- Federal liability Claims-made basis $ 43,857 $500,000 Kansas liability -0- Federal liability SB,O00 Deductible $1,000.000 Annual aggregate Incl. all employees, volunteers & boards Claims-made basis $ 15,311 $500,0B0 Kansas liability -O- Federal liability $5,000 Retention !500,000 Annual aggregate Incl. all employees, volunteers & boards Claims-made basis $ 4,610 $500,000 Kansas liability -0- Federal liability $100 Deductible $500,000 Annual aggregate Incl. all employees & volunteers 100% Replacement cost S 64,056 $500 "Disappearing" deductible All risk form 100% Replacement cost $ 2,409 $100 Deductible All risk form 100% Replacement cost S 24,994 $1,000 Deductible All risk form Loss of earnings protection EMS-IO0% Repl. cost $ 3,282 $500 Deductible Electronic EQuipment $ 2,006 No deductible Auto Physical Damage Scheduling ~ 69,648 Boiler & Machinery Public Employees Blanket Bond Depositor's Forgery Bond Total $25, $50, $500 & $1,000 Deductible Comprehensive, collision spec. perils 525,000 limit on money $ 71B and securities $5,000 limit on C.M. & $ I00 and Finance Director $50,000 limit on Treasurer $ 180 $I0,000 limit on C.C. iS) $ 555 $3S0,000 Total coverage $ 881 at 8 locations $250 Deductible 100% Replacement cost S500 Deductible $10,000 Performance Bond $ 768 $25,000 Performance Bond $ I00 Add coverage not included in KIRMA $485,057 KIRMA Coverage Description Statutory Benefits $500,000 liability No Annual Audit Claims-made basis $500,000 Kansas liab. $I,000,000 Federal liab. No deductible No annual aggregate $500,000 Each occurence {KS) $1,000,000 Each occurence (Fed.) Claims-made basis $500,000 Kansas liability $1,000,000 Federal liability Claims-made basis $500,000 Kansas liability $1,000,000 Federal liability No deductible NO annual aggregate Incl. all employees, volunteers & boards Claims-made basis $500,000 Kansas ltebility $1,000,000 Federal liability NO deductible No annual aggregate Incl. all employees, volunteers & boards Claims-made basis $500,D00 Kansas liability $1,000,000 Federal liability No deductible NO annual aggregate Incl. all employees & volunteers 100% Replacement cost SI,000 Deductible All risk form I00% Replacement cost $1,000 Deductible All risk form 100% Replacement cost $1,000 Deductible All risk form No loss of earnings protection I00% Replacement cost $I,000 Deductible All risk form NO scheduling rebutted Automatic coverage for changes $1,000 Deductible collision $I00,000 limit on money and securities $I00,000 limit on C.M. and Finance Director Not included Not included Not included 100% Replacement cost SHOO0 Deductible Not included Not included GRAND TOTAL Cost $429,584 2~494 $432,078 TO: FROM: SUBJECT: DATE: Bill Harris, City Manager Robert K. Biles, City Clerk and Director of Finance KIRMA November 12, 1987 Having served as the Pittsburg representative on the KIRMA project, I would, of course, be most willing to put on paper the perspectives I received while actively involved in the project. the amount of such as: Though Pittsburg was one of the cities to benefit the least in dollars saved, we were looking more closely at other advantages 1. Insurance availability 2. Completeness of coverages 3. Strong risk management 4. Aggressive claims management 5. Stability of "premiums" Pittsburg had experienced difficulty in obtaining quotes for insurance, especially in the areas of liability. Police liability coverage was not renewed in October 1986 and all attempts to find another insurer failed causing the department to "go bare". The number of bidders on other liability policies usually did not surpass two. We felt this put us in a situation where we might be choosing between a significant increase in premium or trying to go it alone. We also found other coverages offered being trimmed. Maximum coverages were reduced, deductibles increased and exclusions added though premiums remained historically high. Thus the concept of KIRMA providing complete coverages specifically designed for cities attracted us. Approaching the insurance market as a "buying group", was seen as a way to acquire coverages we desired on a long-term basis at a reasonable and stable cost. KIRMA was also designed to be actively involved in providing risk management expertise to those cities involved. Though I wore the hat of Risk Manager, Pittsburg did not have any formal programs in place to reduce the city's risks. My intent was to invite KIRMA's risk manager to Pittsburg to help kick off the formation of our program. The other attraction to us was the promise of aggressive claims management. It was felt the insurance companies were too willing to settle cases for small amounts instead of actively defending and "proving" the city's innocence. In particular, two claims (the only two since 1980) against the police department were settled for $2,500 and $10,000. The first was for an alleged civil rights violation; the second was for a person who hung himself in jail. In each case we felt the city had extremely strong cases, but the insurance companies chose to settle. The morale in the police department Bill Harris KIRMA memo Page 2 suffered as it was perceived in the something wrong". As we understood would be made in cases such as these. public "those guys must have done the KIRMA guidelines, active defenses This summarizes the attractive features but we also had a few concerns expressed internally and externally. Internally, our concerns revolved around the starting date of KIRMA and how it differed from our normal policy dates. Because the dates differed, we were looking at the costs of purchasing coverage for an extended discovery period (i.e. tailing coverage) on our liability policies. This had some impact on the expected savings in the first year. Externally, the major concerns surfaced through the local insurance agents. One of the first concerns dealt with the loss of commissions for their agencies if the "business" was taken elsewhere. The other major concern was whether KIRMA should meet regulations set forth by the Kansas Insurance Commission. Many of these concerns were addressed during the passage of the Municipal Group-Funded Pool Act of 1987. I trust this summary will prove helpful to you. If you would like to discuss any of these comments, I'd be happy to go into further depth.