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HomeMy WebLinkAbout01-265 Resolution No. 01-265 RESOLUTION ACCEPTING THE PROPOSAL OF LUNDSTROM INSURANCE FOR LIMITED SELF-INSURANCE PROGRAM BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN, ILLINOIS, that Joyce A. Parker, City Manager, be and is hereby authorized and directed to accept the proposal on behalf of the City of Elgin of Lundstrom Insurance for the city' s limited self- insurance program for the period October 1, 2001 through September 30, 2002 as follows : a. The St . Paul $50, 000/occurrence (SIR) for the property policy and $75, 000/occurrence (SIR) for general liability with $500, 000 "All Lines" aggregate SIR proposal for a total excess premium and claims administration cost of $538 , 042 . b. The Illinois National $250, 000/occurrence compensation proposal for a total excess premium cost of $30, 290 . c . The Custard Claims Management Services, Inc . proposal for workers' compensation claims administration services for $49, 875 . d. The AIG $2, 000, 000/occurrence and $2, 000, 000/aggregate with $10 , 000/deductible for pollution liability coverage for $34 , 048 . s/ Ed Schock Ed Schock, Mayor Presented: September 26, 2001 Adopted: September 26, 2001 Vote : Yeas : 7 Nays : 0 Attest : s/ Dolonna Mecum Dolonna Mecum, City Clerk OF E<C ✓ Agenda Item No. City of Elgin g 3 E L 1 September 21, 2001 rnu G on ... pI,l� 3_ 0111 NI,PI is III TO: Mayor and Members of the City Council Flips fltI J ^ FROM: Joyce A. Parker, City Manager FINANCIALLY STABLE CITY GOVERNMENT EFFICIENT SERVICES, AND QUALITY INFRASTRUCTURE SUBJECT: Insurance Policies for 2001 - 2002 PURPOSE The purpose of this memorandum is to provide information to the Mayor and members of the City Council regarding the award of contracts for the City' s limited self-insurance program for the period October 1, 2001 through September 30, 2002 . BACKGROUND Risk Resources (the City' s long-time independent insurance consultants) , coordinated the insurance renewal process and also performed a comprehensive review and analysis of various proposals. The City' s current limited self-insurance program, which expires September 30, 2001, includes workers compensation claims administration by Cannon-Cochran Management Services, Inc . , an excess worker' s liability policy with Safety National , a $2 , 000, 000 pollution insurance policy through AIG, and liability/property insurance through St . Paul . These policies give the City total coverage limits of $9, 000 , 000/occurrence and $12 , 000, 000 of aggregate liability for most types of losses . Proposals were solicited from the following insurance agents and brokers : 1 . Lundstrom Insurance Agency 2 . Arthur J. Gallagher & Company 3 . Wine Serge & Company 4 . Near North Insurance Brokerage Based upon their requests, each insurance agent and broker was assigned specific insurance companies to approach to seek proposals . Over 20 insurance companies were solicited on the City of Elgin' s behalf . Each insurance broker submitted its best proposal except for Near North Insurance Brokerage . Near North Insurance Brokerage did not submit a proposal for review. They felt their proposal would not be competitive with the City' s current program. No broker charges were included in the proposals . Insurance Policies 2001 - 2002 September 21, 2001 Page 2 Chart I displays the premium costs and self-insured retention levels of the various proposals . Currently, the City has a self- insured retention of $50, 000 for property, boiler and machinery coverage and $75, 000 for various liability coverages, with an aggregate cap of $350 , 000 for all coverages except crime and automobile physical damage . Chart II summarizes the major insurance coverage differences among the proposals . Worker' s Compensation Claims Administration Proposals were received for worker' s compensation claims administration from seven firms . The lowest priced proposal came from CCMSI , the City' s current claims administrator. The Risk Management Division of the Purchasing Department has been dissatisfied with CCMSI' s performance for over a year. The problems include frequent changeover in claims adjusters (four within a 12 month period) , late payment of medical providers' bills (resulting in multiple dunning notices being sent to our employees) , lack of a proactive approach to many cases and, in one instance, permitting the City' s cash reserves to reduce to an amount insufficient to pay temporary total disability to employees (no employee was unpaid due to this situation) . Due to these and other problems, the City does not recommend award to CCSMI . The second lowest proposal is from Custard Claims Management Systems . Their proposal includes a one-time cost of $15, 525 (estimate) for taking over open claims that include time off work as well as medical expenses . After the first year, their rates would presumably be closer to those proposed by CCMSI . Custard' s municipal references were unanimously positive and Risk Management staff was favorably impressed by the company representatives at an interview. Therefore, it is recommended that Custard be awarded a contract for worker' s compensation administration for 2001-2002 , with options to renew at the City' s discretion. Liability and Property Insurance Risk Resources in their attached letter of recommendation analyzes all of the various proposal options submitted by the four brokers . The "soft" insurance market from which the City benefitted during our 1998-2001 policies years has hardened, resulting in some premium increases and, more significantly, an increase in the amount of the City' s self-insured retention. The St . Paul proposal provides the best overall combination of premium cost and broad coverage . Specifically, the St . Paul proposal has a significant r''' Insurance Policies 2001 - 2002 September 21, 2001 Page 3 premium cost advantage over the United National proposal . When compared with the Royal Surplus proposal , the St . Paul proposal offers significantly lower self-insured retentions for the property, automobile physical damage and liability coverages . In addition, the Aggregate Self-Insured Retention is also significantly less under the St . Paul program versus the Royal Surplus program. As noted in the Risk Resources analysis, St . Paul in its Option 1 has offered the best overall package . Premiums have increased from $449, 982 to $538 , 042 , or about sixteen percent . Our self-insured retention, the value of losses the City pays for itself, has increased from $350, 000 to $500, 000 . The City is still in a better position than it was prior to 1998 when our premiums were $411, 000 (which does not include our pollution or larger umbrella coverage) and our self-insured retention was $750, 000 . The difference in premium savings from St . Paul' s Option II is not significant enough to accept higher self-insured retentions for the tek liability coverages and the total aggregate self-insured retention. Recommended 2001-2002 enhancements • Pollution Liability Insurance policy limits . Coverage for pollution liability claims is provided by a separate pollution liability insurance policy. The current policy limit for this coverage is $2 , 000 , 000 . Under this policy, defense costs are part of the policy limit, not paid in addition to the policy limit . Risk Resources recommends that the City evaluate the adequacy of its Pollution Liability Insurance Limit and obtain quotations to increase the total limit to $3 , 000, 000 and $5, 000, 000 . The City can then make a decision on whether to increase the insurance limits for this coverage. • In policy year 2000-2001, the City increased its umbrella/excess liability coverage from $7, 000, 000 to $10, 000, 000 . Risk Resources recommends obtaining quotes for higher protection ($15, $20 and $25 million) given the large verdicts juries have been awarding. GROUPS/INTERESTED PERSONS CONTACTED None. e.. rob. Insurance Policies 2001 - 2002 September 24, 2001 Page 4 FINANCIAL IMPACT There are sufficient funds in the 2001 Risk Management Fund to cover the recommended insurance premiums of $568, 332 ($538, 042 to St . Paul plus $30, 290 to Safety National) and claims administration expenses of $$49, 875 . Sufficient funds will be established in the 2002 Risk Management Fund' s budget for the next year' s expenses . LEGAL IMPACT None. ALTERNATIVES None . RECOMMENDATIONS The recommendation is that the City accept the following limited self-insurance coverages for the period October 1, 2001 through September 30, 2002 as follows : a. To accept St . Paul Option I for a premium cost of $538, 042 . b. To renew the Safety National $250 , 000 SIR worker' s compensation proposal for a total excess premium cost of $30, 290 . c . To accept the Custard Claims Management Services proposal for worker' s compensation claims administration services for $49, 875 with options to renew at the City' s discretion. d. To direct staff to solicit quotations for Umbrella/Excess Liability coverage in the amounts of $15, 000, 000, $20, 000, 000 and $25 , 000, 000 and return to the City Council with a recommendation for award, if any. e. To direct staff to solicit quotations for Pollution Liability Insurance with coverage of $3 , 000, 000 and $5, 000, 000 and return to the City Council with a recommendation for award if any. qpectfully bmitted, C� oyce A. Parker City Manager independent RITSiiCE IIS.1117.1711.OURCE 'S •. • . Risk ktinsgemsnt consultants . , September 18;2001 ' • Gail Cohen Purchasing Director and Risk Manager• . . City of Elgin • 150 Dexter Court - Elgin,TL 60120=5555 • • Re: Analysis of 2001=02 Property and Liability . - . Insurance Proposals .• , . : • • Dear Gail: We have analyzed the various' proposals.received.for your property and liability.insurance r coverages effective October I, 2001'. This letter and the accompanying charts will summarize • our findings and.present our recommendations. • . . Our report will consist Of the following sections: . . 1. Property and Liability coverages,excluding.Workers'.Compensation coverages: • • 2. . Workers'.Compensation coverage. • . : . . 3. Workers' Compensation.Claims Handling Services. . • • . : : - • 4. Additional Considerations. - : PROPERTYAND LIABILITY INSURANCE COVERAGE • EXCLUDING WORKERS'COMPENSATION ' Chart I displays the premium costs and.self-insured retention levels of the various. . proposals received. Proposals•were solicited from the.folloc ling.insurance agents and brokers:. . • ' • I. Lundstrom Insurance Agency 2. Arthur 3. Gallagher&"Company .. .• • . • • • 3.. Wine Serge&Company • . . . • 4. Near North Insurance Brokerage : . Based .upon: their requests, each insurance agent and broker was assigned specific. insurance companies to approach to seek proposals. Over 20 insurance companies,were solicited on the City of Elgin's behalf Each insurance broker subtnitted'its best proposal except for Near: 185 South York Street •Elmhurst, Illinois 60126 •Telephone(630)617-5100 • Pax(630)617-5128 E-Mail:rislunl.com Z@011 LTZ'ON SL@9T262.178T F S33df1OS38 NSI8 92:9T 108Z/8T/60 • ri- Gail Cohen , . • • • September 18,2001 • Page 2 North Insurance Brokerage: .Neat North Insurance`Brokerage•did, tot.;submit -a, proposal::for • . , review- They felt their proposal•would not be competitive with the City's;Current program, • • . ' • , Chart I displays' the premium costs and self-Insured retention, levels, of the various . proposals.. Currently, the City has aself-insured-retention of$50,000 for property; boiler.and • : • machinery. :.coverage and $75,000,for various liability coverages with a, cap of $350,000 ' . aggregate•for all coverages except crime and automobile,physical damage- . Chart II enclosed with this letter summarizes the.major insurance coverage.differences' among the proposals. As you can,•see, there are some.areas where a particular proposal is • . superior in,coverage and..other areas where one, of the other. proposals provides; superior , • coverage: On balance,we believe the St Paul'proposal provides,the best overall combination of , • • . • premium cost and broad coverage: Specifically, the St. Paul proposal has a significant,premium.% ' • • . • cost advantage over the United National'proposal. ' When compared with the Royal Surplus •. proposal, the St, Paul proposal offers significantly;lower self-insuired retentions for the property,,' • automobile physical damage and,liability coverages_ in addition, the :Aggregate. Self,-Insured, • , Retention is also significantly less under the St: Paul prograr7i versus the-Royal Surplus program. . . ' : . • RECOMMENDATION ..We recommend'the City of Elgin.accept the,St Paul,:proposal Option 1:- The.premium.• • , "` savings available from St. Paul's.Option 2 are not:significant.enough'to make accepting higher... , _ self-insured retentions `for:the liability.coverages and.the ;higher:total:•aggregate:self insured • retention worthwhile. : . ; WORKERS'COMPENSATION'COVERAGE - ' • ' , The City is,self-insured for Workers' Compensation claims and purchases excess•stop'', • loss insurance_ •The•self-insured. retention for this coverage is $250,000 per occurrence : ' Coverage is provided.through Illinois.National Insurance Company For 001-02; the City is in the final year of a.multi-year policy with Illinois National. As: such the excess.stop loss - ': • . • • insuraricc•coverage was not bid this year The insurance rates charged for this coverage;for:;the , . ' ' • coming year are the same as those rates charged for 2000-01. ,With:insurance•rates'increasing for. all coverage lines in the general insurance marketplace,. :we.,recommend this :coverage.:be, • " •. 'maintained as is until nextt•year,.:The deposit premium for:2001-02°is $30,290:: . • - , • WORKERS'COMPENSATION CLAIMS HANDLING SERVICES , 1_ Chart III displays the.claims.handling;proposals.received from several providers . of workers' compensation claims :handling services: The ':incumbent service; . • . provider is Cannon Cochran Management Services;.Inc;-:(CCMSI).:'.The City of• :: , Elgin support staff responsible. for.administering .the self-insured workers . compensation..program has been very dissatisfied.with CCMSI's services'during , . the last year. • •• 2000 LIZ'ON SL09126Lb8i ÷ S3OHnOS3a )iSIei 92:91 I00Z/8I/60 •Gail Cohen September 18,2001 •Page 3 .•Changing claim handling service•providers will result in additional'.:first'.year•costs • , compared to remaining with the existing service provide:. These:additional costs are the result • � of claim handling anti associated with the remaining open indemnity we-ricers' compensation •.•• • claims. The new claims:service:provider will take over..all existing open claims: These claims involve employees who are on disability as a result of on-the job injuries. There are. approximately.69.open disability,claim's at,the•currenttimc RECOMMENDATION We recommend Custard Claims Management Services be selected as the:"new workers t. • ' , • . compensation claims handling service provider.• City of Elgin.staff has Conducted interview •- meetings with Custard•personnel and haize interviewed several client references;provided;;by • • Custard. .•• These references. were, other governmental. :entities . using .Custard Worker?. ; • compensation claims handling services. •The interviews and reference checks have gone.well::: • We believe Custard will provide quality service at:the Most.cOmpetitive price. : • • ADDITIONAL CONSIDERATIONS • . 1. Increasing Umbrella/Excess Liability policy limits. Currently,the.City.of Elgin's:• • • liability.insurance program provides total:liability limits.:(both:primary.an&excess, •. liability limits); of.$12,000,000 Unfortunately,•;there is no:"•r}:ght".answer..as to .. how much liability insurance an organization should;purchase. .In today's legal" , • . environment,`courts are awarding.larger.,and larger:amounts•as•,damages.against •negli$ent parties • For example, the City Of Chicago, :just, recently• offered .a settlement:.of . • • • • $18;000,000 in the.death of a young woman from,a'•police shooting incident. ••In . •. light of such developments,the City,of Figin:needs to'evaluate the•adequacy,o. its • own liability insurance limits. The City'needs to decide if:the increased•premium cost for obtaining higher liability limits is:;worth the'benefit of protecting,:city, • • • assets and..tax revenues.• • .• The City.should:obtain.quotations to increae!it5:current Excess-Liability.limit:of •• • • . ... $10,000,000 to $15,000,000, '$20,000,000..and $25;000,000::.• •A.e• informed • • , decision can then be made regarding the total liability insurance limit•the City • wishes to carry. • 2_ Pollution Liability Insurance policy limits: Coverage:for pollution liability claims is provided by a separate pollution liability insurance.poliey; The current policy • limit for this coverage is$2,000,000.. Under this policy, defense costs are part of • • the policy limit, not paid.in:addition to the policy limit: The City should evaluate the adequacy.•of its Pollution.Liability Insurance Limit. • We recommend the City obtain quotations to increase the total limit to $3,000,000 : and $5,000,000. Higher limits can also be pursued. The City can then make.a decision on whether to increase the insurance limits for this coverage. v ,xYracaa rra treae,sJut *AMA )-T7'nN SLO9T26Lt8T - SYDWI0SBZI >lSIel 92:91 T00Z/81/60 . • . ., . . . . . . row .Gall Cohen . September 18,2001 • Page 4 .. If there are:any.quest ons regarding the above,rnaterials,,: Iease.:call.; . . . Veiy. yyours;° ; . • trul Randy oast . . T�CD_cw• Attachments •• .. • • • • z,>„':e ccnet l.i7•11N SL09T262.1781 F S3921f10S3e1 >1SIa 92:9T T00Z/8T/60 Chart I 2001-02 City of Elgin Property and Liability Insurance Proposals (Excluding Workers' Compensation) Premium Summary 2000-01 St. Paul St. Paul United Royal Expiring Option 1 Option 2 National Surplus (St. Paul) (Lundstrom) (Lundstrom) (A.J. Gallagher) (Wine Serge) Premiums , 1. Property $449,982 $538,042 $519,448 $715,977 $537,754 2. Boiler&Machinery Included Included Included Included Included 3. General Liability Included _ Included Included Included Included 4. Liquor Liability Included Included Included Included Included 5. Law Enforcement Included Included Included Included Included 6. Ambulance Liability Included Included Included Included Included 7. Auto Liability Included Included Included Included Included 8. Auto Physical Damage Included Included Included Included Included Public Officials Included Included _ Included Included Included Crime Included Included Included Included Included 11. Umbrella Liability Included Included Included Included Included 12. Pollution Liability Included Included Included Included Included 13. Claim Handling Services Included Included Included Included Included Self-Insuredv`Retentzo4 . , Property $50,000 $50,000 $50,000 $50,000 $100,000 Boiler&Machinery $50,000 $50,000 $50,000 $25,000 $25,000 Auto Physical Damage $1,000 $1,000 $1,000 $1,000 $100,000 Crime $5,000 $5,000 $5,000 $100,000 $50,000 All Other Liability $75,000 $75,000 $75,000 $100,000 $150,000 Aggregate(Maximum Total $350,000 $500,000 $650,000 $600,000 $870,000 Retention Per Year) elw N`myfi W4�..vz(,T.m doc Chart II City of Elgin Comparison of Major Coverage Differences Among Insurance Proposals St. Paul I United National I Royal { ::D'ral I1-ab'. ai tiitti cement Liability, 1. Coverage for sexual abuse or Yes No No molestation claims. 2. Pollution claims arising out of: a. Sewer back up causing Yes No Yes property damage. b. Chlorine used in sewage Yes No Yes treatment or water purification operations. c. Application of pesticides or Yes No No herbicides. 3. Defense costs paid in addition to Yes No policy limits. 4. Automatic coverage as an No,will be No answer in Yes additional insured for any person evaluated case proposal or organization where required by case by contract. 5. Coverage for Employee Benefit Yes Yes No Liability errors & omissions prior to 10/1/01. P nhuic Officials Errors°& Omissions 1. Claims for back pay, back Yes Yes No salary, lost wages or benefits. 2. Claims for failure to purchase or No No Yes maintain insurance. 3. Definition of insured person Yes Yes No includes volunteers. 4. Defense costs paid in addition to Yes No No policy limits. r NogyfilesSmoorsoce ,oc Page 1 of 2 St. Paul United National Royal Umbrella I iability 1. Total liability limits available $ 12,000,000 $ 10,000,000 $ 10,000,000 from primary and umbrella policies. 2. Coverage for claims alleging Yes No No sexual abuse or molestation. 1. Loss of tax revenue from the $ 24,000,000 $ 6,000,000 $ 24,000,000 Gambling Riverboat. 2. Property at locations not $ 250,000 No answer in No limitation scheduled on the policy. proposal 3. Property in transit within the $ 250,000 $ 250,000 No limitation USA. 4. Flood Coverage $ 6,000,000 $ 10,000,000 $10,000,000 a.Coverage for property in No No No Flood Zone A. 5. Loss of Business Income or $ 5,000,000 No answer in No answer in Extra Expense. proposal proposal 6. Pollutant Clean Up Expenses. $ 100,000 No answer in No answer in proposal proposal 7. Fire Department Service $ 250,000 No answer in No answer in Charges. proposal proposal 8. Errors &Omission Clause. Yes No answer in No proposal 9. Loss caused by utility $ 1,000,000 No answer in No coverage interruption. proposal 10. Damage to mobile equipment Yes No answer in No covered for replacement cost. proposal r `myblerbnmwa`Gb.r4.doc Page 2 of 2 CHART III 2001-02 CITY OF ELGIN WORKERS' COMPENSATION CLAIMS MANAGEMENT SERVICE PROPOSALS CURRENT CCMSI CCMSI CUSTARD SRS CAMBRIDGE WILLIS CRAWFORD GAB Rate/Count Rate/Count Rate/Count Rate/Count Rate/Count Rate/Count Rate/Count Rate/Count Claims Handling Rates Lifetime Claims No No No 2 yrs. No No Yes No Work Comp Indemnity 650/25 750/25 225/25 _ 682/25 910/25 500/25 975/25 599/29 Work Comp Medical 100/100 100/100 225/100 129/100 95/100 95/100 90/100 106/115 Managed Medical 195/TBD Employers Liability 225/1 682/1 910/1 250/1 - 525 Total Work Comp 31,950(1) 33,750 28,350 29,950 34,070 22,650 33,375 30,086 Claims Handling Admin. Fee None $6,000 $ 5,000 None $3,132 $1,500 2,217 RMIS System No charge No charge No charge . $ 8,500 No charge 2,500(2) No charge No charge Yearly Costs $31,950 $33,750 $34,350 $34,950 $34,070 $28,282 $34,875 $32,303 Open Claims Takeover Costs . Work Comp Indemnity No No 225/69 879/69 27,600 34,500 800/69 34,914 Work Comp Medical charge charge -0-/32 129/32 2,400 3,050 90/32 3,040 Subtotal $15,525 $ 64,779 $30,000 $37,540 $58,080 $37,954 Total First Year Costs $31,950 $33,750 $49,875 $108,229 $64,070 $68,822 $92,955 $70,257 Including Open Claim Takeover Costs (1)Minimum charge of$31,950 (2)Cost for Online access H§nyfil.Nn.m .IWcIm.d o f'` Resolution No. 01-265 RESOLUTION ACCEPTING THE PROPOSAL OF LUNDSTROM INSURANCE FOR LIMITED SELF-INSURANCE PROGRAM BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF ELGIN, ILLINOIS, that Joyce A. Parker, City Manager, be and is hereby authorized and directed to accept the proposal on behalf of the City of Elgin of Lundstrom Insurance for the city' s limited self- insurance program for the period October 1, 2001 through September 30, 2002 as follows : a. The St . Paul $50, 000/occurrence (SIR) for the property policy and $75, 000/occurrence (SIR) for general liability with $500, 000 "All Lines" aggregate SIR proposal for a total excess premium and claims administration cost of $538, 042 . b. The Illinois National $250, 000/occurrence compensation proposal for a total excess premium cost of $30, 290 . c . The Custard Claims Management Services, Inc . proposal for workers' compensation claims administration services for $49, 875 . d. The AIG $2, 000, 000/occurrence and $2 , 000, 000/aggregate with $10, 000/deductible for pollution liability coverage for $34, 048 . Ed Schock, Mayor Presented: September 26, 2001 Adopted: Vote: Yeas Nays Recorded: Attest : Dolonna Mecum, City Clerk r