Background on Proposed Repeal of the Local Government Property Insurance Fund
As reported earlier, Governor Walker's state budget proposal eliminates the Local Government Property Insurance Fund, which is administered by the state's Office of Commissioner of Insurance (OCI). A February 2015 report shows $52.2 billion in insured property values and 974 insureds including 128 cities and 243 villages insured by the fund. Over the past few years the number of insureds has declined. The June 30, 2014 financial statements show slightly more than $27 million in annual written premium. The fund's premiums for many years was at a level with which the private market could not compete resulting in the vast majority of local units of government participating in the fund.
In 2009, the fund had over $41 million in surplus. Some legislators believed the fund was over capitalized and forced a $12 million dividend to be given back to participants. This dividend was provided in the 2009-2010 state fiscal year. After the dividend was declared and paid several local governments covered by the fund experienced a significant property damage, resulting in the filing of several expensive claims. These claims led to a drop in surplus that continued through the most recent financial report. In 2012, the Legislative Audit Bureau conducted a study of the fund and reported that a drop in surplus levels resulted in the fund making changes to the amount of risk it was retaining in the fund. The fund also modified its reinsurance policy to cover events at a lower retention level. Although OCI took steps to increase premiums beginning in 2011, the fund continued to experience a decline in its surplus.
The June 30, 2014 annual statement of the fund shows the surplus at negative $1.3 million. It is not known if the fund's negative surplus position continues today. Discussion has taken place at OCI to correct the shortage of surplus should the Governor's proposal not pass the legislature. An on-site property evaluation process has already begun. Many members of the fund have property that is undervalued, thus not producing the premium necessary to support the fund. In addition, discussions have occurred regarding policyholder rate increases, however, no decisions have been made. Under the budget proposal as introduced, no new coverage may be issued through the fund on or after July 1, 2015 and no coverage may be renewed after December 31, 2015. All money remaining in the fund after claims are paid will be distributed among local governments that were insured on July 1, 2015.
OCI has clarified that the Fund will allow renewals for policies through and including 1/1/2016 effective dates. If, for example, your current policy has an effective date of 1/1/15 or earlier, you will have a chance to renew one more time with the Fund. If however your current policy has an effective date of 1/2/15 or after, the Fund will not renew your policy when it expires.
The League is working with its insurance partner, the League of Wisconsin Municipalities Mutual Insurance (LWMMI), to better understand the upcoming changes and possible elimination of the Fund. LWMMI, together with others that have a vested interest in the fund, is looking at three alternatives should the fund be eliminated.
LWMMI's goal is to offer coverage, administration, and claims handling services similar to those currently provided by the Fund. The three alternatives are:
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Contract with a commercial property insurance carrier using the combined city/village purchasing power to keep expenses low.
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Add property coverage to those currently offered by LWMMI.
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Create a new insurance company to replicate the Fund
The League is closely monitoring this provision in the state budget and will keep you apprised of any developments as they occur. Meanwhile, when LWMMI finds an alternative that matches the coverages, low expense, and services the Fund currently provides, we will let you know. [Parts of this article were taken from a similar article that appeared in the Wisconsin Counties Association's February 16 WCA eNews.] |