Agenda Packets - 1986/04/21 - Laserfiche WebLink

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LMCIT: Questions &answers by Peter Tritz As a result of the increased cost and dif(cully in obtaining insur- mie aver the past couple of years, a large number of cities have joined the Leaguc of Minnewla Cities Insurance Trust for the first time. Over 6M cities now partici- pate in LMCIT's workem' compen- sation program: the property/ casually program now numliers more than 900. But while the majority of cities in Minnesota are nnw covered through LICIT, many people don't really understand what 131CIT is and how It works. This a,licle will answer wine of the most common nuestions about I'MCIT. Our city his been in UICiT for several rears. This rear, the premium that LbICIT charged far proprriy and habditi, coverage ncarlr doubled. A IMC IT taking advantage of its status as the only game in town to gouge cars) Some people have suggested that because there are very few d any other places for cities to get coverage, LMCIT is taking the opportumty to make a lot of money by charging unrea. sonably high premiums. This is simply nil the case. In fact, it would be pointless for I.MCIT intentionally to charge more than what is needed to cover the losses. LMCIT is nothing more than a coop. erative orgrnneatirn of crimes. Il is in a probhnakmg entity. Supp><e LMCIT's charges are tin high: that is, suppose flat the premiums are more than w1w LMCIT needs to cover tit• pri gram's expenses and :he member -incurred boswc The result would he that I \ICIT wind have some surplus funds. There are really only two things LMCIT can di) with lint surplus — enho ictwo it to the rites as a dividend or retain it as a teserve. enabhog LMCIT to retain more risk in the future, koivering the ust of remsuranC and thug the CItsi la Cities for the future. Either way. a direct savings to cities results. in a c nventorul prate tsurance company, dose surplus funds would botonvi ornfils for Jr com- n'tnv's strrklx,dcrs. .tio a'hi fix/ die c.-w yr, up? Several factors have led to the Increase in cost. One of the expenses which LMCIT mats: pay out of the geprinnea rrom aacxy rvmuntam news. prenuum dollar is the cost of remsur- anre. LNCIT buys "specific excess" reinsurance to protect against the prn- sibdity of a Urge catastrophic kiss. LMCIT also buys ''aggregate excess" reinsurance to protect against the pos- sibility that the total losses in a year night exceed the funds LMCIT has avadable to pay those kisses, Tv'o things happened in LNCIT's last renewal with the reinsurers. First, the price of the remsurance was high — substantalhy higher than L11CIT anticipated. This additional cost must be reflected in the premiums i-MCIT charges. Second, the reinsurers ins isted an a relatively high ''attachment point" for the aggregate coverage. (The "attachment point" is the point at Mikh to aggregate reinsurane bcgtns to pay; if LMCIT's total losses for the vear were to exceed the aua-h- n,ent point, the aggregate remsuranm would cover those excess kisses. up to the limits of the aggregate reinsurance policy ) The attachment print is high cough that after paying exlxmses. I,\ICIT would not have enough funds renatmng from the premmm to full) ,over I.MCIT's potential lability up to IM• ati at li nrnt pint. To fund this gap. I.NCIT is charging each member a "reserve assessment" equal to 10 perceal of the premium. Aside from the reinsurance costs. the level of losses from prevxus rears also affected rates. particularly for lia- bility coverage. Incurred lubddy losses and the costs of attorneys' fees to defend labduv claims have been higher than pnifected. One of the problems in providing IUbility coverage is that it takes several years before you really know whether the :ates charged were vpproprate. LMCIT is still receiving new claims for incidents which occurred in 1980. nearly sot years ago. The costs of paying and defending liability claims incurred In previous rears have exceeded the premiums collected for habibty coverage for those years. Thus. premiums have had to increase to get them in line with what LMCIT's actual loss experience shows they shookd he II'hen all is said and done. though. isn't LAIC -IT just another insurance connparli,) No. LMCIT is not an insurance company at all: it is a cnopera0ve pomt powers orgamzatmn, which the item• her cows themselves own and control LMU I operates under statutes which Allow , ors to organue -pools - A pool is simply a nxv'hamsm for sharing risk Among cites. LSICIT's governing body 1 J April IOM u