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Item 19 - Public Liability Insurance1 of 3 AUG 5 1986 1 TE M 19 r -ARM AGENDA REPORT CITY OF POWAY This report is included on the Consent Calendar. There will be no separate discussion of the report prior to approval by the City Council unless members of the Council., staff or public too `15 requestitto be removed from the Consent Calendar and discussed separately. if youwish to rtiE coy have: this report pulled for discussion, please fill out a. slip indicating the report number and give it to the City Clerk prior to the beginning of the City Council meeting. Honorable, mayor and Members of a City Council FRCM: James L. Bawersox, City Mena INITIATED BY: John D. Fitch, Assistant City Managejr s DATE:_ August 5, 1986 SUBJECT: Public Liability InsuranceI F r_ is r that the Ci Council approve the City's participation in the It City Southern. California Joint PowersInsurance Authority's new liability defense, loss funding, and pooling program In 1982, the City elected to join the Southern California Joint Powers Insurance Authority (SCJPIA) in order to acquire general liability and workers coapen.- sation insurance coverage, The SCJPIA, which currently has 50 member cit es#, has provided a general liability insurance coverage through the combination,o a self-insured pool with limit of $l million and the purchase of excess, insurance - since its; nception Haweverr due to the: current insurance- crisis'. the former excess insurance carrier-, Transcontinental,. Insurance G,Cnpany, has withdrawn frac writing public liability insurance coverage in California. In addition, the Authority has not -been able to find another insurance carrier who will write the excess insurance coverage at~a level and rate practical for consideration. In anticipation of this problem, the ,.Authority retained the consulting fiat of -Warren, McVeigh and Griffin to conduct a study to determine if the Authority could provide, excess coverage to the member cities through a self -insured pool. The report prepared by the consultants, which has been approved by the Authority's Emautive City Managers and Finance Officers Camtittees, recom- mended the formation of. a liability defense, loss funding, and pooling program with $10 million, per occurrence coverage. Under this plan., the loss -funding will be Pr6yided by two SCJPIA loss pools, instead of the previous single `pool. ACTION: 1 of 3 AUG 5 1986 1 TE M 19 Age. Report August 5, 1986 Page :2 The primary pool will continue to fund losses up to $1 million per occurrence, while a second, or excess pool, will fund losses from $1 million to $10 million. This excess pool will be used to replace the excess insurance: and will be funded from the member -city's annual diose The member's deposits will be kept at the 1985 level (including the special excess assessment), and will be divided among the two pools. A portion will be apportioned to the primary pool based upon the Agency's loss experience ,L the remainder; based upon exposure as measured by the Agency's payroll, will go into the excess pool. It is anticipated that, as in the past, annual -retro ordividend payments will be made fran the primary pool. However, the excess pool, which will be main- tained on a. member equity basis, is expected to be allowed to a,cclate both additional annual payments and interest payments for a period of at least five years or until it reaches a level of frau $8 to $10 million or more, as future experience dictates. In addition to these changes, the method of annual deposit calculation will be changed effective January 1 p 1987, to a method that takes into consideration the member's average loss experience. Also, the individual -member occurrence reten- tion for the purpose of c rut! ng dividends has been increased frau $10,000 to $20,000 effective July 1, 1986, to reflect the inflation which has occurred since the Authority was formed in 1977. FnMnW The SC3PIA was initially formed during a period; when the public liability insurance market was going through a: similar 'insurance availability crisis* • It was anticipated then that the pool would some day became fully self-funded as the member's assetts in the Authority grew. However, due to a change in the market that occurred shortly after the Authority was foamed, it has been able to acquire excess insurance with broadcoverage at competitive rates Until the past year. Due to the current situation., the Authority has little option but to become: fully self-insured. Likewise,, the City of Poway .has few options. The City would not be able to acquire affordable coverage on its own, self-insurance would leave the City with no limit to its exposure,, and other joint powers insurance authorities are facing similar, if not, more difficult situations. It is then advantageous for the City to remain in the pool because there will be, in pract1 ca3.ity a limit to the City' s liability based upon the. assets of the pooled fund. However", since the. City will be capletely self-insured in a fund shared with other, cities, the City will share more in the risks and poten- tially the losses of theother cities. Due to this shared risk, it would be advantageous to all of the member cities that the Authority became moree involved in risk management and that it monitors all of the cities efforts in this area to reduce the potential of losses. AUG 5 1986 ITEM 19 2 of 3 It is recces that the city continue its par icipation in; the Southam c& ornia Joint Powers Insurance Authority by receiving and filing this re"o?�t.