Council Member Kathy OBrien, Chair
Ways & Means/Budget Committee
Room 307 City Hall
Minneapolis, MN 55415

Re: Self-Insurance Policy

Dear Council Member O’Brien:

The City has been self-insuring its liability risk for many years. Recently, the City Council acted to also self-insure its property risks. Based on those premises, the Risk Management Department has done a study to see whether the City should continue these practices.

We have conferred with the City Attorney’s Office on this issue. Their opinion is that the City can rely on the protection of the Minnesota Municipal Tort Liability Act. That mean that should the City be found liable for damages, in almost all cases, the maximum loss exposure to all third-party claimants involved in any one occurrence would be $600,000.

We also conferred with the City’s Finance Department to determine an "acceptable" level of risk for the City to assume. In general, the objective of such a review is to decide what financial burden can be reasonably accommodated in the event of a catastrophic loss. The Finance Department suggested that a financial burden of one-half to one mill might be considered reasonable as a basis for self-insurance. At present, a mill levy of 0.75 would generate annual revenues of about $2 million. If this revenue were used to bond, a loss of about $20 million could be accommodated.

Thus, we have narrowed our research to the probability of the City’s having a property loss over $20,000,000. We developed replacement costs for City-owned real property in conjunction with the City Assessor’s Office and City-owned, leased or controlled personal property from the City’s Finance Department. Our findings show that the City only has two locations with more than $20,000,000 property loss exposure, i.e., City Hall and the Auditorium.

Since the Auditorium is in the process of being replaced by the new Convention Center, and the risk financing scheme of the new Convention Center will be decided later once it is completed, our concern now is limited to the City Hall.

We have discussed the City Hall’s property loss exposure with various loss control experts, including Hennepin Count’s Risk Manager, the City’s own Public Works Department, etc.. The consensus is that based on the kind of construction, unless somebody deliberately set fire or planted bombs in City Hall, it would not sustain a loss of over $20,000,000 in just one incident.

Therefore, we concluded that with the $20,000,000 retention available in mind and viewing the pricing of an excess insurance policy over $20,000,000 and the low probability that the City will sustain a loss over $20,000,000, the City should continue its policy of self-insuring its property and liability insurance.

Therefore, we ask that you formally adopt a policy of self-insuring the City’s property and liability losses.

Sincerely,

Gary E. Levin

Risk Manger