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MVRMA's Financial Stability
- Michael Hammond, Executive Director
During the past several months, much has been written about the Enron
Corporation's might fall and Arthur Andersen's messy audits of the energy
company. Proposed reforms to the American accounting industry are
springing up at a furious pace. In the last four months, lawmakers in
Washington have proposed close to 50 Enron-related bills, about a dozen of them
aimed at accountants. All of this causes us to step back and ask, "What is
the financial stability of my company" Will it be around when I am ready
to cash in?" The financial stability of a governmental insurance pool is no
different. The funding of MVRMA is of vital concern to its members,
from the perspective of the overall financial well-being of the group to
the individual member's costs. How the pool is funded is a critical
issue for potential new members as well. Because each member has
ownership interest in the pool, MVRMA's financial stability is of great
importance. Members want to be assured MVRMA will have funds
available to pay their claims. So, what has MVRMA done to ensure its
financial stability? Over the years, we have taken a number of steps to
provide for the overall financial strength of our association. Allow
me to share with you some of the most important steps. 1.Transfer of
Risk. MVRMA purchases excess coverage and reinsurance to insure
risk that is in excess of its self-insured retention. all excess
insurance carriers are selected with regard to their financial strength,
capacity to write coverage and experience with the public sector. It
is MVRMA''s policy to place business with A rated or stronger companies,
and we regularly review these ratings. 2. Annual Audit.
MVRMA contracts with an independent auditor to conduct an annual financial
audit. The MVRMA Board selects the financial auditor, and a copy of
the full report is provided to each Board member. Additionally, a
copy of MVRMA's financial report is filed with the State Auditor's Office.
The audit report includes a management letter that addresses financial
policies and internal controls. 3. Actuarial Study. An
actuarial study to determine MVRMA's reserve adequacy is also conducted
annually. Based on the advice of the independent actuary, MVRMA
funds for losses and loss related expenses at a confidence level approved
by its Board. This is an important step in determining adequate
funds will be available to pay claims. 4. Comprehensive Annual
Financial Report. Each year MVRMA prepares a Comprehensive
Annual Financial Report and has been continuously recognized for
excellence in financial reporting by the Government Finance Officers
Association since 1992. MVRMA was only the sixth public entity
insurance pool to have its CAFR recognized for excellence in financial
reporting. 5. Pooling Advisory Standards. MVRMA has
received continuous recognition for demonstrating general compliance to
Pooling Advisory Standards set forth by the Association of Governmental
Risk Pools since 1994, the first year the recognition program was
established. The Advisory Standards allow pools to measure and
evaluate their management and performance and may be used to compare
organizational and operating characteristics of public entity pools.
Applications are scrutinized by a peer group of pool administrators.
This is a rigorous review, and only those that demonstrate substantial
compliance are recognized. 6. Fund Balances. MVRMA
maintains fund balances in excess of $7 million. These monies are
earmarked for daily operations, loss reserves and other special interest
funds. MVRMA's success and very survival depend on the adequate
collection and management of reserves. During its 13-year history,
MVRMA has been able to steadily grow its reserves to a very adequate
balance for the benefit of its members. 7. Investments. The
MVRMA Board of Trustees has approved a Cash and Investment Policy to
implement and monitor the investment of all MVRMA funds. The overall
direction of the investment program can be defined by the following
objectives: safety of principal, liquidity, satisfactory rate of return,
diversification and public confidence. The MVRMA Board annually
reviews this policy and compares investment results with set goals and
external indices. As custodian of these funds, it is MVRMA's fiscal
responsibility to make safe and prudent investments in order to protect
the principal while providing an additional source of revenue for pool
operations. 8. Line of Credit. MVRMA has a $1 million line
of credit that can be accessed to pay claims if the need arises.
Financial management is one of MVRMA's most important activities.
The MVRMA Board of Trustees has taken significant steps to ensure the
financial stability and strength of their Association. Through their
actions, adequate funds will be available to pay claims when needed.
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- Jenks,
Surdyk, Oxley, Turner & Dowd
When Does a "Taking" Occur?
As a result of a recent Ohio Supreme Court decision, the review of an
application for the rezoning of property will now require consideration of the
potential financial impact upon a municipality if the proposed rezoning request
is denied. On April 10, 2002, the Supreme Court issued a ruling in the
case of State ex.rel. Shemo et. al. v. City of Mayfield Heights et. al.
(2002) 95 Ohio St. 3d 59 which defined in Ohio as to when a "taking" is caused by the application of a zoning ordinance. The
ruling resulted from a request by a developer of property for a Writ of Mandamus compelling the city of Mayfield Heights
to commence an appropriation action to determine the amount to be paid by the city for its alleged regulatory taking of
the relator's property. The Supreme Court confirmed that mandamus is the appropriate action to compel public authorities
to institute appropriation proceedings where an involuntary taking of private property is claimed. It also held that a taking
can occur either if the application of the zoning ordinance to the particular property is constitutionally invalid, i.e., it does
not substantially advance legitimate state interest or denies the landowner all economically viable use of the land. This is
an important distinction since a municipality is now exposed to a claim for potential damages if the landowner is able to
prove either prong of this test. Previously, there had been the belief that it was necessary for the landowner to prove both prongs
of the test before a taking claim could be made.
The Supreme Court also rejected the argument that those who purchased the land with knowledge of the existing
zoning were barred from claiming the preexisting zoning effects a taking. More importantly, the Supreme Court determined
a landowner is entitled to damages for a "temporary taking" of the property during the period the challenged ordinance was
in effect. No longer can the argument be made that once the zoning ordinance is invalidated, the case is terminated and
the landowner is not entitled to compensation for the period of time the unconstitutional ordinance was applied to the property.
Landowners whose applications for rezoning are rejected will no doubt pursue taking claims rather than merely walk
away from a proposed project. Whereas in the past, actions challenging the constitutionality of the zoning of one's property
were instituted to force a municipality into agreeing to a judicial rezoning of the property, property owners may now be less
inclined to resolve such cases without the payment of additional consideration.
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- Craig Blair
Determining a Member's Legal Liability
How do we decide if a member is liable for an accident? What factors are considered when trying to determine if a member
was negligent for the damages incurred by another party? Since our member has certain responsibilities (i.e., roads, water, sewer
lines, etc.) as a public entity, MVRMA has to determine, with each claim, if the member city is "legally liable" for the loss. Most
times this investigation would be the same as for a private business or individual, but since our member is a public entity, there
may be a separate duty or standard of care owed to the other party. When determining if a member is at fault, one must ask, "Is
the city legally liable for the damages caused?" This concept is reinforced by the MVRMA insurance policies where the
insuring agreements state "the coverage will pay sums that the insured (member city) becomes legally obligated to pay as
damages." However, it should be noted that
if our member is liable for damages, sovereign immunity would still apply, and the member
would be afforded the offsets of the third party's available coverage before MVRMA makes payment on the claim.
The important factors to consider are:
· Does a member owe a duty to the public or individual?
· Did the member breach that duty?
· Are there damages to the public or individual from the breach of that duty?
The last factor is important to remember because certain duties may be imposed on the member by law, but just proving the
duty was breached is not enough to collect on a claim. There has to be verifiable damages to a third party before the city is
obligated to pay.
A few examples of common claims may make this "legally liable" issue a little easier to understand.
1. A city truck backs into a parked
car. The duty owed by the city truck was to make sure the vehicle was driven in a safe
manner. Clearly this duty was breached, and the third party incurred damages. The member city would be "legally liable," and the
insurance policy would obligate MVRMA to pay for the damages. This is an example of a claim where the investigation is standard with
what would be done for any private individual.
2. A third party hits a pothole and damages his
wheel. The duty owed by the city in this case is different.
Because municipalities are public entities, their responsibility for road repair is imposed upon them by law. Thus, the standard of care
or duty owed to the public is one of maintenance. The city must repair potholes promptly when "put on notice" of a problem.
In this claim, the city obviously did not cause the pothole, and if it was repaired after the city was notified, then no breach
of duty occurred. This is an example where there are verifiable damages to a third party, but since there was no "breach of
a duty," the city would not be legally liable, and MVRMA would deny the claim.
3. A resident has water or sewage backed up in his
basement. Since our member is acting as a public entity, the duty
to "maintain" the water and sewer lines is imposed by law. If the back up was caused by a blockage or overcharged system
due to heavy rains, the city had no control over the cause of the loss and would not be liable. The city's duty would be to
relieve the blockage in the line or if overcharged, to pump water from the system to relieve the line. As long as the city did
not "breach a duty owed," the member would not be "legally liable," and MVRMA would not pay the claim.
4. Due to a new development, "Farmer Smith" has water flooding a wooded area at the back of his
property. The duty the city owes in this situation is to control the flow of water in a way that causes no damage. In this example, if the city failed
to control the water, it "breached a duty owed" and would be legally liable. The city, at its own expense, would repair
the drainage with new lines or retention ponds to resolve the problem. But would Farmer Smith be entitled to compensation?
Since the area flooded was the wooded area on the back of his property, and the problem was subsequently corrected by the
city, there are no verifiable damages to the third party. Even though the city breached a duty owed, MVRMA would not
make payment on this claim.
Hopefully, these examples will provide a better understanding of why MVRMA may choose to pay or deny a claim.
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- Starr Markworth
Heat, Friend or Foe?
It's that time of year again, when the hot weather is here to stay, at least for a few months. Many of us enjoy the warm
weather, but for many city employees, working outside during the high temperatures and humidity of summer is just part of the job.
According to the Occupational Safety and Health Administration, in 1999, 34 employees died from heat-related injuries,
and 2,420 employees had heat-related injuries that were so serious they took time off work to recuperate.
If you're not careful, the heat can be your enemy - it causes several common conditions that land unsuspecting people in
the emergency room.
Dehydration occurs when your body takes in less fluid than it loses. Early warning signs of dehydration include:
clumsiness, stumbling and excessive sweating.
Heat cramps are one of the most common heat-related ailments. They occur when muscles spasm because they don't
have enough sodium or potassium. The cramps usually occur in the large muscles, such as the calves and legs and may occur
while you're exercising or as much as three hours later. Replacing the lost electrolytes - in the form of water or a sports drink
- usually brings relief.
Heat exhaustion is slightly more serious. This condition occurs when your body cannot sweat enough to help you
cool down. It happens when you're working or exercising in hot weather. Symptoms include fatigue, weakness, dizziness or
nausea and skin that is cool, moist, pale or flushed.
If untreated, heat exhaustion can lead to heat stroke, which requires immediate emergency treatment. Heat stroke
occurs when your body stops sweating and your body temperature continues to rise, often to 105 degrees or higher. Heat stroke
can be accompanied by confusion, unconsciousness and skin that is red, hot and dry.
Be safe, not sorry, by preventing these dangerous heat conditions both on the job and at home. Be sure to drink plenty
of water - about one cup of cool water every 15-20 minutes, even if you are not thirsty - and avoid alcohol, coffee, tea
and caffeinated soft drinks that dehydrate the body.
If this is an area of concern for your city, please contact Loss Control Manager Starr Markworth at 937/438-8878 or
email smarkworth @mvrma.com to view some of the summer safety videos in MVRMA's video library.
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- Marsh USA Inc.
The Role of the Broker
As a broker, Marsh's role and objective is to advise and assist in reducing an organization's total cost of risk. We
define total cost of risk as not only the premiums paid but also the losses absorbed by our client. On average, premiums paid
to insurers represent 30 percent of the total cost, with the remaining 70 percent being losses. There is distinct expertise
that Marsh must bring to the table to address both sides of the equation.
On the premium side, Marsh selects a team of brokers that possess knowledge in each different area of coverage
(Property, Casualty, Financial Products and Surety). It is Marsh's goal to work with our clients to identify and analyze risk and
where applicable, design and implement solutions. On a daily basis, an organization faces different challenges and as a result,
new risks. Marsh works to identify the exposures to loss and provides quantification of the potential financial impact. If
an organization deems the exposure to be within its risk tolerance level, often times, no further action is required. If the risk
is too great in terms of frequency or potential severity to retain, Marsh works to design a solution. The solution is tailored
to ensure the right balance is struck between the cost of the retained portion of the exposure and the transferred portion.
Once the solution is designed, we market and implement the program with a selected insurer. Upon completion of
the implementation process, Marsh continues to monitor the placement to ensure the risk transfer solution is working
as intended.
As mentioned previously, the losses suffered by an organization represent 70 percent of the total cost of risk, while
the "low hanging fruit" on the loss side is ignored. Marsh has experts available to assist organizations attack and reduce
this significant portion of their cost of risk. The attention must be focused on both pre and post loss procedures. When looking
at preventing losses, Marsh analyzes historical data in order to identify trends
in both frequency and severity of occurrences. Once trends are identified,
procedures can be designed and best practices implemented to quickly improve an
organization's loss experience. Even with the best plans in place though,
accidents will inevitably occur. As a result, it is essential to have post
accident procedures in place prior to experiencing losses. Marsh employs claims
consultants that provide advice on developing claims procedures, assist in
controlling costs and intervene if coverage disputes arise.
It is critical for Marsh to proactively work with organizations to
mitigate the costs associated with both premiums and losses. These two
components must be viewed as interconnected concerns. If an organization can
successfully implement procedures to prevent occurrences and mitigate the cost
of those incidents that do occur, they will undoubtedly reduce the premiums paid
for their insurance program.
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Learn Lifting Safety
Many of the causes of back pain at work result from improperly lifting
heavy items. Here are some basic techniques for lifting safely:
Assess if you need help. Before you even think of lifting an object,
ask yourself if you can handle the load alone or whether you should solicit the
help of a co-worker or some kind of mechanical aid, like a dolly.
Always bend your knees. Most people bend at their waist when they try
to lift something, but that strains your back. Bending at the knees helps you
keep your center of gravity and lets your stronger leg muscles do the work of
lifting.
Hug the load. Keep the object as close to your body as you can while
you gradually straighten your legs to a standing position.
Don't twist. Keep your feet, knees and torso pointed in the same
direction when you lift. Twisting can overload your spine and cause serious
injury.
Carefully put down the load. Use the same techniques in lifting as in
setting down the object.
-Adapted from the Oklahoma State University Safety Library Web site
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