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Home My WebLink AboutCOUNCIL - AGENDA ITEM - 12/15/2020 - SECOND READING OF ORDINANCE NO. 146, 2020 APPROPRI Agenda Item 3 Item # 3 Page 1 AGENDA ITEM SUMMARY December 15, 2020 City Council STAFF Travis Storin, Interim Chief Finance Officer Claire Goodwin, Sr. Mgr, Safety and Risk Management Zachary Mozer, Finance Analyst John Duval, Legal SUBJECT Second Reading of Ordinance No. 146, 2020 Appropriating Prior Year Reserves in the Self Insurance Fund for Increased Premiums for Property Loss Insurance. EXECUTIVE SUMMARY This Ordinance, unanimously adopted on First Reading on December 1, 2020, appropriates funds to compensate for increased premiums for the City’s property loss insurance that were paid by the Self Insurance Fund for the 2020/2021 period. The City’s Self Insurance Fund is currently over budget through October 2020 and is expected to remain over budget through year-end. The primary driver of this increase is the higher insurance premiums that have been realized in 2020. These increases are due to two factors: an industry wide adjustment in coverage due to increased risk exposure in the state of Colorado, and more hail storm damage realized at the City in prior years, most notably in 2018. STAFF RECOMMENDATION Staff recommends adoption of the Ordinance on Second Reading. ATTACHMENTS 1. First Reading Agenda Item Summary, December 1, 2020 (w/o attachments) (PDF) 2. Ordinance No. 146, 2020 (PDF) Agenda Item 5 Item # 5 Page 1 AGENDA ITEM SUMMARY December 1, 2020 City Council STAFF Travis Storin, Interim Chief Finance Officer Claire Goodwin, Sr. Mgr, Safety and Risk Management Zachary Mozer, Finance Analyst John Duval, Legal SUBJECT First Reading of Ordinance No. 146, 2020 Appropriating Prior Year Reserves in the Self Insurance Fund for Increased Premiums for Property Loss Insurance. EXECUTIVE SUMMARY The purpose of this item is to appropriate funds to compensate for increased premiums for the City’s property loss insurance that were paid by the Self Insurance Fund for the 2020/2021 period. The City’s Self Insurance Fund is currently over budget through October 2020 and is expected to remain over budget through year-end. The primary driver of this increase is the higher insurance premiums that have been realized in 2020. These increases are due to two factors: an industry wide adjustment in coverage due to increased risk exposure in the state of Colorado, and more hail storm damage realized at the City in prior years, most notably in 2018. STAFF RECOMMENDATION Staff recommends adoption of the Ordinance on First Reading. BACKGROUND / DISCUSSION From 2017 through 2019, there has been an increase in hail activity that has been experienced in the Western and Midwestern regions of the US causing an increase in property insurance premiums. According to a recent report from the National Insurance Crime Bureau (NICB), the top 10 states in the US contributed 72% of the total number of hail claim losses for this period. Colorado ranks 2nd highest in the nation, trailing only Texas. In May of 2017, a powerful hailstorm caused widespread damage across Colorado, resulting in $3.6 billion of damages, according to the National Oceanic and Atmospheric Administration (NOAA). Based on the data provided by NICB, Colorado’s hail losses saw a significant increase in 2018. Most specific to Fort Collins was a June 2018 event, in which the City sustained significant damages to buildings and vehicles that are still in the process of being repaired. The total claim amount to date for this one incident is $4.1 million. Further, the information provided in this report shows that four of the top cities in the US that have the highest hail claims for this period are in Colorado. These increased damage events have resulted in higher premiums which have negatively impacted the Safety and Risk Management (SRM) budget. In March 2018, the upcoming two-year budget (for 2019 and 2020) provided that other service areas could incorporate SRM’s internal service charges into their budgets. At the time the outside vendor insurance quotes were provided, they had not yet incorporated the industry-wide impacts that are noted above. Compounding the situation is the renewal period of the City’s policies in May, which leads ATTACHMENT 1 Agenda Item 5 Item # 5 Page 2 to more uncertainty in the budget process. During the 2019 budget year, the SRM budget was short by $200K - this amount was addressed in the annual supplemental appropriation ordinance last fall. Because of upward pressure on insurance industry corrections, compounded by severe hailstorms in June of 2018, premiums increased from just over $1 million realized in 2018 to $1.9 million in 2020; a 90% increase. This, in addition to the cadence of the two-year budget cycle that solidified the SRM’s budget before the insurance premium adjustments, significantly underfunded what was needed for this expense. There is some potential for higher inherent variances in estimated vs. actual premiums due to the long lead time between when estimates are quoted versus. when the coverages take effect. When the budget is made, insurance quotes are given 17 months in advance, causing a lower confidence that those premiums will hold steady until the first budgeted renewal period. SRM is currently working to move the renewal period from May to January so that it can be better synchronized with the City fiscal year. This item was reviewed by the Council Finance Committee on November 16, 2020, and was approved to move forward for Council consideration. SRM is requesting a supplemental appropriation of $660K because of industry premium corrections and realized losses in 2018. CITY FINANCIAL IMPACTS This item will appropriates $660,000 from the prior year reserves in the Self Insurance Fund to be pledged to the support the increased insurance premiums that have been realized for the 2020/2021 coverage period. ATTACHMENTS 1. Council Finance Committee Minutes, November 16, 2020 (excerpt) (PDF) -1- ORDINANCE NO. 146, 2020 OF THE COUNCIL OF THE CITY OF FORT COLLINS APPROPRIATING PRIOR YEAR RESERVES IN THE SELF INSURANCE FUND FOR INCREASED PREMIUMS FOR PROPERTY LOSS INSURANCE WHEREAS, from 2017 through 2019, Colorado and Fort Collins have experienced increased hailstorm activity resulting in significant property damage that has caused the insurance industry to increase in Colorado their premiums for property loss insurance; and WHEREAS, this has caused the City’s premiums for property loss insurance to significantly increase this year beyond what had previously been approved by City Council in the City’s 2019-2020 biennial budget and its 2020 annual appropriation ordinance; and WHEREAS, as a result, there are insufficient appropriated funds in the City’s Self Insurance Fund to pay this increase in premiums thereby requiring this supplemental appropriation; and WHEREAS, this appropriation benefits the health, safety and welfare of the residents of Fort Collins and serves the public purpose of purchasing property loss insurance for the City’s capital assets; and WHEREAS, Article V, Section 9 of the City Charter permits the City Council, upon the recommendation of the City Manager, to appropriate by ordinance at any time during the fiscal year such funds for expenditure as may be available from reserves accumulated in prior years, notwithstanding that such reserves were not previously appropriated; and WHEREAS, the City Manager has recommended the appropriation described herein and determined that this appropriation is available and previously unappropriated from the Self Insurance Fund and will not cause the total amount appropriated in the Self Insurance Fund to exceed the current estimate of actual and anticipated revenues to be received in that Fund during this fiscal year; and NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. That the City Council hereby makes and adopts the determinations and findings contained in the recitals set forth above. Section 2. That there is hereby appropriated from prior year reserves in the Self Insurance Fund the sum of SIX HUNDRED AND SIXTY THOUSAND DOLLARS ($660,000) for increased premiums for property loss insurance. -2- Introduced, considered favorably on first reading, and ordered published this 1st day of December, A.D. 2020, and to be presented for final passage on the 15th day of December, A.D. 2020. __________________________________ Mayor ATTEST: _______________________________ City Clerk Passed and adopted on final reading on the 15th day of December, A.D. 2020. __________________________________ Mayor ATTEST: _______________________________ City Clerk