City Council votes to seek new insurance coverage for the City of Rolla

March 31-- Mar. 31--The Rolla City Council was asked to consider a resolution that would provide a notice of termination for the Missouri Intergovernmental Risk Management Association (MIRMA) insurance coverage. MIRMA is a self-insurance pool that is owned entirely by participating members and functions solely for their benefit. Seeing that MIRMA is wholly owned by member cities, there is no need for an intermediary so MIRMA doesn't use an agency or brokerage system.

The City of Rolla would supply the notice of termination to MIRMA and then explore other coverage options in the marketplace. There is a provision under MIRMA, that if a city leaves MIRMA they aren't allowed to go back on MIRMA's coverage until a year after that, according to Butz at the Monday, March 18 city council meeting.

Butz said that in 2017 the city began speaking with an insurance firm to explore options to save the city money, and the projected market premiums could be as much as $125,000 to $150,000 less than MIRMA's 2019 and 2020 rating.

"In order for the City to go to market for July 1 coverage we need to provide MIRMA notice of termination by March 31 that would allow us to issue a formal solicitation for underwriter and brokerage services through mid-May for a July 1 effective date," Butz said.

In subsequent years after the first year of membership with MIRMA, all renewal applications and related data must be received annually in the MIRMA office by January 30. As council members were presented the resolution, some council members had concerns that they had mulled over.

Rolla City Council member Jody Eberly said after looking through the material, there are certain services MIRMA provides to the City of Rolla that isn't insurance, such as access to grants, certifications and training. Eberly added that these services probably wouldn't be provided under different coverage if the City of Rolla was to leave MIRMA and look for another provider.

MIRMA provides its members with a single, multiple-line insurance package -- while individual lines of coverage can't be obtained through the association --MIRMA's coverage package includes coverage for workers' compensation, property including flood and earthquake, general liability, cyber liability, Inland Marine, crime and employee theft, automobile, boiler and machinery coverage, public officials liability, employment practices liability, law enforcement liability, paramedics, EMTs and first responders liability, as well as airport liability.

MIRMA provides services that aren't guaranteed if the city explores other coverage options, Butz said, but it all depends on who the city goes with and what the city wants to put in place in terms of coverage.

"Many of them have a mechanism based on your performance that they will actually do a credit or a reduction the following years," Butz said. "They will do training; they will do inspections; it depends on the quality of the insurance company and the quality of the broker."

Rolla City Council member David Schott said he felt the council was left in a compromised position, since the city has been with MIRMA since 1981, and the city doesn't have exact quotes for the council to compare to MIRMA.

Schott further cited two compensation claims the city had during Fiscal Year 2017, which represented an atypical year for the city and reflected how the city could end up losing the $125,000 -- the city thought it would gain the following year -- by leaving MIRMA.

Schott said, "Maybe MIRMA has some deeper coverage on certain things. I think it's important to look through those things maybe before we make a decision saying, 'no,' because it seems like we would be in a compromised situation again if we didn't have them in front of us and don't know what the differences in coverages might be in finality."

The City of Rolla was a founding member of MIRMA in 1981 in response to the volatile private, municipal insurance market due to utility exposure, according to Butz -- both the City of Rolla and Rolla Municipal Utilities (RMU) have actively participated and played a significant role in MIRMA's growth. Butz noted that the City of Rolla and RMU are both independent of each other and rated differently by MIRMA.

MIRMA is an incorporated association that establishes a protected group self-insurance program for its members. MIRMA is governed by a Board of Directors elected from memberships and a team of nine managers are employed to run the pool financially. MIRMA provides pooled coverage for 80 public entities including the cities of Arnold and Fulton, according to Butz.

Butz said MIRMA works proactively with member communities in risk management and spreads the cost of the program based on assessments -- a rate per $100 of annual payroll, and MIRMA typically shares any excess surplus funds that aren't needed to pay claims or establish reserves with members.

As a member of the pool, the city hasn't shopped the marketplace for alternative coverage, particularly in the open private market, Butz added. Periodically insurance brokers have offered to submit quotes for alternative coverage, but due to the city's history with MIRMA and reasonable rate increases, city staff never went to work seeking bids.

City staff began working over a year ago with a firm that pursued the city aggressively -- Ollis/Akers/Arney Insurance and Business Advisors out of Springfield, Butz said. During 2018, the city administration started undertaking some of the work, and the city spent much of the fall supplying Ollis/Akers/Arney information on the city's losses, the city's assets and on the city's training programs.

Around two months ago in a follow-up meeting, Ollis/Akers/Arney asked city administration what it would take for the City of Rolla to seriously look at leaving MIRMA, Butz said.

"They said, 'would you leave MIRMA for $50,000 a year,' this is a bill that is $700,000 to $750,000 a year out of our $26 million to $27 million budget, so it's really not an inexpensive bill that we pay each year, and I said, 'quite frankly we wouldn't leave for $50,000 a year,'" Butz said.

Ollis/Akers/Arney then asked if the city would leave MIRMA for $75,000, to which Butz said the city wouldn't. But when Ollis/Akers/Arney came back to the city with another proposal and said there would be around a six-figure savings for the city, Butz said he would have to consider bringing the proposal back to the city council for deliberation.

"And so that took it to the level where we were able to sit down with them, and they brought out some underwriters, travelers, and Missouri Employers Mutual, in particular, came in and toured some of our facilities to gather more information," Butz said.

Ollis/Akers/Arney came back to the city with a preliminary cost estimate that would save the city somewhere in the range of $125,000 to $150,000 a year in the city's combined coverage program, Butz said. Based on comparable coverages, past claim experience, and management, it's projected market premiums could be as much as $125,000 to $150,000 less than MIRMA's 2019 and 2020 assessment, according to Butz.

"Now there are 100 variations on every aspect of the coverage, the deductibles, what's included, what's excluded, endorsements, the airport coverage which has always been sort of separate," Butz said. "There are a 100 little pieces of all of this that have to get put out on the market to actually take bids and proposals from brokers that then go to the underwriters and bring the insurance companies to this bid process."

Butz said he anticipates a bid process where the city requests proposals with qualification statements for the city to compare one company to another, and Butz said the number Ollis/Akers/Arney brought back to the city, is a number the city council needs to give significant consideration to when reflecting on the resolution to terminate the city's coverage with MIRMA.

"As I was talking with MIRMA and letting them know about this inquiry, and this process I didn't quite understand the deadlines," Butz said. "I know our program starts on July 1; we pay our bill I think its June of each year for the following year. And there had to be a notice, and I didn't realize that notice was a notice of termination, which has to be filed to them by March 31, then in which case you go on the market, and you find your other coverage."

Butz had further talked with other cities that ventured out on the marketplace to find coverage, and "quite frankly they have had a good experience going on the market and shopping."

The other alternative would be for the city to defer the solicitation process until January 2020 and have all proposals submitted before considering a notice of termination to MIRMA by March 31, 2020.

Butz said "As much as I feel MIRMA has given us great coverage and great service over the years, we are a great member of MIRMA, except for a couple of years of some tough work compensation experiences, we are usually in that 25 percent or fewer claims to premium payment, I have to recommend that we look at the marketplace and see what other pricing is out there."

Butz said the city would remain in contact with MIRMA and thinks MIRMA would support coming back every year or two to let the city know what their renewal rates would be after their assessment provision. And the city can then reevaluate whether to opt back into coverage with MIRMA.

City Council member Schott said, "It seems to me it makes sense because if we were to cancel, it's the same thing, we are in a little bit of a compromised position. It seems it would compromise us in terms of their proposal, whereas if we had some proposals on the table January 2020 we would be able to look at the new proposals and compare them to MIRMA."

However, Butz said there are several providers anxious to get to business. The providers are bidding whether the City of Rolla is part of MIRMA or not.

"Of course the risk is, and we've seen this in the health insurance market, we don't want someone coming in and lowballing it, and there are drastic increases the following year," Butz said. "At least the conversation we have with one underwriter is they are sort of able to commit to a limitation on the second-year renewal based on the performance of the group, but those are not assured things we just don't know that."

If the city stayed with MIRMA the city knows the projected coverage rates going into 2019 and 2020, yet history has shown that coverage rates are going to have a modest increase going forward, Butz said.

"The reality is the market is ripe for an organization of Rolla's size to go out on the market," Butz said. "My recommendation is to terminate services with MIRMA for a June 30 to July 1 effective date and go out on the market, which is going to take a lot of work."

City Council member Schott said, on the one hand, the MIRMA pool offers more stability for the city based on the city's history with MIRMA and when covered by MIRMA there is no surcharge for loss, whereas a rate increase could come with different coverage if the city were impacted similar to Fiscal Year 2017, with two compensation claims.

"If we had a year like that we could end up losing $125,000 we thought we would gain the next year by going to a new company," Schott said. "In the MIRMA pool we have a little more stability based on having been with them a while, and the way that seems to work with the numbers, so I want to make the point I do agree with saving $125,000 sounds good, but I think waiting till 2020 would be smart based on our history with MIRMA."

Mayor of Rolla Louis Magdits said the city might not have a firm quote in hand, but the staff has spent an incredible amount of time exploring coverage options so it would be unfounded to say that the projected $125,000 to $150,000 in savings to the city was an estimate without sufficient information.

"Also $150,000 a year is real money and considering the city's operating funds are in deficit, in April you will see our 10-year plan, and you are going to see red ink," Magdits said. "So I think you we have to take this seriously; that is a lot of money."

City Council member Schott agreed with Mayor Magdits on the matter of the city's budget and said: "I think that we've all realized in our last budget that we need some funds that we don't have, and I think anywhere we can look into things like this and find a place to save some money, it does make sense.

"I just wonder with how long our relationship has been with MIRMA that we shouldn't at least wait until January 2020, so that way we can ourselves compare numbers against MIRMA and at that point make a decision that's not quite as hasty in terms of dropping quickly."

After the council ruminated on the resolution to leave MIRMA, council member Jim Williams made a motion that was seconded by council member Steven Jung to approve the proposed resolution. A hand count showed nine council members in favor of the resolution, and two council members against the resolution to terminate coverage with MIRMA, while one council member was absent.

The motion carried for the resolution authorizing the notice of termination between the City of Rolla and MIRMA.

"We just know the reality of our budget situation; we are facing minimum wage increases. We are facing reserves that have been depleted over the years; we are facing financial needs and compensation, and it's particularly in the public sector alone and a lot of other issues," Butz said. "So I think we go in this exercise thinking this is going to be a long term opportunity -- three years to five years -- and just have to see how the market goes."

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