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HomeMy WebLinkAbout1981-02-24; City Council; 6515; Analysis of insurance programAGEHDA'BILL- NO.'' " ,'"• ."....;. : c. Atty . DEPARTMENT;: ''."".''.CITY'. MANAGER. " ____ :..'.'•". ". ".' '. C' "M*r • . Subject': ANALYSIS OF CITY INSURANCE -PROGRAM AND. PROPOSED"'. RISK flANAGEMENT PROGRAM. '"" • - ' The City hired an insurance consultant, Mr. Don. Jack, to review the . City's existing insurance program and to develop a risk management program for the City. Mr. Jack has .completed' his study and a report has been prepared that recommends th1s\ following 'actions:- • 1. " One employee -be designated risk management coordinator. •2. Develop .a safety and loss prevention program. 3. Appoint one broker as the city's sole agent in marketing of 1'iability and property insurance. - - 4. City should self-insure the first -$100 /DOO-of: its' exposure .to liability. ' • 5. Purchase substantially higher insurance limits for liability and employee dishonesty. . . 6.. Simplify insurance program covering damage to property and •'equipment through self-insured assumption of minor damage and loss. *. • • - Mr. Jack's report deals specifically and in detail with the above •recommendations. Mr.-Jack will be at the Council meeting to review the report and answer questions. Fiscal Impact The recommended program would provide an immediate cash flow savings in money spent to purchase insurance. The money saved on insurance . , premiums should be placed in a revolving claims fund to pay claims and administration costs. It is estimated .that the net savings would . be $45,000 in the 1981-82 fiscal year, if the proposed program is fully implemented. . • • • ;" - Exhibits ' • ' ••'.....••" • ' ". Report from Don Jack dated February .17, 1981. • . . Recommendation • . Approve the .proposed Risk Management Program in concept and direct staff to solicit proposals from insurance brokers to serve as Broker of Record./ Council. Action: . - - . 2-24-81 • Council approved staff recommendation. DON CREIGHTON JACK INSURANCE SERVICES February 17, 1981 367 REDONDO AVENUE LONG BEACH, CALIFORNIA 90814 (213) 439-4956 Frank Mannen, Assistant City Manager/Administration City'of Carlsbad 1200 Elm Avenue ' . Carlsbad, CA 92008 Dear Frank: As requested, and in accordance with the,proposal which I sub- mitted, I have now completed an audit of the city's current insurance program and an analysis of alternative ways of handling risks under current risk management techniques. In the past, the city has relied almost exclusively on the purchase of insurance"to protect it from the costs of accidental loss. However, a point has now.been reached in the city's growth where this is no longer-economically feasible. The following report provides specific comment and recommendations with regard to the existing insurance program, together with a number of recommen- dations regarding .the establishment of an internal risk management program. It should be explained that none of the recommendations provided are in any way revolutionary, but reflect established practices which have already been adopted by many, cities in Califor- nia. These recommendations may be summarized as follows: 1. One employee should be designated to act as a coordinator of all risk management functions within the city. 2. Priority should be given to the development of an effective safety and loss prevention program. 3. Applications should be solicitated from competing insurance •• brokers and one broker appointed to act as the city's sole agent-in the marketing of insurance. 4. The "city should self-insure the first $100,000 of itsv exposure to liability claims. 5.' The city should purchase substantially higher insurance limits for liability and for employee dishonesty. 6. The city should simplify its insurance program covering damage to city property and equipment through the self- .. . insured assumption of minor damage and loss. - INSURANCE BROKER AND CONSULTANT INSURANCE ADJUSTER February 1.7, 1981 Page 2 The city has recently been giving consideration to the possibility of participating in a joint powers agreement with neighboring cities in connection with it,?;s liability insurance program. I believe, however, that presently the city's goals with respect to liability exposures can be more effectively and economically achieved alone, without the additional administrative burdens and expenses which similar JPA's have engendered. Nonetheless, I believe the city should be receptive to the possibility of sharing the costs of safety engineering or training programs with other neighboring cities should the opportunity arise. I have thoroughly enjoyed working with you on this project, and must thank you and other members of city staff for their assistance. Sincerely, DON CREIGHTON JACK Insurance Consultant DCJ:gb f ' * ;/ .'. -'>.'"' - - ' , , CITY OF-CARLSBAD ANALYSIS'OF CURRENT INSURANCEi PROGRAMS AND RECOMMENDATIONS 'ON ESTABLISHMENT OF AN ONGOING PROGRAM OF ..INTERNAL RISK <*i > ' J ' ' ' - ' - MANAGEMENT . -' - •FEBRUARY 1981 , DON CREIGHTON JACK Insurance Consultant 367 Redondo ^Avenue ' Long* Beach, California* -, - 90814 - (213.) '439-4956' INDEX I AIMS AND OBJECTIVES . 1 II INSURANCE ' . 1. Current Insurance Program 2 • 2. Summary of. Current Insurance Policies 5 3. Purchase of Insurance - City Broker 6 .4. Self-insurance of Liability Exposures 7 5. Reserving and Funding -11 III. INTERNAL RISK MANAGEMENT 1:. Internal Organization ' 12 2. Functions and Responsibilities of 13 Risk Management Co-ordinator 3. Interdepartmental Relationships 14 4.- Tentative Budget 1981-82- 15 5. Suggested Statement of Policy 16 IV .SAFETY'AND LOSS PREVENTION • 17 CITY OF CARLSBAD RISK MANAGEMENT PROGRAM AIMS AND OBJECTIVES TO PROMOTE AND DEVELOP A SAFE EXPOSURE FREE ENVIRONMENT FOR THE BENEFIT OF BOTH CITY EMPLOYEES AND THE PUBLIC THEY SERVE TO PROTECT THE CITY S PHYSICAL ASSETS AND SERVICE CAPABILI TIES ACAINST THE FINANCIAL CONSEQUENCES OF ACCIDENTAL LOSS TO MINI! IZE THE COSTS OF ACCIDENTAL LOSS THROUGH CREATION OF INTERNAL PROCEDURES TO RECORD ANALYZE AND CONTROL RISK . ,. , CITY "OF,CARLSBAD "" J~ RISK MANAGEMENT PROGRAM I AIMS AND OBJECTIVES % » f TO PROMOTE AND .DEVELOP A SAFE, -EXPOSURE-FREE ENVIRONMENT -' FOR THE BENEFIT* OF*'BOTH^ CITY**'EMPLOYEES AND-THE PUBLIC^ ' THEY SERVE. rf 's. TO PROTECT THE CITY'S PHYSICAL ASSETS AND SERVICE,CAPABILI- TIES AGAINST THE FINANCIAL CONSEQUENCES OF ACCIDENTAL 'LOSS.„ TO'MINIMIZE THE COSTS OF ACCIDENTAL LOSS,' THROUGH CREATION t - f OF INTERNAL PROCEDURES TO RECORD, ANALYZE AND CONTROL RISK. II INSURANCE , 'i ' ' ' t t «•» * ' CURRENT INSURANCE PROGRAM ' ,* i The city's insurance program'presently consists otf 20 "policies as listed in Schedule A "to[this report. The program is moderately priced and provides bro'ad coverage. I have, however, several ~ /suggestions to improve,tne program as detailed in the following1 discussion. „ > i " *f ' Liability Ins ur an c e - t. \ ,' The purpose of this program is- to protect"and;defend the city against claims made "by members of the^public, ( alleging that they' or their• property, have been injured or damaged as' a (result of city negligence. ^ Coverage ,is provided-under five policies as listed in Schedule A wii:h deductibles ranging! from zero to ,$10,000f depending on fthe policy involved-. Included is coverage • for -claims arising from. , , ; '• >A.' '"The use of automobiles or other city equipment'. B.*_City operations and'actions of employees. C. The condition of city-owned and maintained property., *' D., False arrest and defamation. E. Errors and omissions. '" , " " Important* exclusions include: J _ > -. * * A. Medical malpractice, (including paramedics). •f t f B. Aircraft-, r'.'^f { '" "' * * '„ ' '"' *- * ' *" *' ' * * ' '''^ '"*,' -C. Invers*e condemnation. Failure to supply utility^services". D. Discrimination. E, » -F. Pollution * t S j f G. Puniti-ve damages. ' • 't Recommendations ^, *" 1. The program should be simplified and coordinated through the assumption of'a self-insured retention, as recommended in '^ SectionjjJl of this report. > -2- 2. -Th'e limits^ of insurance should be increased to a minimum of 10 million dollars, and preferably to 20 million dollars. Excess coverage is not expensive, and it is easy to, anticipate ' " ' a number of .catastrophic happenings which could exceed in cost the current 5 million'"dollar limits " • 3. The Parking Authority, Redevelopment Agency __ and Housing Authority rshould ,be 'added, as Insureds under the program. At present- there 'is no coverage at all for the Parking Authority and Redevelopment Agency and only minimum limits , for the*Housing; Authority. .' ^ - , v -*' ,f' ' % ' ' / ' '' - ',4. The pbllcy'should be amended to-provide coverage .for para-' medics. This can be done through an exception to the. , f~ ' ' ' >-, « ','*..' ' ,^ , r malpractice exclusion. /*•">. - » r c5. Physical damage' coverage (collision arid comprehensive) '; , J -sHould be eliminated from the automobile insurance and catastrophe coverage for loss to ,city equipment provided *• ' under the property program. During? -the three years ending ' " July 1, 1980 only $6,455 was paid in claims' under these ' ''coverages compared with an estimated $25,000' in premiums. " ' t6. Uninsured motorists coverage should not be purchased since city'employees are already protected under workers' com- '' pensation. • ' „ ,"„i , -. ' *• ' > V 'Property Insurance , " ' / The city has purchased 5 .policies as listed in Schedule A covering direct damage or loss to city property. Broad blanket "all risk" 'cQyerage has been placed with an excellent insurer at what appears - to'be a"competitive price. The only major exclusions are for losses -resulting "from earthquake or flood. Most cities choose . < 'to rely on the Federal Disaster Relief Act for .funding in the event o*f catastrophic losses through these perils, and, purchase of- earthquake and flood protection is not recommended. , Recgmmendations , '_ " ' r .-. r x 1. The city should consider-a deductible of up to $5,000 under' its property program, depending on the"premium credits available, This is not only in^ order to save in premium costs, but *als© '' to ^facilitate handling of smaller damage claims without the, involvement of insurance companie's" -claims personnel' 2. For the same reasons, coverage should be cancelled oh plate' - glass windows' and for smaller money and securities losses'. i l , J -3. ' Catastrophe ,protection with a high deductible should replace the current contractor' s -equipment polic'ies. As with the- ' - physicaltdamage coverage on -automobiles, smail losses can - be handled irupre easily in-house under a self-insurance program. Insurance protection is only needed in the event of damage to a major equipment item or a number of 'items parkecl at the same location. , , t "' -3- x",4. Hull coverage on the three city marine items should be cancelled and the,total exposure of $5,800 assumed under selfi-insurance.t . ; / Worker's Compensation Insurance ' ' '- '- Limits" of''two million dollars excess worker's compensation coverage , -is purchased over the/city's $100^000 self-insured retention. This '^coverage applies on a per-occurrence basis, and it should be noted that multiple claims arising from industrial disease are treated as separate occurrences.- r ^Recommendations , "'/ * -. - t 1. - Consideration' should be given to-increasing excess (limits from » , '"two million dollars to five million dollars. This is the level f usually recommended and carried- by r most cities. ,. f ^ ** " '2. As funding is built up for the program, consideration should 'be'given to possibly increasing the city's retention to , , $250,000. ' , . 1 *te f J *3. Many'new markets entered this area of coverage last year. ' > * !At the July 1st anniversary, bids should be obtained from ' all- available sources. This should include General^Reinsurance ,which now offers 'an interesting program with loxver retentions -applying on an annual basis at a general savings'in costs. f ' - Crime " , ' , ' i ,Under<ra blanket honesty ,bond purchased by 'the city, coverage is provided'for ,losses resulting from employee dishpnesty up to a limit of $10,000. In addition, as required under Sections r 2.12.020, 2.20.040 and 2.08.040'of the City Code,"public official bonds- are purchased 'on certain management personnel ,as listed in *, Schedule A. These have limits from 5 to 25 thousand dollar's. ' •* _ 1. ,-In view of the' large sums now i being ^invested on beh'alf of the 1 city, and, the increasing dependence^ "on computer equipment, • ^ , -,it^is recommended*that honesty bond limits be increased to ^.a" minimum of $500,000 and possibly oneririllion dollars. This is ^inexpensive ,covefagfev; and'with the grov/ing incidence of - ' *; white collar crime-, ^th'e- city^vshould! -be adequately protected. f .2. A deductible of up_ to $5,000_ should-be considered, depending upon pre'mium' credits,'' to eJLiminate the "necessity^pf working" , * x with insurance company plaims personnel, in the event of a ' minor loss.* ' T " 3. As far as is compatible with Section 36518 of the Government Code, (the requirement for Public Officials Bonds snould be '" 'eliminated. ' Equal protection can be provided under the city's blanket honesty bond, and there is no practical(benefit from purchasing public official bond coverage. The only, , exceptions mi'ght be the, city treasurer, and cilfy clerk who , - may be excluded by definition under the public entity bond,'! ,form. , ' "5UMMAHY O! fUKIUNr I /'/ Cf I'OLICII S I- LIABILITY ^^of Coveragf/subjcct Cotnprehc nsive General Liability including E 1 O excluding Water Dcpt Business 7iuto Liability and physical damage Comprehensive General Lia Water Department only Excf-ss Umbrella Comprehensive Gen Lia -Housing Auth only II PROPERTY Real & Personal Property Blanket "all risk" Boiler & Machinery Civic Center only Contractors Equipment Parks & Rec Dept Contractors Equipment Other City Depts !^^k Coverage (Marine) III MISCELLANEOUS Excess Workers Comps _ Honesty Blanket Bond Public Official Bonds City Manager City Treasurer Citi Clerk Fimnce Director Asst Manager (Baldwin) Purchasing Agent Notary Bond (. rouD Accidental Deith s, Dismcnberment « Insurer Protective Nat- ional Co of Omaha Hartford Ins Co Allianz Ins Co Protective Nat Insur Co Canadian Indemn Insurance Co of North America Chubb/Pac i f ic Indemnity Insurance Co of No America Insurance Co of No America Alliance Ins. Company Employees Reinsu Corporation Ins Co of North America Ins Co of North America Hartford Ins Ins Co of North America Ins Co of North America Ins Co of North America Ins Co of North America Safeco Ins Co Alliance Ins Co TC ^olicy Number CCL 180-46-02 72 AB 272312 GLA 50 70 56 UB 180-61-10 GLA 370516 TOTAL LIABII AGP DO 04 21 74-1 7825-47-59 CF 3 69 43 CF 04 78 98 AHP 650011 TOTAL PROPERT c C 21811 S 73 55 49 M 16 00 90 3263726 E ! S 13 23 20 M 15 77 24 S 93 34 54 H JO-01-11-53 29 39 364 AIP 40 52 59 TAI MISCELLANFO olicy Term 7/1/80 - 81 7/1/80 - 81 7/1/80 - 81 „ 7/1/80 - 81 5/24/76 until cancelled TY PREMIUM 12/1/80 - 81 12/20/77 until cancel- led 12/1/78 - 81 12/1/79 - 82 4/25/80 - 81 PREMIOM 7/1/80 - 81 4/16/78 - 81 1/16/30 until cancelled 4/19/SO - 81 9/5/73 - 82 9/6/79 - 80 6/20/75 until cancelled 12/15 SO until cvcel 6/23/~S until canct1 ltd 11/1/SO - 81 IS PIU HIM Ent Annual Prcm $140,500 Lirrita/Amounts of Insurance $2,000,000 BI C PD , $50/150 E t O| $ 41,592 $ 33,544 $ 50,000 ($10 per hous- ing unit) S265.636 $12,974 $1,145 $2,450 $2,309 $ til 518,959 $23,740 Deposit $780 $88 $125 $20 $88 $63 $94 $40 Various > $25,038 i $500,000 $2,000,000 $5,000,000 $100/300/25 $4,516,898 $ 100,000 S 5,000 Ex- pediting expen. $ 325,689 $ 342,147 $ 5,800 $2,000,000 $10,000 $25,000 $25,000 $ 5,000 $25,000 $25,000 $25,000 $10,000 Various Dcductiblea $10,000 per occurrence Ho liability deductible $500 Collision $200 Compre, $1,000 per occurrence $25,000 retain. limit none $100 $1,000 e (air condit- ioning only) $100 $100 $250 $100,000 (self-insured retention) Hone None None None None 1 None Mono None None -5- PURCHASE OF INSURANCE - CITY BROKER Current annual premiums for property and casualty insurance purchased by the city, total approximately $310,000. It is estimated that approximately $33,000 of this amount is paid as commissions to the brokers placing these coverages. For a number of years the brokers used have been local firms, La Costa Insurance Agency and McClellan Insurance, the former placing the casualty coverages and the latter the property insurance. Both firms have provided good service and adequate insurance protection for the city, although neither -firm is experienced in placing municipal risks. In view of the many technical changes in the program recommended"else- where in this report, it is probably appropriate at this time that the City should weigh the advantages of this local representation against the advantages of utilizing firms which have had a broader experience in working with cities. By selection of one single broker to handle the total account, many California cities have been able to simplify the administration and coordination"of their insurance programs, and at the same time reduce acquisition costs through a negotiated fee, or ceiling on commissions payable to the city broker. Competitive bidding has not been eliminated, since the appointed broker is required to obtain quotations from competing insurance companies, whenever appropriate, at renewal. Recommendations The city should approach the city's current brokers, together with other brokers who specilize in municipal insurance, requesting proposals to represent the city as it's Broker of Record. Those which appear to offer the greatest level of expertise, the broadest access to insurance markets, and the best service capacity, should be interviewed and from these, a formal contractual appointment made. In making the appointment, there should be a clear under- standing on commission levels or fees to be paid to the broker. -6- SELF-INSURANCE OF LIABILITY EXPOSURES > i r ; i Self-insurance/ or risk retention, refers to the assumption of ^ - *•'* unexpected losses. A city's ability to retain risk depends on •> . ' , its capacity to absorb fluctuations, expenses and still meet its^ , '-major financial and operating objectives. Determining the level t , to which a city should accept risks is not a precise science. ~ - ^A rule of thumb commonly use'd by financial management is to take 5% of operating income as the maximum annual amount, which the ' _ - _city , should be willing to assume without insurance. No final „ ~, decision can be made, however, without a comparison between ', " ,>^ ,the costs of insurance and the possibility of loss within a given } - exposure. > < ' i * '*'«',« t * * , " , ', - ' , . ',<» < , ' _ The "city has already embarked upon a self-insui?ancef>,.program ,f or', worker's compensation, assuming^ a ^retention of $100,-, 000 per occur- (rence. Up to now, however, "-it has been city policy' to buy the / - f' <„ ,lowest available insurance, retentions for liability^ and property ' - exposures. ' _*.<*<' t.'*" ' "> * ' ~ ' "l> " 'Short-term bottom line savings,through the'self-insurance of '"" liability exposures cannot be guaranteed. No entity is immune 1 , ' from a se'ries iof catastrophic accidents as occured for this city ' t 'during the 1979-80 fiscal year. Overall, however, long-term savings result through the elimination of insurance company overhead/ profits and brokerage commissions. 'Three major advantages , are guaranteed- , ' •> 1.- ^Most major liability claims are not paid,until 5-7 years Rafter an accident occurs since litigation is usually involved*. -This produces a dramatic cash flow advantage when compared ' *••• .to up-front payment of insurance premiums. % < '\ ' ' 2. Many more insurance companies are prepared to provide insurance for ^public entities which have assumed a self-insured retention. ' This * competition results in lowering of the costs of excess , coverage. • »''.,' 3. Self-insurance provides an increased awareness of,claim costs and a resulting stimulus to loss prevention -and "safety " - "activities: - .' - f The following exhibits provide a comparison between ^the^costs ^ "'to the city of the^ insured program existing for the S^ye^ars . -' , ending July 1, 1980, and projected costs had the city 'retained. , ' the first''$100,000 of risk for each occurrence. Savings are < offset* by the exceptionally bad experience which occurred -the 1979-80 year', but it will, be_ noted from' a cash-flow standpoint the city would still Exhibit 1 that from have the use of almost' $325,000 which, under the insured program, have ,long ago been pa-id in premiums. Likewise, in Exhibit 2 where we have, added anticip'ated coasts for* claims which remain open for 'this'period we are still "projecting a final saving of £51,620. 1 * ~ f -7- savings do -not include,interest which would be earned on the cash-flow savings, nor payments which must'be made to the_, - insurance company under the city's current deductible, now $10,000 per occurrence. It can be seen "that these additional • -1 - savings* would far outweigh the costs" of administrating -a self- - ,\ - v, * insured program. - . - . *" <' ' ^ ' '. y* '- \ . . - - • v - - , -* * , * 1 - itRecommendations - . > - ? _,>-.-v . .._ . -. i ----. -. *• "1.; As^soon as a broker hafe -been selected, the city should ^ , i'""1 obtain competitive quotations for-excess coverage over a self-insured retention of $100,00'0 with 'limits ranging : ' from 5 million-to 20 million dollars. Quotations for a $250,000 "retention should also-" be obtained for purposes of comparison. j -V *. ~ ' -| - " *f J ," " - r"2. The city should obtain applications from claim administration *~* -r " firms offering services ,to self-insureds for administration t » - '* -"" of the city's ^program and the investigation and adjustment ' -" of claims.- '„"'-"*%. " ' 3. ^ Based on an analysis of the quotations received, trie city should embark' on1 a self-insured program' for its 1'iabiMty d VT"!/"** G11 T~ ^ C! ' *•" " J *>.exposures, t f r i- ^ j# t ' W,i U 1 13 ILITY IN£iLIABV-*rog£amv** f1 ^n insured p' 0) , - f U> -P CU s * 42 ' §COSH1 03 , ' ' gO, 0 f ' ** "' £>o" *« < >£ •\ - CO •> »3 03U 03 CU 0) , , CU" !H „ '/. H*> J f .4 t -* H * EHH ' , ffl H ' ffi -'X ' - rH O COg H 01 rHo H 0! g03M Q, ft -(1)self-insur"0 03 " - ^ « 4 ' -- J ./- J O SH O • Pn H £« W 0 ' PH 0tp o CO - H 'O 1 rH fc v> w CO ^ J NSURED PROG/H \. 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OB . ^c rd RO U >1 4JH rj] g 0 T3 C H Cfd H T3rdCrd O &O M 4H 0 > H 0 OJS-l aoH 4J rd 4J O3 D C O T3cu,CO rd22 H 0 S-lrd CO 4J CO OO 0u rdSH13 CO CH CO CO0u Xw rdM *tnO0 SH *rH a, H 13 4J 00 SH T3 CO '0 C1j H 1 SH 4n O rHm 0 MSH ' O 4H OCO Cn coG 4J H CO > 0rd Oen0 12 K* O H rH -P UH rd * CO CO rd H 0 CH o>ra, fd T30 >1 C X!SHrd 4-i0 0 CO 4-1 MHco IH 0 OSH 0 >i 4-> rH C -H H rd H ,SH 4JO SHUH rd& 0n3 0fd X! 13 fi rH r 0 f rj 0 O X) & CO 0rd en X! 0r| 0 &-i-U j^rd • 5 CO ' 0 4J rH fi rH 0rd £>i O rdS Pi 10 - 1 RESERVING AND FUNDING •»Whenever a claim is" presented under-. Liability.*-or ^Workers ' Com- pensation self-insurance programs^' the'"1 out side "adjusting 'service •" establishes a reserve. This is" the best estimate possible of ' all .costs which will be incurred in settling "or defending the ""claim. v J - • "Reserves *are reviewed, and revised on an "ongoing basis and listed " ,in- monthly computer reports. The total of all reserves^'should "• joe reported to "the Finance Director so that the city's incurred, liability for f,uture,"claim payments can be reflected in the city's \ financial-statements.- ~ ^ To~provide financial stability to the self-insurance programs, the ~Ci,tyv Council should establish separate ^revolving funds for bothi Workers' -Compensation and Liability. These funds should only - be expended for- the purposes of Workers'" Compensation and Liability losses,-claims administration^and excess insurance. The city should establish a revolving fund 'to,provide financial reserves for contingent liabilities resulting from the self-"f „ * - insurance program. , From the ^premium saving's for the first year, $100,000'should be placed in this 'fund for,future claim payments. Similiar*amounts -should be .added in each subsequent year until'the fund reaches a level of $500,000. v At that time maintenances ofJ the fund at this level should then "provide future funding for the -programs. Budgete'd amounts for excess*" insurance t and claims^ administration should also be deposited and,paid from T the fund and interest-earned credited to the fund.-- " < - F '-11- Ill INTERNAL RISK MANAGEMENT INTERNAL ORGANIZATION Rxsk management encompasses all activity directed to limit the city's costs resulting from accidental loss. To some extent, every city employee is, or should be involved in risk management whether it be only in the practice of safe work rules, or exercising direct responsibility for the legal, financial or insurance aspects of controlling risk. Collectively, we are talking of a substantial portion of the city budget when we add insurance premiums, claim costs, repair costs, and the hidden administrative costs, lost time and over-time, which result when an employee is injured or city equipment is damaged. The city must continue to utilize to the full professional skills available within each city department, which can contribute to an overall risk management program. On the other hand, if costs are tof be identified and controlled, it is essential that one individual be charged with the coordination of all city risk manage- ment activity. For a city the size of Carlsbad, this should not require the full time services of an employee, and could be com- bined with other duties. Initially, however, because of a present lack of experience in areas of risk management, it may be necessary to utilize some outside consulting services in the areas of risk management and safety engineering until the program is fully established. On the following pages, I have attempted to identify the respon- sibilities of the Risk Management Coordinator and his relation- ship to the programs of other city departments. I have also pro- vided a very tentative budget for the new program. It is anti- cipated that the savings resulting from implementation of the recommendations with regard to the city's insurance program would more than offset any costs involved. Recommendations 1. One 2. The employee, reporting to the Assistant City Manager, Admin- istration, should be designated as Risk Management Coordinator, city should utilize outside consulting services to assist the Risk Management Coordinator in establishing a comprehensive risk management program. -12- CITY OF CARLSBAD RISK MANAGEMENT CO-ORDINATOR FUNCTIONS AND RESPONSIBILITIES Purchaseof Insurance Supervision of the City Broker. Maintenance of risk profile. Completion of insurance applications and analysis of coverage and premium costs. Safety Active participation in joint and departmental safety committee meetings. Presentation, reporting and interpretation of loss statistics. Premises inspections. Research on specific problems, Procurement of engineering services and educational programs as required. Records, Reports and Statistic^ Coordination of and assistance on reporting of all incidents involving actual or potential financial loss to the city. Maintenance of a register or index of incidents, claimants and responsible employees or departments. Analysis of statistics and preparation of activity reports for top management and for each department. Claims Administration In-house handling of minor claims under self-insurance programs. Supervision of and interfacing with outside claim adjustment facilities. Maintenance of reserve statistics and revue of adequacy of self-insurance claims reserves. Coordination with City Attorney and Director of Personnel in the administration and defense of liability and workers' compensation claims. Contractual Obiigations Review and advice on all contracts involving assumption of liability by the city, or indemnification by third parties. Monitoring for compliance on all contractual requirements relating to the maintenance of insurance coverage. Permits, Licenses and Purchase Orders Review and recommend on insurance requirements in connection with the issuance of permits, licenses and purchase orders. Monitor departmental procedures to insure compliance. Risk Management Manual Maintenance of a manual documenting current philosophy and proce- dures on all aspects of city insurance, claims, safety and related programs. -13- CITY RISK MANAGEMENT PROGRAM INTER-DEPARTMENTAL FUNCTIONS ;CITY,ATTORNEY Administration of Liability Claims * and Litigation CITY CLERK , V ^( Follow-up on insur- ance requirements for City Contracts OUTSIDE CLAIM ADMINISTRATORS Compilation of Claim Statistics ' CITY 'MANAGER ASSISTANT CITY MANAGER ADMINISTRATION RISK MANAGEMENT CO-ORDINATOR Joint Risk Management Commi \ ttee *" Departmental' -Risk Management Committees DIRECTOR OF PERSONNEL Administration of Workers' Compr Claims "CITY BROKER' Purchase of Insurance DIRECTOR OF FINANCE Funding of Self j- insurance Programs OUTSIDE CONSULT- ING" SERVICES " Risk Management ; i • \ - and « i Safety Engineering'r i < -14- CITY RISK MANAGEMENT PROGRAM%. \ TENTATIVE BUDGET - 1981-82 -Estimated Premium Savings -, v through re-designr of insurance program and assumption' of $100,000 SIR for liability exposures $200,000 IriiticuL payment -for revolving fund to fund liabili-ty self-- insurance program Additional for' staff services ' management" •Outside claim administration and-*le*gal services for liability claims - Outside consulting services for-31 safety risk management J< * T, f -. Safety,'awards and equipment $100,000 2'5,000-V. 15,000 10,000- ^ 5', 000 ^155,000' NET SAVINGS $45,000 -15- CITY OF CARLSBAD RISK MANAGEMENT PROGRAM SUGGESTED STATEMENT OF POLICY Control, safety,, and the avoidance of unneces- sary risk shall -be'essential* factors in the analysis and planning o!f all'city "activities, with a" view to the elimination or improvement of conditions and practices which could 'cause "loss", ' *',',' Self-insurance shall be the rule in all areas' ^where losses occur^ with predictable fre'quency and where 'the financial impact of losses is not overly significant, when contrasted with the cost of'purchasing insurance. Adequate reserve funds shall be established whenever significant exposures are self-insured. , t 1 -» ' > "•_Insurance shall be purchased whenever deductibles or self-insurance programs do not provide long-term'economies, - ,, or whenever unpredictable but foreseeable losses could pro- duce a "severe financial impact. ' , * • Whenever possible, one broker, appointed by the city, shall-be used for the purchase of all insurance in order to maximize services received, and limit brokerage and commission costs. * , s < -t ' Risk Management activities within the city shall be co-ordinated under the Assistant City Manager, Administration!^ No funds designated for the payment of claims, purchase of f insurance or administration of claims,and safety programs snail be expended except as authorized or recommended by the Assistant City Manager, Administration, City Manager or City Council. -16- IV SAFETY AND LOSS PREVENTION By far the most zmportant area of risk management is the estab- lishment of an active, successful program of safety and loss prevention encompassing all city departments and all city employees at every level. If we could prevent losses from occurring, none of the other aspects of risk management would be necessary. Despite its importance, safety and loss prevention is also the most difficult area of risk management. The results of a suc- cessful safety program are only apparent in the long-term, and there is a resulting tendency to direct attention to more immediate priorities. Because of this, no program can be successful without the active encouragement and participation of city management and the City Council. A further problem in coordinating safety and loss prevention within a municipality is the complete diversity of activity performed by each city department. It accordingly becomes essential that individual programs be established for those departments with a high exposure to loss. With this in mind, it is necessary to establish a policy which involves top management, coordinates programs city-wide and yet places emphasis on the individual needs of each department. Recommendations 1. Individual employees in the Utilities and Maintenance, Police, Fire, and Parks and Recreation Departments should be designated to assume responsibility for risk management activities within their departments. 2. Risk management committees should be established and meetings held, as illustrated on the following chart. Submission of minutes of all meetings should be required. 3. A safety engineering consultant should be retained initially to make "walk-thru" inspections of all city departments, and to recommend on specific areas on training or safety equipment which may be required. 4. Goals and Objectives submitted by department heads should be required to contain at least one relating to safety or a reduction in accident frequency. 5. All costs relating to insurance and risk management should be allocated as precisely as possible to the city programs producing claims or loss exposures, and department heads should be held directly accountable for control of these costs. -17- SAFETY AND LOSS PREVENTION RISK MANAGEMENT COMMITTEES RISK MANAGEMENT COUNCIL Chairman City Manager Members Assistant to City Manager- Administration Risk Management Co-ordinator Five or more departmental heads as designated by City Manager. Meetings Every six months Function Final responsibility for review and formulation of Risk Manage- ment policy and rules to be followed by all city departments JOINT RISK MANAGEMENT COMMITTEE Chairman To be elected annually from amongst the departmental Risk Management officers. Members Risk Management Co-ordinator: all departmental Risk Manage- ment officers. Meetings Bi-monthly Function Education and inter-exchange of departmental Risk Manage- ment activities. Administration of safety awards program. POLICE FIRE 1 UTILITIES and MAINTENANCE PARKS and RECREATION Chairman Departmental Risk Management officer. Members Four or more senior super- visors as designated by department head. Meetings Monthly Function Implementation of Risk Management policy and pro- cedures within each department,