Today we will address what can be the million dollar question, what type of insurance option will provide your municipality with the most cost effective solution?
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For those who missed the beginning of our series covering the first two common sense steps necessary to effectively begin the process of taking your Property & Liability insurance to bid we previously discussed; obtaining six years of your loss runs, reviewing your coverage limits, examining your claims history, surveying the opinions of your neighboring municipal entities and state associations as well as requesting your solicitors experience with insurance carriers.
If you have accomplished all of the above, congratulate yourself as you are now is a position to become a seller and not a buyer in today’s municipal insurance marketplace.
In contrast to the conventional wisdom associated with traditional case studies, the municipal entity which follows our recommended “common sense” approach to obtaining alternative bids for their Property & Liability coverage should be viewing the process as a seller of their respective risk exposures and not a buyer of mandated coverage.
It does not matter if you are among the vast majority of Pennsylvania municipal entities with a Property & Liability premium under $25,000 per year or if you are a large first class township or even a small county with annual premiums totaling over $500,000, your risk exposures as valued by your loss history are likely to represent a positive cash flow account to a specific type or types of insurance providers.
The key to obtaining the most appropriate coverage for your municipal entity at the most cost effective premium is identifying;
“Which potential insurance option is most interested in your respective type of exposures and most values your loss history!”
We promised no commercials during this series and that promise will again be kept today.
For the majority of municipal entities in Pennsylvania, your options for coverage can be broken down into fully insured coverage, participating fully insured coverage, insurance pools and participating insurance pools. As we noted previously, putting your coverage out to bid is not a cookie cutter process.
While the four categories of coverage type listed above are appropriate for discussion within this essay, I would be remiss to ignore the fact within these four major categories there are significant program specific variations. Coverage options may have changed over the decades for municipal insurance in Pennsylvania but what has not changed is municipal entities which have strong loss ratios can always find competitive bidders to quote their business.
After surveying insurance options, you will find the majority of business in Pennsylvania with combined premiums under $30,000 including police and public officials is placed within a small group of coverage providers. The reason this select group exists is simple, they fulfill their role very, very well. There is a profit to be made in even the smallest premium segment of the municipal market as the majority of you will realize after examining your claims history.
In today’s “cash underwriting” environment taking to market a combined $30,000 property and liability coverage quote which includes police and professional lines, entities with nominal to even 50% loss ratios can net a significant reductions from expiring coverage. While past experience in soliciting alternate quotes is as uncertain as predicting the future of the world’s equity markets, an informed municipal entity can often sell their risk portfolio to alternative coverage providers at a lower annual premium than they may think possible.
In the opening essay of the series, I noted how a small Regional Police Force saved $10,000 over their expiring premium by putting out to bid their coverage. The RPF received that savings while enhancing coverage yet selling themselves to have lowered their risk exposures through adopted best practices which had netted nominal losses over the prior five years.
The large Borough noted previously who after following the first common sense step in taking their insurance to bid found their current carrier promised a 15% reduction of their expiring premium of $200,000 decided to solicit bids from not only multiple traditional carriers but participating carriers and a participating pool.
The Borough chose to move their coverage to a national property and liability carrier who bound their coverage with enhancements for $100,500.
What you just read was not a misprint. During this soft market, a Borough lowered their premium for Property & Liability Insurance including police and professional lines from $200,000 to $105,000 largely due to the fact the carrier significantly lowered the Borough’s costs to insure property while additionally valuing changes in operating policy that had lowered claims frequency and incurred costs favorably.
Our series biggest winner, the large second class township who saved their taxpayers $1,000,000 between reduced premiums and enhanced coverage which allowed them to fully replace their fire damaged municipal building chose a participating non-profit pool when they took their coverage to bid.
The Township did not bind their coverage with the lowest bidder. They chose the Pool for multiple reasons including claims handling, loss control and the possibility of receiving future dividends. The Pool had requested permission to perform a loss control analysis on the Township prior to agreeing to bid for their coverage. The loss control report was noted by the Township as an example of why their coverage was not bound to the lowest bidder. During the Township’s tenure with their prior carrier, they had never had a full loss control inspection of operations.
In addition to the four major types of potential coverage options mentioned, large deductable programs and even self-insurance options are today more economically viable than ever before due to the excess capacity in the reinsurance market. We will not be addressing those options within this article as they pertain to a unique portion of the Commonwealth municipal population.
In our next essay, we will close the series with a discussion on the “nuts & bolts” of getting your property & liability quote ready to go out to bid.
Richard A. Mathews
www.resurrectingcommonsense.com
