HomeMy WebLinkAbout1997-04-22; City Council; 14154; LIABILITY COVERAGE - ADOPTING RESOLUTION NO. 97-453a
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DEPT. AB # - TITLE: LIABILITY COVERAGE MTG. 4/22/97 CITY 1
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RECOMMENDED ACTION: Adopting Resolution NO. 97 - 953 Y
Direct staff to submit a letter of intent to withdraw from the Public Agency Risk Sharing
Authority of California (PARSAC) and conduct an analysis of liability coverage options.
ITEM EXPLANATION
In 1991, the City joined the California Municipal Insurance Authority (CMIA), now known :
the Public Agency Risk Sharing Authority (PARSAC), for purposes of obtaining liability
coverage.
On November 5, 1996, staff reported that there are several reasons to re-evaluate the City’s
membership in this organization, and as a result, staff would analyze liability coverage optioi
for the City and return to Council with a recommendation prior to the end of this policy year
Below is a summary of (1) the basis for withdrawal from PARSAC; and (2) alternatives to
remaining in PARSAC.
1. Basis for Withdrawal from PARSAC.
(a) Periodic Review of Service Provider Agreements: It is the City’s policy to periodical1
review service provider agreements to ensure that services and products the City purchas
are competitively priced and of the highest quality.
Under the terms of the PARSAC Joint Powers Agreement, a member of the pool may no
withdraw until the end of two policy years following the end of the policy year (June 30)
which notice of intent to withdraw is submitted. This means that membership continues I
minimum of two and maximum of three years after a decision is made to withdraw. As 2
result, since there is no way to guarantee the availability and price of liability coverage
options two to three years from now, the only way to check the market to identify
competitive alternatives is to submit a letter of intent to withdraw by June 30, 1997 (Exh
2), and evaluate alternatives in 1999, the year in which withdrawal would become effecti
(b) PARSAC Fiscal and Manapement Policies: The City of Carlsbad and PARSAC staff
maintain philosophical differences with respect to several existing and proposed
organizational policies. Examples include the length of notice required to withdraw fron
PARSAC, the pool’s investment policy and money management practices, and litigation
management by pool staff and consultants.
Notice for withdrawal: As discussed above, the length of notice required to withdraw frc
PARSAC directly impacts the ability of members to periodically check the market to en5
that premiums and service remain competitive. A periodic check of the market is not on
prudent business practice, but one which is incumbent upon all public entities. Staff has
raised this issue on more than one occasion but has been unable to gather enough suppor
from the Board to change the policy.
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Investment Policv: PARSAC’s investment policy authorizes active trading and a minim:
amount of cash based on estimated cash needs, while Carlsbad’s policy is one of a buy ar
hold strategy, with 50% or more of the City’s total investment portfolio in instruments w
maturity of one year or less. Staff has repeatedly attempted, without success, to persuade
PARSAC Board of Directors to adopt an investment policy similar to that of the City of
Carlsbad.
RetrosDective Premium Adiustments (WAS): RPAs are essentially dividends to membei
based on the ~001’~ overall fiscal performance and projected losses. These “dividends” a
the result of good loss records, and one of the reasons a city joins a pool.
The most recent actuarial survey by the pool’s consultant reflected the pool’s strong final
condition and supported total RPAs of $2.76 million to the members. However, in dired
conflict with the consultant’s report and with no information to support their opinion,
PARSAC staff recommended that 75% of this money be retained by the pool to improve
PARSAC’s financial position. Carlsbad staff argued that members were entitled to their
respective share of the money available for WAS and persuaded the Board to oppose
PARSAC staffs recommendation and approve the distribution of the entire $2.76 millio
the members. Carlsbad’s share was nearly $90,000.
Litigation and Settlements: During this past policy year, PARSAC staff proposed string
litigation management and settlement policies which would effectively shift the control (
litigation management from the City to PARSAC. Appeals by Carlsbad staff to both the
PARSAC Executive Committee and the Board of Directors prevented the adoption of thc
policies and procedures.
Many of these philosophical differences and struggles over policy issues relate to the siz
the pool members relative to the City of Carlsbad. More than 2/3 of the 33 PARSAC
members are small cities with populations well under 20,000. Unlike Carlsbad, a full se
City with a self insured retention (SIR) of $500,000, most members are not full-service c
and more than 2/3 maintain an SIR between $1,000 and $50,000 (Exhibit 3). PARSAC
administers the claims and manages the litigation of these members and as a result, funci
more as an insurance policy with a deductible for these cities. Consequently, liability is:
such as litigation management and settlement policies which are critical to Carlsbad, are
relevant to most of the other members. Finally, these small cities do not have the staff tc
dedicate to the evaluation and oversight of PARSAC’s investment policy and money
management practices.
(c) PARSAC Emplovment & Operational Issues: Staff travels to Sacramento for PARS,
meetings five to six times a year. In addition to the time required for both meetings and
travel, staff has been dedicating more and more time to the oversight of increasingly cor
and sensitive PARSAC administration and employment issues. As a result of these issu
staff is finding it increasingly difficult and costly to manage PARSAC business matters
afar.
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2. Alternatives to Remaininp in PARSAC. Liability coverage is available from commercial
liability insurance carriers and other pools. There is now, and should continue to be, interest.
the City from providers in both groups.
Underwriters evaluate cities on the basis of factors that include, among other things, loss
experience and financial condition. A city’s loss experience is analyzed and assigned a ratin;
which is considered in the calculation of the premium. The better the City’s loss record, the
lower the rating. Of the 33 members of PARSAC, Carlsbad’s experience rating is the lowest
a result of Carlsbad’s excellent loss record, strong financial condition and other positive
attributes, we are a valuable member of PARSAC and a good candidate for coverage in the
commercial insurance market.
(a) Commercial Liability Insurance: One method of obtaining liability coverage from the
commercial liability insurance market is through a group purchase program like the Robc
Driver CO. ’S California Municipal Excess Liability program (CAMEL). CAMEL provid
the advantages of group purchase without the possibility of hture assessments and the
membership commitments found in pools. This month, Driver reviewed some basic
underwriting information on Carlsbad and provided an “indication” of price well below
PARSAC’s estimated 1997-98 deposit premium.
Commercial liability coverage can also be purchased independently through a broker. A
time last year, our broker, Cal-Surance, received an “indication” of price for commercial
insurance from Insurance Company of the West (the current carrier of the excess coverai
PARSAC members) that was comparable to the premium charged by PARSAC. In add
according to Cal-Surance, similar coverage is available from other insurance companies
a strong possibility of premiums comparable to, or better than that of PARSAC.
The City cannot obtain formal quotes at this time because of our commitment to PARSA
until at least June 30, 1999. Formal quotes and a detailed evaluation of commercial COW
could be provided in early 1999.
(b) Pools: Liability coverage can be obtained through membership in another pool. There I
about 20 pools in California. Some target a specific geographic region, and they vary ii
requirements for self insured retention, length of membership commitment, and operatii
policies. The general managers of two local pools, Independent Cities Risk Manageme
Authority (ICFMA) and Southern California Joint Powers Insurance Authority (SCJPI.
have expressed a strong interest in Carlsbad, and have invited the City to consider
membership in their respective organizations. A detailed and timely evaluation of the
advisability of seeking membership in another pool could be provided in early 1999.
In conclusion, there should be a better “fit” for Carlsbad in a different liability coverage pro
The cost to the City of continuing membership in PARSAC is more than just the annual
premium, a letter of intent to withdraw is necessary to enable the City to check the market tc
ensure that current premiums and service are competitive, and there are alternatives to PAR
that are now, and likely will continue to be, comparable or superior sources of liability cove
As a result, staff recommends that a notice of intent to withdraw be submitted so that an an:
of coverage alternatives may be conducted with timely data and returned to Council for
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consideration prior to the effective date of withdrawal. This study of coverage options will
analyze and compare such factors as breadth of coverage, professionalism of the organizatioi
management/administration, cost, the binding contractual arrangement, services and litigatio
management. One of the options will be to rescind the notice of intent to withdraw, which n
be done up until 90 days before the withdrawal is effective and with approval of the PARSA
executive committee. If this option is ultimately selected and approval by the executive
committee is not granted, Council would have to choose an alternative option.
FISCAL IMPACT
The potential impact is difficult to estimate since withdrawal would not be effective until Jw
30, 1999 and it is not possible to obtain quotes for premiums this far in advance. Until that t
premiums fiom PARSAC will continue to be based on payroll and loss experience.
EXHIBITS
1. Resolution No. 91- Y53
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3.
Letter of intent to withdraw
PARSAC member and SIR list
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RESOLUTION NO. 9 7 - 4 5 3
RESOLUTION OF THE CITY COUNCIL OF THE CITY OF
CARISBAD, CALIFORNIA, AUTHORIZING STAFF TO
SUBMIT A NOTICE OF INTENT TO WITHDRAW FROM
THE PUBLIC AGENCY RISK SHARING AUTHORITY OF
CALIFORNIA (PARSAC)
WHEREAS, in 1991 the City became a member of the California Municipal
Insurance Authority (CMIA) , now known as the Public Agency Risk Sharing Authority (
California (PARSAC) for purposes of obtaining pooled liability coverage; and
WHEREAS, since joining the pool, staff has identified several issues that mal
it prudent to re-evaluate the City’s membership in the organization; and
WHEREAS, there is a need to periodically consider liability coverage option:
to ensure that the City maintains coverage that is both of high quality and cost effective.
NOW, THEREFORE, BE IT RESOLVED by the City Council of the City of
Carlsbad, CA, as follows:
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Agency Risk Sharing Authority of California (PARSAC) and conduct an analysis of
liability coverage options.
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That the above recitations are true and correct.
That staff is authorized to submit a notice of intent to withdraw from the Public
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PASSED, APPROVED AND ADOPTED at a Regular Meeting of the Cit
Council of the City of Carlsbad on the 22nd day of April 1997, by the following vott
to wit:
AYES: Council Members Lewis, Finnila, Nygaard, Kulchin, a
NOES: None
ABSENT: None
ATTEST:
. Pa,,
ALETHA L. RAUTE"Z, City Clerk\
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EXHIBIT
April 25, 1997
Mr. William Sorrick
General Manager
PARSAC
1525 Response Road Suite One
Sacramento, CA 958 15
Dear Bill:
As you know, the PARSAC Joint Powers Agreement requires written notice of a member
entity’s intent to withdraw, and the withdrawal is not effective until the expiration of the
two-year period beginning the first day of the next policy year. This part of the Agreemen
provides some stability to membership and premiums as it means that withdrawal is not
effective for a minimum of two years. It also means that it is difficult for a member to st?
current on the market cost and availability of alternative forms of coverage.
Carlsbad has not determined that it is in the best interest of the City to end its membership
in PARSAC. However, the City is dedicated to maintaining quality and cost effective
liability insurance coverage and loss prevention programs. As a result, due to the lengthy
period of time required for the notice and the City’s intent to provide for an adequate
evaluation of liability coverage options, please accept this letter as the City of Carlsbad’s
notice of intent to withdraw from PARSAC.
The City of Carlsbad values its membership in PARSAC and intends to continue to
contribute to the organization. If it is determined that PARSAC remains in the best interer
of the City, a letter rescinding this notice will be provided for executive committee
consideration, per the conditions of the Joint Powers Agreement.
Thank you, and please don’t hesitate to call if you have any questions.
Sincerely,
ERIN K. LETSCH
Risk Manager
c: PARSAC Executive Committee
1200 Carlsbad Village Drive * Carlsbad, CA 92008-1 989 - (61 9) 434-2807 0 FAX (61 9) 434-1 9i
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Exhibit
PARSAC MEMBERS
CITY POPULATION* S.I.R.
Altura 3,380 $5,0(
Avalon 3,210 $25,0(
Blue Lake 1,300 $5,0(
Calimesa 7,450 10,0(
Calistoga 4,800 $1 O,O(
Canyon Lake 1 1,450 $1 ,O(
Carlsbad 63,126 $500,0(
Clearlake 12,600 $50,0(
Coaling a 9,850 $25,0(
Ferndale 1,290 $5,0(
Grass Valley 9,650 $500,0(
Hesperia 60,300 $25,0(
Highland 40,700 $50,0(
Nevada City 2,940 $500,0(
Placerville 9,100 $50,0(
Pacific Grove 17,400 $1 OO,O(
Plymouth 840 $1 ,O(
Point Arena 43 0 $1 ,O(
Rancho Cucamonga 117,900 $1 OO,O(
Ridgecrest 29,650 $1 OO,O(
San Juan Bautista 1,660 $1 ,O(
South Lake Tahoe 23,950 $250,01
Tehama 440 $1 ,01
Trinidad 380 $l,ol
Truckee 1 1,800 $25,01
Twentynine Palms 15,150 $5,01
Watsonville 33,800 $500,0(
Wheatland 2,010 $1 ,O'
Yountville 3,500 $10,01
Yucaipa 38,200 $50,01
Yucca Valley 19,050 $5,01
Rialto 8 1,600 $250,0(
*Source: California City, Towns & Counties Basic Data Profiles - 1995 Census Estimate
word PARSAC-I