-Mike Hammond
Risk Management Report Card
The responsibilities of local government require the
performance of duties and delivery of services that expose municipalities
and public officials to numerous risks. In order to maintain the expected
level of services, while protecting the assets of the municipality, local
government must manage its risks. Some of these risks are unavoidable. So,
how do MVRMA members manage their risks, and how well are they doing?
The three basic strategies for risk management
include: (1) loss prevention/control, (2) risk transfer and (3) risk
retention. In practice, a municipality will pursue a combination of the
three strategies depending on the financial benefits and cost of each
approach. As its name implies, loss prevention/control is a before-the-fact
strategy, while risk transfer and risk retention both address the problem of
paying for a loss after it occurs. Let’s examine a little closer these
strategies for managing risk.
LOSS PREVENTION AND CONTROL:
Loss prevention reduces the probability that a loss
will occur in the first place, whereas control measures are designed to
reduce the severity of losses when they do occur.
Inspection of public buildings is a common loss
prevention measure. For example, the city engineering department may
periodically inspect sidewalks to locate those that are damaged or
deteriorating and that might cause someone to trip and fall. These sidewalks
are then repaired before an accident can occur.
Loss control measures such as fire extinguishers,
sprinklers and smoke detectors cannot prevent the outbreak of fires, but
they help minimize the damage.
MVRMA has a long history of working with its members
to help them manage their risk. The Safety Performance Evaluation Checklist
(SPEC) was developed as a tool to be used by member cities and MVRMA staff
to determine what safety and loss control areas need improvement.
Additionally, MVRMA sponsors several training seminars of general interest
to the membership each year. Professional management and safety consultants,
risk managers, attorneys and others knowledgeable in municipal risk
management issues present this information. These sessions alert employees
to hazards and offer safe practices to reduce the risk of loss.
RISK TRANSFER: Using
loss prevention and control techniques described above are sound risk
management practices, but they make up only part of the risk management
strategy. Every municipality, no matter its size, must prepare itself for
the inevitable financial loss. Thus, local government has traditionally
purchased insurance, a form of financial risk transfer. In the last two
decades, intergovernmental risk pools, like MVRMA, have become a cost
effective choice for transferring the financial consequences of a loss and
securing insurance.
Risk can also be transferred by negotiating with one's
business partners to accept the risk related to a project or activity. For
example, during a construction project, a municipality may require the
contractor and subcontractors to assume losses for construction related
accidents or lawsuits.
RISK RETENTION: When a
municipality retains risk, it assumes financial responsibility for the loss
or some part of the loss. When done as part of a well planned risk
management program, retaining some risk can lower the cost of insurance. It
can also align the incentives of the municipality with the insurance company
to create a safer work environment.
MVRMA, in addition to a member deductible, has a large
self-insured retention before coverage is effective. The members of the
association fund this self-insured retention amount.
RISK MANAGEMENT RESULTS:
In an effort to determine how effective our risk management efforts are,
each year we calculate a five-year loss to premium ratio to be used as a
reporting tool. This report card compares claim payments made from the loss
fund, not including member deductibles, with the members' annual loss fund
contribution. The claim amount includes the paid amount plus reserves for
any claim. For this year's report, all claims are valued as of September 1,
2007 and examines the period 2002-2006. We now have similar reports for five
different periods. These reports allow each member city to compare its
performance with other members and the pool as a whole. Clearly, the pool
results for the loss to premium ratio show improvement. See the chart below:
Loss Ratio for Each Reporting Period
Period
Ratio
1996 - 2000 53.7%
1998 - 2002 63.7%
2000 - 2004 44.8%
2001 - 2005 44.0%
2002 - 2006 38.7%
The accepted industry standard for a loss ratio is 60%, but MVRMA members
have consistently outperformed those standards. For individual members, with
loss ratios in excess of 60%, we conduct a loss control visit to review
their claims history and identify any loss control measures that may be
helpful.
MVRMA members have placed a great emphasis on their risk management
efforts, and the very favorable loss ratio is an indication their efforts
have been successful.
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- Surdyk, Dowd & Turner
Favorable Decision for Political Subdivisions
On October 3, 2007, the Supreme Court of Ohio issued a
decision which was quite favorable to political subdivisions. In the case of
Hubbell vs. Xenia, 2007-Ohio-4839, the Supreme Court held that when a
trial court denies a motion in which a political subdivision or its employee
seeks immunity under Ohio's sovereign immunity statute, that order denies
the benefit of an alleged immunity and is, therefore, a "final" order
subject to immediate review by a court of appeals. The court's 4-3 majority
opinion was written by Justice Evelyn Lundberg Stratton.
Writing for the majority, Justice Stratton quoted
language in R.C. 2744.02(C) that provides: "An order that denies a political
subdivision or an employee of a political subdivision the benefit of an
alleged immunity from liability as provided in this chapter or any other
provision of the law is a final order."
Quoting from her dissent in a 1999 Supreme Court
decision, Burger vs. Cleveland Heights, Justice Stratton asserted the
majority's holding is beneficial to both plaintiffs and political
subdivisions facing civil lawsuits. "Early resolution of the issue of
whether a political subdivision is immune from liability pursuant to R.C.
Chapter 2744 is beneficial to both of the parties. If the appellate court
holds that the political subdivision is immune, the litigation can come to
an early end, with the same outcome that otherwise would have been reached,
only after trial, resulting in a savings to all parties of costs and
attorney fees. Alternatively, if the appellate court holds that the immunity
does not apply, that early finding will encourage the political subdivision
to settle promptly with the victim rather than pursue a lengthy trial and
appeals. Under either scenario, both the plaintiff and the political
subdivision may save the time, effort and expense of a trial and appeal,
which could take years."
Justice Pfeifer wrote a very interesting dissent. In
his comments, he stated "This court need not judicially expand R.C.
2744.02(C) to further mollycoddle political subdivisions. Political
subdivisions are not the only participants in lawsuits - the resources of
the plaintiffs and the court are also stretched in having to address
excessive appeals. Plaintiffs, most often ordinary citizens harmed by the
actions of a political subdivision, already face a stacked deck from an
opponent with comparatively vast resources. Now, the majority draws no line
on the number of immediate appeals a political subdivision can take. It is
good to be king."
This decision is quite beneficial to the defense of
political subdivisions. As Justice Stratton noted in her majority opinion,
the ability of a political subdivision to appeal a decision that it is not
entitled to immunity, allows a determination of that threshold issue at an
early stage of the litigation. Generally, on behalf of the members of MVRMA,
attempts are made to dispose of cases by means of motions for summary
judgment in which it is argued the member is entitled to immunity. Knowing
that a decision denying such a motion for summary judgment would not be
subject to immediate review by a court of appeals, courts have had a
tendency to overrule those motions for summary judgment with the expectation
that such a decision would force the case to settle. Such an approach
defeated the municipality's right to immunity and resulted in settlements
which were undeserved. As a result of this decision, municipalities will no
longer be placed in the position of foregoing their right to claim immunity
from suit.
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- Craig Blair
When a new Trustee joins the MVRMA Board, we like to
conduct an orientation for that person. A one-on-one meeting with each
member of the MVRMA staff provides an overview of our program and
hopefully, resolves any questions or concerns. At our most recent "MVRMA
Day" orientations, questions concerning claim reporting requirements and
the $2,500 deductible were posed. We thought a summary of our discussion
would be a beneficial review for everyone.
MVRMA was formed in response to the lack of affordable
insurance in the late 1980s. MVRMA's number one goal was to protect the tax
dollars of its members. The newly formed organization also wanted to
establish a program that emphasized safety as a way to prevent or control
losses.
In a self-insurance pool, all members truly "share"
the monies they contribute to pay claims. Because of this "sharing," the
original members thought it necessary to hold each other accountable. To
that end, MVRMA requires all liability losses (damages to
other parties) and all first party losses (damages to a member's property)
over $500 to be reported and paid through MVRMA. These losses are then added
to the member's claim history, which becomes a key element in determining a
member's annual premium. A member's four-year average annual losses are
weighted three times when computing the annual Premium Calculation
Factor (PCF).
To protect the loss reserve funds from being depleted
by small losses and "fender benders," a deductible of $2,500 per occurrence
was instituted. These deductibles are billed to the members quarterly.
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-Starr Markworth
MVRMA's Multi-media Library
The MVRMA Multi-media Library currently holds more
than 260 videos, as well as 18 CD-ROM programs, and is made available to our
member cities at no charge. The purpose of the library is to provide
additional information to supplement the members' in-house training efforts.
The library covers a broad range of public sector safety and management
issues applicable to most city departments and divisions.
Funds are budgeted annually for the purchase and
upgrade of materials. Recommendations from member cities are encouraged and
utilized in the planning of future purchases. All new and replacement
materials are now being purchased in the DVD format because they have a
longer shelf life and cost less to mail,
The MVRMA Multi-media Library listing can be found at
www.mvrma.com under Training and Loss Control. A Video Request Form
can be downloaded and faxed, or you may email or phone your request to Starr
Markworth at smarkworth @mvrma.com or 937/438-8878. Please allow 3-5
days for delivery, and limit your request to three videos. MVRMA assumes the
cost of delivering the materials via US Postal Service, and the member
cities are responsible for returning the materials to MVRMA.
PRIMAfacts
As a member of the Public Risk Insurance Management
Association (PRIMA), MVRMA is a subscriber to PRIMAfacts. Through this
service, we can access a variety of documents related to the fields of risk
management, insurance and safety. Staff often uses this service when
developing policies and procedures or when reviewing best practices.
PRIMAfacts articles can also be made available to our members. If, after
reviewing the list below, you would like more information about the articles
listed under a particular category, call the MVRMA office at 937/438-8878. A
complete listing of the articles will then be faxed to you. Once, you
determine which articles you would like to access, simply call our office
again, and they will ordered.
PRIMAfacts TOPICS:
(A) Prima Information & Publications
(B) Risk Management Administration
(C) Safety & Loss Control
(D) Employee Benefits
(E) Risk Management Practices
(F) Environment
(G) Insurance & Self-insurance
(H) Public Safety
(I) Legislation & Compliance
(J) Parks & Recreation
(K) School Risk Management
(L) Pooling Administration
(M) Public Official Liability
(N) Claims
(O) Ordinances
(P) Finance
(Q) Job Descriptions
(R) RFPs
(S) Information Systems
(T) Transportation & Vehicle Safety
(U) Workers' Compensation
(V) Employment Liability
(W) Health & Wellness
(X) Professional Development
(Y) Public Works & Utilities
(Z) Emergency Services & Disaster
Recovery
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Fine Arts Coverage
The MVRMA property policy defines Arts as:
Objects of art of every kind and description, and
property incidental thereto, which are the property of the Member, or the
property of others in the custody and control of the Member, or in transit
at the Member's risk, and property in which the Member shall have a
fractional ownership interest which are owned by or have been leased,
loaned, rented or otherwise made available to the Member. "Property" shall
mean paintings, drawings, etchings, prints, rare books, manuscripts, rugs,
tapestries, furniture, pictures, bronzes, potteries, porcelains, marble
statuary and all other bona fide works of art and other objects of rarity,
historic value, cultural interest or artistic merit, which are part of the
collections of the Member, or in the care, custody or control of the Member
and their frames, glazing and shadow boxes.
Objects that fall within this definition
have automatic coverage up to $2,500,000 each occurrence and do not need to
be listed or scheduled on the policy schedule of values. A concen- tration
or collection of objects that fall within this definition, that could
sustain a loss in excess of $2,500,000 per occurrence, should be
listed or scheduled in the policy schedule of values. The policy coverage
includes additional perils such as breakage of fragile articles, marring and
scratching for this class of property.
One of the problems in determining the need to
schedule coverage under the MVRMA policy is the difficulty in identifying
Fine Arts. A few suggestions may be of help in this process. If your city
has a museum, it should be the first place to search for this class of
property. A second suggestion is to identify any contractual agreements that
your city has in place to procure or commission art objects for local
display. The last suggestion is to carefully review any agreements where
your city is assuming responsibility for property involved in traveling
exhibits, exhibits on loan or other similar situations. In many cases, these
exhibits contain property that will fall within the Fine Arts definition.
The coverage under the MVRMA property policy provides Fine Arts protection
for the property of others for exhibits if you have assumed that
responsibility contractually. But, it is necessary to check that the objects
fall within the Fine Arts definition and the total value does not exceed the
$2,500,000 Fine Arts sub-limit. If it does, you have to temporarily schedule
that exhibit property on the MVRMA property policy.
Valuation of Fine Arts articles at claim time can be
very difficult. For scheduled items, the value at loss time will be
determined by the fair market value carried on your books and records and
listed on the schedule. For unscheduled items, the value at loss time will
be based on the fair market value carried on your books and records. Absent
those records, the valuation will be based on the fair market value as
agreed upon by the carrier and the City. If agreement cannot be reached, an
arbitration process is outlined in the policy. Practically speaking, for any
Fine Arts objects of questionable value, we suggest you obtain certified
appraisals which will facilitate the valuation process at claim time.
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At the September 24, 2007 Quarterly Board Meeting, the
following actions were taken:
- Approved the Open Claims and Incurred Losses Report
dated August 30, 2007
- Approved a one-year agreement with Carol Riggle to
prepare MVRMA's financial statements for 2007
- Approved a loss funding amount of $2.525M for 2008
- Approved the 2008 Preliminary Expenditure Budget and
PCF
- Accepted the Financial Audit and CAFR for the year
ended 12/31/06
- Agreed not to make a proposal to the four CORMA
cities
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Congratulations to this year's SPEC
winners!
This year's Safety Performance Evaluations have been completed, and
winners were announced at the September 24 Board Meeting. The Pinnacle
Award, for the highest percentage compliance, went to the City of Troy,
which scored a perfect 100%. The Ascension Award, given to the city with the
most improved compliance, went to the City of Centerville, which improved
from 74.1% to 96.6%.
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