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r December 19, 2006 December 15,2006
Action Requested: The Board to needs decide whether to retain Delaware Valley Insurance Trust (DVIT) as the Township's property and liability insurance provider with excess coverage from AIG or to insure with Traveler's Insurance Company. Bac.kground: As the Board is well aware, the Hoskins shooting case in 2004 and the resulting $7 million settlement has caused the Township to face significant changes in its insurance coverage. Since 1988 through 2004, the Township has been insured with DVIT. which provided $10 million in coverage and $10,000 police liability deductibles at various premium costs throughout the years. After the shooting, DVIT informed Middletown they were only going to provide them $1 million in insurance coverage and raise our police liability deductibles to $100,000. The Township's insurance broker at the time then secured an excess policy for $9 million from AIG Insurance to bring the Township's coverage levels back to $10 million. During 2006, the Township changed brokers from GMG to NAIMC, with Jay McManus serving as the principal. Mr. McManus has secured a quote from Traveler's Insurance Group to provide the Township with $10 million insurance coverage. DVIT has provided the Township with two quotes, one for $1 million in coverage and a second quote for $2 million in coverage. At the time of the preparation of this memo, Mr. McManus has not supplied a quote for the necessary excess coverage from AIG for $9 million and $8 million respectively. (See the attached letter from McManus.) Attached you will find a spreadsheet developed by the Township administration which breaks out the costs between the two·DVIT proposals and the Traveler's proposal. For the sake of comparison, the estimates of an AIG excess package were included. Please be aware these are not firm quotes, nor has AIG been secured to possibly insure the Township for 2007. These estimates were based upon a low single-digit percentage increase over the existing premium costs from AIG as estimated by Mr. McManus. The insurance quote comparison also considers the DVIT rate stabilization fund credit of $92,763 toward the quoted premiums, as well as the 2006 dividends from DVIT in the amount of $97,050, which the Township is not entitled to ifit withdraws from DVIT.
Included in a second the analysis is the DVIT termination premium, which the Township has been advised ranges from $135,000 to $244,000. Attached is a letter from DVIT explaining this premium and the credits .. For sake of comparison, the median cost number of the range was included in the evaluation and added to the Traveler's premium, due to the fact that this may be the cost of transferring the insurance from DVIT to Traveler's. Previous Board Action: Insurance brOKer. Budget Impact: The 2007 preliminary budget estimates $700,000 for 2007 insurance premiums. The 2006 DVIT premium for $1 million in coverage in 2006 was $684,724 with another $126,700 spent on the $9 million in AIG excess coverage for a total 2006 cost of $80 1,424. The straight 2007 quotes without factoring any other aspects are: Traveler's DVIT ($1 million) DVIT ($2 million) $656,261 $607,586 $690,839
As stated above, there are additional costs, as well as credits, factored in as evidence on the spreadsheet. Factoring these without the termination premium results in all three proposals being under 2007 estimated budget as shown below: DVIT $1 million with $9 million AIG excess DVIT $2 million with $8 million AIG excess Traveler's $149,547 under budget. $71,974 under budget $43,739 under budget
In the event that the Township's broker is unable to obtain loss portfolio transfer insurance, which would assume liability for outstanding claims the Township will face a DVIT termination premium. Under a second analysis that includes the DVIT termination premium the financial impact on the budget results as follows: DVIT $1 million with $9 million AIG excess DVIT $2 million with $8 million AIG excess Traveler's $149,547 under budget. $71,974 under budget $145,761 over budget.
An additional coverage concern that will have a budgetary impact is Traveler's proposal includes deductibles of$25,000 for both law enforcement liability and public officials liability and DVIT's proposal includes $100,000 deductible for law enforcement liability and $50,00 for public officials. To put this difference in context, during the Township's 18 years with DVIT it has had four law enforcement claims that reached the $100,000 threshold, for a frequency of one claim every 4.5 years. In terms of claims in excess of the $25,000 deductible, the Township has a claim filed approximately once every three years that would rise over the
sees fit. These rate stabilization funds are generated based upon member's participation and can be carried over to subsequent years. • The Township is eligible for close to $10,000 in safety grant funding for the purchase of safety equipment and training for Township employees to be purchased at the Township's discretion. As with the other benefits, if the Township leaves the DVWCT, the Township would forfeit the grant proceeds. The Township also faces a termination premium for leaving DVWCT of $32,500. This figure was added to the cost of the AmeriHealth proposal as it is an actual additional cost for the Township leaving DVWCT and switching to ArneriHealth.
The Township also receives significant member benefit services from being a part of Delaware Valley Workers' Compensation Trust. Please see attached October 12, 2007 letter from Peter Emdwein for a detailed explanation. These benefits include free internet access to the NFPA and International Construction Codes; free training seminars, an employee assistance program, and on-call consulting. AmeriHealth provides few, if any, of these member benefits. Mr. McManus, in his December 13 letter, raises the issue of AmeriHealth providing insured coverage and the potential under DVWCT for unlimited additional charges and assessments. Please note that Mr. Lee, in his December 13, 2007 e-mail, points out that there is a stable member surplus and, in its 15 years of operation, has never had to have an additional assessment to its members. Finally, Township staffhas been extremely satisfied with the long-term working relationship with DVWCT, including the quality of service and their specialization in municipal workers' compensation. If the Board chooses to enter the open market of workers' compensation, the Township does face the risk, if dropped by AmeriHealth, of being forced into the State Workers' Compensation pool, which has significant costs and greatly reduced service. Budget Impact: DVWCT's base proposal is $5,000 less than the Township paid in 2007. The Township's ever-improving Workers' Compensation performance has resulted in continued decrease in premium costs. The 2008 budget, as presented, does not factor the $5,000 decrease in premium from 2007 to 2008, the allocation of rate stabilization funds to reduce DVWCT's premiums and the increased costs of the termination premium. The 2008 budget does factor the $45,300 dividend due to the Township. The selection of Amerillealth as the Township's Workers' Compensation provider will have a negative impact on the 2008 budget under consideration by the Board this evening. Recommendation: It is the recommendation of the Township staff that the Board of Supervisors continue to use DVWCT as the Township's Workers' Compensation provider, due to its better financial proposal, overall benefits package, and the excellent long-term working relationship Middletown has with DVWCT,
Traveler's $25,'0'0'0 deductible limit that would have to be covered by the Township under the DVIT policy .. In other words, once every three years, the Township has a claim in excess of $25.'0'0'0 that, under the DVIT policy. the Township would be responsible for that difference up to $1 '0'0,'0'0'0. Although, it is hard to quantify the actual additional costs the Township would face over the course of three to four years by remaining with DVIT, the safe estimate is that would cost the Township in the neighborhood of $25,'0'0'0 annually in additional deductible costs to remain with DVIT. The 2'0'07 preliminary budget includes $15'0,'0'0'0 for all deductibles. This number should be more than sufficient to cover any expected deductibles that should arise, and generally the Township ends the year with a balance in its deductible budget line item. One other factor that the Board should consider is that, anytime the Township faces a significant claim or incurs an avoidable loss, risk management policies are put into place to help prevent that sort of claim from arising again. For example, two of the over $1 '0'0,'0'00 claims the Township faced were as a result of police pursuits in the mid 1990s. Since that time. the Township has enacted a very strict police pursuit policy that was drafted in conjunction with DVIT attorneys. This policy is actually used as a model by DVIT and, since that time, has resulted in no significant claims as a result of police pursuits. Recommendation: The Board win need to make a policy decision based upon several factors, including the proposals, their budgetary impact and levels of insurance coverage while factoring all of the DVIT credits and potential charges.
If the Board selects the DVIT policy, the Board will need to determine whether they choose the more cost effective plan with $1 million in coverage or the $2 million in coverage where the second million has DVIT's coverage at a cost of approximately $8'0,'0'00 more.
Attachments: Insurance Quote Comparison Spreadsheet NAIMC Letter regarding Traveler's Proposal Rick Lee e-mail DVITcoverage document DVIT letter of November 3, 2'0'06 Jay McManus letter of December 14,2'006
Previous Ins Trust
North American Ins Mgt
2007 2008 2009 2010
$9,921.00 $686 332.00 $674 271.00 ( $l,370-sr4.00h
C~$__1 339 S63.0_01_11
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