Agenda Packets - 1984/10/22 - Laserfiche WebLink

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Financial arrangements between the insurance carriers and the city are spelled out in what is known as a "retrospective formula." Such formulas are common in the insurance industry. Premiums are earned on a daily basis while CHIP insurance is in force. It is appropriate to note here that prepayment of all or part of their premiums by CHIP insureds is what makes it possible for the insurance carriers to make money on the program; the carriers retain the investment income from the cash flow. In general, the distribution of premium revenues will be as follows: (Aizo see Figure 1.) 1) The insurance carrier initially retains 1E1 'b to cover his admi.iistrative expenses. 2) Approximately 5% is retained as premium for the reinsurance which protects the city's premium savings pool. 3) A small percentage, normally 1'V.., to 3% is retained to pay required state premium taxes. The amount charged will reflect the actual premium tax rate in each state. 4) The CHIP Managing General Agency (see Sections 5 and 12) retains 21.4% to cover legal work in each state, seminars for cities to explain the CHIP, assistance to cities in Implementing CHIP, and the identification of a designated local agency to represent CHIP in the community. 5) The local insurance agency is paid a commission of 12','Ab on new and renewal business to cover marketing expenses, (Iuotations, policy issuance, billing, and policy servicing. 6) The balance of approximately 65% is available for settling claims and for premium savings returned to the cities. Reinsurance arrangements are currently such that a maximum of $50,000 will be charged against the pool / for any single loss, regardless of the carriers payment to the insured. For example, for a covered loss of l $135,000, only $50,000 would be charged to the pool, the balance of S85,000, would be paid by the carriers reinsurer. The loss pool is also protected agaimt catastrophic multiple losses in the same way, with a maximum chargeable limit of $500,000. Section 4 — Implementation Strategy There are two major considerations in the selection of an implementation strategy for CHIP: 1) The community economic, demographic, and physical makeup essentially define the potential viability of the program, and whether a JPA or some other association is desirable as a CHIP vehicle. 2) The political climate in the community will strongly influence the city's selection of an entry plan. Factors associated w'th the first of these considerations include: ;) The population density and the number of potentially insurable dwelling units in the commun- ity, and the percentage which is owner -occupied, 2) The mix of residential, commercial and industrial building stock, the homogeniety of neighborhoods, and the age and condition nt the structures. 3) The insurable values associated with the target housing stock; in essence, the assessed value structure of the community. While age is an insurahility consideration, of !:u greater importance are: evidence of pride of ownership. good maintenance and housekeeping; insunnq Ihn dwelling at a proper levol and an awareness of safety and security on the part of the owner and his fmnily, rvidence. gleaned Irom the home safely and secun:y analyses conducted thus far in the Program, Indicates that the homeowners who have oxprossed an inlele�l in CHIP readily quality.