02-238 Resolution No. 02-328
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 Olufemi Folarin, Interim 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, 2002
through September 30 , 2003 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 $698, 272 and $40 , 000 claims
administration fee .
b. The Safety National $500 , 000/occurrence (SIR)
compensation proposal for a total excess premium cost
of $46, 405 .
c. The Custard Claims Management Services
proposal for workers' compensation claims
administration services for $3 , 000 administrative fee
and $225 per claim fee .
d. The AIG $3 , 000 , 000/occurrence and
$3 , 000 , 000/aggregate with $10, 000/deductible for
pollution liability coverage for $41, 441 .
s/ Ed Schock
Ed Schock, Mayor
Presented: September 25, 2002
Adopted: September 25, 2002
Vote : Yeas : 6 Nays : 0
Attest :
s/ Dolonna Mecum
Dolonna Mecum, City Clerk
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FINANCIALLY STABLE CITY GOVERNMENT
EFFICIENT SERVICES,
AND QUALIT Y INFRASTRUCTURE
TO: Mayor and Members of the City Council
FROM: Olufemi Folarin, Interim City Manager
SUBJECT: 2002 - 2003 Insurance Policies
PURPOSE
The purpose of this memorandum is to provide the Mayor and
members of the City Council with information to award a contract
regarding the award of contracts for the City' s limited self-
insurance program for the period October 1, 2002 through
September 30, 2003 .
BACKGROUND
The City' s current limited self-insurance program, which expires
September 30, 2002, includes workers compensation claims
administration by Custard Claims Management Services, an excess
worker' s liability policy with Safety National, a $5, 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 $15, 000, 000 of
aggregate liability for most types of losses . Our self-insured
retention, the dollar amount of claims/losses for which the City
is responsible, is $500, 000, except for excess worker' s
compensation, which has an SIR of $250, 000 .
Last year when our insurance program was competitively bid, the
City accepted a three year program with St . Paul Fire and Marine
Insurance, through Lundstrom Insurance. This three year program
guaranteed the type and scope of coverage the City would have
for general liability and property insurance, but not the
premium charges. The insurance market has hardened and prices
rft have risen dramatically since the events of September 11, 2001,
which put an enormous strain on the insurance industry' s
2002 - 2003 Insurance Policies
ttei. September 20, 2002
Page 2
capacity (available money to pay claims) . Therefore, the City
has seen increases in its premiums of up to forty four percent
(44%) this year. Attached is a summary from St . Paul' s as well
as an analysis by our insurance consultant, Risk Resources.
Risk Resources states that while our increases are substantial,
they are the best that are available in today' s insurance
market . St . Paul is proposing $698, 272 for liability/property
coverage and a $40, 000 claims administration fee . Last year we
paid $504, 796 in property/liability premiums and a claims
administration fee of $31, 500 .
The . City' s contract for excess worker' s compensation insurance
with AIG expired this year. Lundstrom' s solicited five
carriers, including AIG. None of the carriers proposed our
current self insured retention of $250, 000 ; rather they proposed
$350, 000 or $500 , 000 . A comparison of the proposals is
attached. One company, Gray Insurance Company, proposed "gap"
coverage, which would lower our self insured retention to either
r $350, 000 or $400, 000, for an additional premium. The most cost
effective choice given our worker' s compensation loss history is
Safety National' s proposal of $46, 405 with a self insured
retention of $500, 000 . Last year, we paid $31, 950 with a self
insured retention of $250, 000 .
Our worker' s compensation third party administrator has proposed
a renewal fee of $3 , 000 with no increase in the per claim
administration fee ($225) . Last year' s fee of $19, 625 was to
cover the transfer of active files from our former third party
administrator, CCMSI, to our current administrator, Custard
Claims Management .
The City' s pollution coverage insurer, AIG, proposed a premium
of $41, 441 for $3, 000, 000 coverage . This premium is an increase
from last year' s premium of $36, 981 for the same coverage .
GROUPS/INTERESTED PERSONS CONTACTED
None .
pik-,
FINANCIAL IMPACT
In 2002 , $577, 870 was budgeted for insurance premiums . There
are sufficient funds ($188, 350) in the 2002 Risk Management Fund
•
2002 - 2003 Insurance Policies
September 20, 2002
Page 3
to cover the FY 2002 portion of the recommended insurance
premiums ($174, 569) to St . Paul . There is currently $34, 069 in
the pollution liability premium account . A budget transfer of
$7, 372 shall be made to ensure there are sufficient funds to pay
the recommended insurance premiums to AIG. There is currently
$31, 950 in the excess worker' s compensation premium account . A
budget transfer of $7, 083 shall be made to ensure there are
sufficient funds to pay the recommended insurance premiums to
Safety National . There are sufficient funds in the risk
management professional services account to pay for insurance
and worker' s compensation claims administration expenses for
2002 . Sufficient funds will need to be established as part of
the 2003 Risk Management Fund' s budget for the next year' s
expenses.
e0 EGAL IMPACT
None.
ALTERNATIVES
1 . Accept the recommendations detailed below.
2 . Reject the recommendations and solicit other proposals for
coverage. If this alternative is selected the City will be
without coverage for a period of time.
RECOMMENDATION
The recommendation is that the City accept the following limited
self-insurance coverages for the period October 1, 2002 through
September 30, 2003 as follows :
a. To accept St . Paul ' s renewal for a premium cost of $698, 272
and a $50, 000 claims administration fee.
b. To award Safety National $500, 000 SIR worker' s compensation
proposal for a total excess premium cost of $46, 405 .
c. To accept the Custard Claims Management Services proposal
for worker' s compensation claims administration services
for a two year period for a $3 , 000 administrative fee and
2002 - 2003 Insurance Policies
September 20, 2002
Page 4
per claim fees of $225 with options to renew at the City' s
discretion.
d. To accept AIG' s renewal of pollution liability insurance
for a premium cost of $41, 441 .
Respectfully submitted,
�� SAS
Olufe i F ,
olarin
Interim City Manager
GAC
Attachments
'ow
Gail Cohen El.in 9-13-02.doc �.
Gail Cohen September 13,2002
City of Elgin Page 1
By E-Mail
MEMORANDUM
To: Gail Cohen
City of Elgin
From: Randy DeLopst
Risk Resources
Re: 2002-03 Property and Liability Insurance Renewal Proposals
Date: September 13,2002
We have reviewed the various proposals received for your property and liability insurance
coverages effective October 1, 2002. This memo will summarize our analysis and
recommendations.
Property and Liability Coverage Excluding Workers' Compensation
and Pollution Liability
St. Paul Insurance Companies offered a renewal proposal with an annual premium of
$748,272. This includes St. Paul's claim handling service fee. This is an increase of 43.7%from
2001-02. This increase is in line with the premium increases we see other large accounts
experiencing in this hard insurance market. The insurance market for municipalities has become
harder than those conditions faced in 2001-02. In this hard insurance market, municipal
insurance risks are not viewed as attractive by most insurance companies. Only a handful of
insurance companies are willing to write municipal risks.
We are seeing large property and liability insurance accounts such as you experience
premium increases ranging from 50% to over 100%. Therefore, St. Paul's increase of 43.7% is
better than average. St. Paul's 2001-02 proposal was the best received of several bids that were
analyzed. The 2002-03 St. Paul renewal proposal is still superior to the 2001-02 proposals the
City received from other insurance companies.
While the St.Paul proposal is a substantial increase in cost from 2001-02,we believe it is
the best that can be accomplished in today's tough insurance marketplace.
Workers' Compensation Coverage
The City is self-insured for Workers' Compensation claims and purchases Excess Stop
e"` Loss insurance. Currently, the self-insured retention for this coverage is $250,000 per
occurrence. Coverage is provided through Illinois National Insurance Company, an MG
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Gall Cohen'- El.in 9-13-02.doc Page 2
rialk Gail Cohen September 13,2002
City of Elgin Page 2
Company. Attached is a chart showing the major features of the proposals received.
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OcLENTsCk,MEkjgT1U,.I. .42**
Gail Cohen Elgin 9-13-02 doc
Page 3
Gail Cohen September 13,2002
City of Elgin Page 3
We recommend the Safety National proposal (Option #1) be accepted. Under this
proposal, the self-insured retention will increase from $250,000 per occurrence to $500,000 per
occurrence. Other proposals offering a lower retention were not acceptable for the following
reasons:
1. The Gray Insurance Company insurance proposals both Option #1 and #3 were
unacceptable because their Limit of Liability did not provide full coverage
for the statutory benefits required under Illinois law. The limit of liability
offered created a substantial uninsured exposure to the City. Also, these
proposals excluded coverage for any loss caused by a terrorist act.
2. The Midwest Employers Options offered self-insured retentions of$350,000 and
$400,000. In analyzing the City's loss experience from 1987 until the
present, there were only three claims over $250,000. The additional
premium to reduce the self-insured retention is not cost effective. The
total additional premiums for either the $350,000 or $400,000 retention
level were each in excess of $1,000,000. If the City had had these
retention levels in place during the 1987-2002 time period, you would
have recovered only $57,500 in benefits for the $350,000 retention and
only$7,500 in benefits for the$400,000 retention.
We recommend the City accept the Safety National(Option#1)proposal.
Pollution Liability Coverage
As of this time, we have not received the renewal terms for this coverage. The hard
insurance market is causing both public sector and private sector accounts to seek competitive
renewal proposals. This has resulted in a tremendous backlog in getting renewal proposals out
for many insurance companies. Based upon our other clients' renewal experience regarding
pollution coverage for this year, we do not expect the renewal premium increase will be more
than the 44%increase seen from St. Paul.
* * *
If you have any questions regarding the above,please call.
Best regards,
Randy DeLopst
Risk Resources
RDeLopst @RiskResources.net
630-617-5710 Direct
630-617-5100 Main
630-617-5128 Fax
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Gail Cohen -2002-03 WC_Proposals.doc..,.:_.. ... ..,,.M _ _17,99 ,1,,
r City of Elgin
2002-03 Excess Stop Loss
Workers'Compensation Proposals
MG 2001-02 Option#1 Option#2 Option#3 Option#4 Option#5 Option#6 Option#7 Option#8
Expiring
Company AIG *Safety **The Gray **The Gray Employers Midwest Midwest Midwest AIG
National Insurance Insurance Reinsurance Employers Employers Employers
Co. Co.
Estimated Payrolls $33,655,000 $35,973,017 $35,973,017 $35,973,017 $35,973,017 $35,973,017 $35,973,017 $35,973,017 $35,973,017
Retention $250,000 $500,000 $350,000 $400,000 $500,000 $350,000 $400,000 $500,000 $500,000
750,000 $750,000
Limit of Liability Statutory Statutory $150,000 $100,000 $25,000,000 Statutory Statutory $25,000,000 Statutory
Employer Liability $1,000,000 $500,000 $150,000 $100,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000 $1,000,000
Financial Rating A++XV A VIII A VI A VI A++XV A X A X A X A++XV
Rate/$100 .09 .129 .13344 .08201 .1845 .05719 .5121 .4225 .5560
Deposit Premium $30,290 $46,405 $48,000 $29,500 $66,365 $154,104 $137,990 $113,847 $200,000
• *Includes USL&H Coverage with a$600,000 Retention and Jones At Coverage with a$1,000,000 Retention.
• **Terrorist Exclusion applies
Gail Cohen -elgin proposal 2002.doc Page 1 -
S IkJjc Sector Services sus
FOR:
The City of Elgin
Effective Date: October 1,2002 to October 1,2003
PREPARED BY: Peter LaMonica,CIC—Territory Account Manager
Marcy Neil,CPCU—Underwriting Manager
PRESENTED BY
Roger Lenart
Lundstrom Insurance
645 Tollgate Road
Elgin,IL 60123
and
St.Paul Fire& Marine Insurance Company
Public Sector Services
Page 1
Gail Cohen-eloin proposal 2002.doc .. � .=,.ache 4
t `
> A$75,000 Self Insured Retention with a$500,000 Aggregate applies to Auto
Liability,General Liability,Liquor Liability,Law Enforcement Liability,Public
Entity Management Liability,Employee Benefits Liability and Healthcare
Professionals Liability. A $50,000 Self Insured Retention applies to the
Property,Equipment Breakdown and DIC.
Property Insurance:
Building and Contents $ 103,044
Equipment Breakdown $ 15,102
DIC
Flood $ 8,913
Earthquake $ 8,913
Inland Marine:
Computer $ 2,222
Contractor's Equipment $ 7,658
Miscellaneous Property $ 5,697
Fine Arts $ 140
Accounts Receivable $ 508
Valuable Papers $ 210
Transit $ 532
Crime $ 6,843
Automobile:
Liability $ 76,978
Physical Damage $ 8,578
General Liability $ 178,452
Employee Benefits Included
EMT/Nurses Professional Included
Law Enforcement Liability $ 93,015
Public Entity Management Liability $ 63,780
Umbrella Liability $15,000,000 Limit $ 117,687
TOTAL $ 698,272
Page 4
Gail Cohen-&sin ro•osal 2002 doc Pa•e 5
For additional details and premiums applicable to the separate coverages,please refer to
the appropriate proposal page.
s 40/000
> Claims Service Fee for 10/01/02 to 10/01/03 $.541;111c0
The Loss Fund is at$85,000 with a replenishment point of$50,000.
Page 5