Insurance risks could result in community action agencies paying higher premiums
Pooling risk, spreading it as widely as possible, is the basic theory behind how insurance companies survive and thrive.
Government insurers are no different, even though company representatives insist they have no incentive to raise rates, but are simply trying to maintain the status quo.
The Minnesota Counties Intergovernmental Trust is reassessing whether it can continue to insure community action agencies profitably, a decision that worries the local Mahube Community Council, Inc.
Formerly called the Minnesota Counties Insurance Trust, the entity insures 411 groups including 81 of Minnesota's counties and 22 community action agencies such as Mahube. It provides workers compensation insurance, property and casualty coverage and liability insurance for errors and omissions on the part of its clients.
It began accepting other groups such as agricultural and historical societies, railroad authorities, Housing and Redevelopment Authorities and economic development agencies in the 1990s along with the community action agencies to deepen the pool after the Legislature included many of these groups under the definition of a "municipality."
Last week MCIT's executive director sent a letter out to those CAAs, indicating they were becoming too risky to continue to insure.
Those agencies "incur more losses per unit of contribution than the participating counties," said a letter from Robyn Sykes. "For the 2010 workers compensation renewal this computed to approximately $265,000. In other words, counties will subsidize the cost of Workers Compensation Coverage for community action agencies in 2010 by 20 percent," Sykes' letter stated.
"Community action agencies have higher losses than others," said MCIT risk management consultant Bob Goede, addressing the Hubbard County Board of Commissioners Wednesday. "We're not kicking them out. They have some very unique exposures counties don't have. We need to take a look at their losses and better manage those losses."
Goede and Mahube director Leah Pigatti agreed one of the riskiest areas is the Head Start program and other youth outreach efforts.
Staff incur injury claims, the potential of child abuse or neglect claims, mishaps transporting kids or working with them.
"We want to continue to insure 'em, but we don't want 'em to be a loss to the counties," board chair Lyle Robinson said. "There's exposures out there we don't see in the counties," Goede agreed. "Playgrounds can be an exposure if they're not maintained well."
Pigatte said her agency is working with MCIT to reclassify those risks and the employees that perform the riskier jobs, understanding the agency may face higher premiums. It's still better than the piecemeal approach Mahube used to have, purchasing one type of insurance from a specific company, another type from another group.
She presented loss ratio information that seemed to contradict the MCIT figures. For every premium dollar Mahube spends, 76 cents went to workers compensation claims; only a penny to property and casualty claims, she said.
Overall, she said the 22 CAAs have a 74 percent loss ratio for workers comp claims and a 41 percent loss ratio in property and casualty claims.
"We got very concerned that you would cover 20 percent of our insurance costs," Pigatti told the board. "I want you to know that's not true."
"They're covering risks they really don't have money to cover," Robinson said, characterizing MCIT's position.
But Pigatti admitted three Head Start employees suffered falls that resulted in "severely broken bones."
Nevertheless, she said the claims did not exceed the agency's premium dollars contributed.
Hubbard County pays about $1.5 million annually in premiums. Last year $458,000 was returned as a dividend, Goede said, about a 30 percent return.
Dividends have been declared since 1996, Goede said.
But he warned MCIT's reinsurer, Munich Re, is "uncomfortable with the law enforcement claims they're seeing, these federal cases that go outside the tort cap so they come out to higher dollar claims."
"Like ours," replied county coordinator Jack Paul. MCIT settled a claim on behalf of Hubbard County last fall, paying $640,000 to an Akeley woman who claims a former deputy sexually assaulted her while he was on duty. The woman sued in federal court. If she'd sued in state court, her recovery would have been capped at $500,000 by state law.
Goede said MCIT has implemented many risk management tools to assist counties, municipalities and other insured agencies in preventing such lawsuits in the future.
Meanwhile, county board members reassured Pigatti her agency wasn't about to face a cancellation notice.
"They were not interested in dropping Mahube," said commissioner Don Carlson.