School Board Briefing/Proposed Action Report

Transcription

1 School Board Briefing/Proposed Action Report Informational (no action required by Board) Action Report (Board will be required to take action) DATE: June 4, 2015 FROM: Larry Nyland, Superintendent LEAD STAFF: Richard Staudt, Risk Manager, Kenneth Gotsch, Assistant Superintendent for Business & Finance; I. TITLE Approval of Washington Schools Risk Management Pool Coverage Agreement for fiscal year For Introduction: July 1, 2015 For Action: Aug 19, 2015 II. WHY BOARD ACTION IS NECESSARY On August 20, 2002, Seattle Public Schools entered into a Cooperative Risk Management Pool Account Agreement with the Washington Schools Risk Management Pool (WSRMP). The Agreement automatically renews annually, unless the District files a notice of intent to withdraw. Such notice is required to be filed three years prior to the withdrawal date. Because our required contribution to the WSRMP loss funding pool is in excess of $250,000 each year, the expenditure requires Board approval under Board Policy No. 6220, Procurement. This Board Action will accept the proposed coverage agreement and authorize expenditure of the premium contribution in the fiscal year. This action will also mean that the District will continue to utilize WSRMP and pay premiums until at least August 31, III. FISCAL IMPACT/REVENUE SOURCE The fiscal impact to this action is $1,961,000, the proposed renewal premium contribution to Washington Schools Risk Management Pool. The first half of this amount will be due on October 31, 2015; the second half on April 30, The renewal premium represents an increase of $369,956 from the premium of $1,591,044. In the fiscal year, there were significant improvements made to the protection afforded to the District, including a decrease in our property deductible from $100,000 to $5,000 and a change from a $1,000,000 self-insured retention for liability claims to a deductible of $250,000 plus 50% of the next $250,000, or essentially $375,000. In addition, the District gained access to a number of coverage enhancements, including $35,000 per case for Special Education due process hearings, $15,000 per case for investigation coverage and $5,000 per case for pre-loss legal advice. Our General Counsel s office very conservatively estimates the value of these coverage enhancements to the District at $150,000 or more per fiscal year. As part of these changes, the WSRMP Executive Director (since retired) offered the current premium rate to the District, indicating that he had authority to be flexible in the rating process. Since that time, the WSRMP Executive Board has made it clear that the pricing was significantly

2 lower than the standard rate offered to all other WSRMP member districts. The indicated increase for brings Seattle Public Schools rate in line with the rates paid by other WSRMP members. The WSRMP has offered us two options for renewal, one currently authorized by their Executive Board and the second requiring their Executive Board s approval at their July 20 meeting. The first continues the $375,000 deductible we had last year, while the second moves us to a flat $250,000 self-insured retention. The WSRMP prefers to see us move away from the $250,000 plus 50% of the second $250,000 deductible as it is very difficult for them to administer. Our general counsel also prefers to reduce our ultimate exposure on each liability claim from $375,000 to $250,000. The coverage enhancements we enjoyed last year will continue under either scenario. If the WSRMP Executive Board were not to approve this second option, this Board Action Report will be revised to reflect the premium of $2,085,053 already approved. This expense is incorporated into the general fund budget proposed for fiscal year Expenditure: One-time Annual Other Source IV. POLICY IMPLICATION Board Policy No. 6530, Insurance, calls for the District to maintain sufficient liability insurance to protect it against claims for the negligent or wrongful acts of its staff or agents and to maintain a comprehensive insurance program which will provide adequate coverage for property claims. Board Policy No. 6220, Procurement, requires Board approval for any contract over $250,000. V. RECOMMENDED MOTION I move that the Superintendent be authorized to accept the proposed Washington Schools Risk Management Pool coverage agreement for the fiscal year and that the expenditure of $1,961,000 in premium contributions to the WSRMP loss funding pool be authorized. VI. BOARD COMMITTEE RECOMMENDATION The WSRMP coverage renewal proposal was reviewed at the May 14 Audit & Finance Committee meeting, along with a discussion of the factors that resulted in the premium increase. The new WSRMP Executive Director was present at the committee meeting and addressed the Committee s questions and concerns. This Board Action Report was reviewed by the Audit & Finance Committee at its June 11 meeting and the Committee recommended.

3 VII. BACKGROUND INFORMATION Local government entity joint self-insurance pools are authorized under Chapter RCW Local Government Insurance Transactions and are audited and regulated by the State Risk Manager, in collaboration with the Superintendent of Public Instruction when the participants are school districts or Educational Service Districts (ESD). The Washington Schools Risk Management Pool was created in 1986, when commercial insurance markets were unwilling to insure the risks of K-12 school districts. Its membership currently includes 70 school districts and 10 Educational Service Districts (ESDs). Of those, 53 districts and three ESDs have been members continuously since the Pool s inception. Among the nearly 135 school districts served directly or through their ESD are Spokane, Tacoma, Federal Way, Lake Washington, Edmonds, Northshore and Puyallup. In December 2013, WSRMP expressed a new eagerness to tailor deductibles and retentions to best meet the needs of Seattle Public Schools and other WSRMP member districts. The coverage offered for reflected that flexibility in the significant reduction of financial risk that the District assumed and the additional services which the WSRMP provides in handling of claims. However, the premium offered fell outside the standard pricing formula that the WSRMP s Executive Board had authorized. Seattle Public Schools is enjoying a very low premium in the current year, but the WSRMP is adjusting that for to bring it in line with all other member districts pricing formula. The WSRMP will not be attempting to recover the premium shortfall that resulted from the unauthorized rating applied for VIII. STATEMENT OF ISSUE Each new fiscal year s required contribution to the WSRMP loss funding pool, in excess of $250,000, requires Board ratification under Board Policy No. 6220, Procurement. IX. ALTERNATIVES There are three alternatives to this recommended WSRMP coverage proposal. (1) The District could choose to set aside funds to self-insure all property and liability claims (2) The District could seek to obtain coverage from commercial insurance carriers, or (3) The District could choose to accept the WSRMP proposal that includes greater financial risk at a lower up front cost. The first two alternatives could not be implemented immediately, as the District would be required to file a notice of intent to withdraw from the WSRMP. Based on the notice requirements in the Pool Account Agreement, the earliest date our withdrawal could be effective would be September 1, The District would be contractually obligated to continue coverage and pay premiums to the WSRMP until that date. Given the significant work that the WSRMP has done to tailor coverage and services to better meet the needs of the District, we do not recommend responding by immediately filing a notice of intent to withdraw. Given the WSRMP s need to seek approval from their own Executive Board for our premium, we have been granted an extension for filing such notice up until August 31, 2015.

4 X. RESEARCH AND DATA SOURCES / BENCHMARKS Every year, the Council of Great City Schools surveys member districts about their risk management results. Washington State has a less favorable liability environment than many other states, with a complete absence of statutory caps to liability claims against government agencies. Nevertheless, Seattle Public Schools annual claim costs are lower than many other large urban districts on a per student basis. Some school districts carry higher limits of coverage than the $20 million per claim provided by the WSRMP, including Los Angeles Unified, with a liability limit of $30 million. Currently all school districts in Washington State are insured with one of two school selfinsurance pools. Liability claim limits are $20 million per occurrence/$50 million aggregate with the WSRMP, $25 million per occurrence/$31 million aggregate with the Schools Insurance Association of Washington (SIAW). Property limits are at $500 million per loss with the WSRMP, $150 million with the SIAW. XI. TIMELINE FOR IMPLEMENTATION / COMMUNITY ENGAGEMENT Upon approval of this motion approving the proposed coverage for , we will communicate approval to the WSRMP and receive confirmation of continued coverage prior to the renewal date of September 1, XII. ATTACHMENTS Premium Quote Member: Seattle Public Schools Cost Estimate Member: Seattle Public Schools

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