HomeMy WebLinkAboutItem 5j - Authorize Self-Insured Retention Increase Within CJPIA General Liability Excess Protection Program Item 5j
Department: Human Resources
Cost Center: 3050
For Agenda of: 6/3/2025
Placement: Consent
Estimated Time: N/A
FROM: Nickole Domini, Human Resources Director
Prepared By: Kate Auslen, Risk and Benefits Manager
SUBJECT: AUTHORIZE SELF-INSURED RETENTION INCREASE WITHIN THE
CALIFORNIA JOINT POW ERS INSURANCE AUTHORITY’S GENERAL
LIABILITY EXCESS PROTECTION PROGRAM
RECOMMENDATION
Adopt a draft Resolution entitled, “A Resolution of the City Council of the City of San Luis
Obispo, California, approving an Increase to the Self-Insured Retention Limit within the
California Joint Powers Insurance Authority’s General Liability Excess Insurance
Program.”(Attachment A)
POLICY CONTEXT
This item aligns with the Economic Resiliency, Cultural Vitality and Fiscal Sustainability
Major City Goal.
DISCUSSION
Background
The City of San Luis Obispo became a member of the California Joint Powers Insurance
Authority (CJPIA) on July 1, 2004, for participation in the general liability and workers’
compensation programs. Membership in the CJPIA means sharing risk with other
member agencies, who assist each other in keeping the cost of claims down by following
risk management best practices. By sharing risk, the cost to an agency for a year with
significant claims experience is somewhat mitigated and spread out across many
agencies.
In 2016, the City Council approved transitioning from the “first dollar” primary program to
CJPIA’s excess protection program for general liability with a Self -Insured Retention (SIR)
of $500,000. This means that the City pays claims costs up to $500,000 before CJPIA
liability coverage begins to pay the “excess” costs beyond $500,000. In 2023, a cost
analysis was completed showing that the transition to the excess program for liability has
resulted in savings of approximately $400,000 per year since the transition occurred. In
2024, the City Council approved a transition to CJPIA’s excess protection program (EPP)
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for workers’ compensation with a Self-Insured Retention (SIR) of $500,000, also resulting
in significant savings.
Proposed Change
CJPIA provided the following member contribution estimates at different SIR levels for FY
2025-26:
Table 1: City of San Luis Obispo Member Contribution Estimates at Different SIR Levels
Self-Insured Retention CJPIA Member
Contribution Estimate Savings ($) Savings (%)
$500,000 (Current) $1,483,000 $0 0%
$750,000 $1,267,000 $216,000 15%
$1,000,000 (Proposed) $1,191,000 $292,000 20%
$1,250,000 $1,142,000 $341,000 23%
$1,500,000 $1,084,000 $399,000 27%
The total cost of general liability claims consists of three components:
1. The annual CJPIA member contribution
2. Direct claim costs up to the self-insured retention amount
3. A fee paid to the City’s Third-Party Administrator, Carl Warren & Co., for claims
management services
The CJPIA member contribution is calculated based on three key factors: the City’s loss
history over a rolling five-year period, changes in payroll, and actuarially determined
program rates.
Actuarially determined program rates are affected by overall pool performance
fluctuations year over year. These factors are used to determine the city’s share of
pooled-loss funding requirements, share of the pool’s excess insurance purchases, and
operating expenses.
The five-year rolling average for claim experience has a large impact on the calculation,
according to CJPIA. The City’s five-year rolling average included in the FY 2025-26 CJPIA
member contribution estimate spans FY 2018-19 through FY 2022-23. Two unusually
high claim years fall within this period, as illustrated in Table 2 below.
These figures include reserve amounts for claims not yet settled, so they are subject to
change. However, the FY 2023-24 appears to be an unusually low year, which could
favorably impact the City’s CJPIA member contribution for FY 2026-27.
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Table 2: Five-Year Rolling Average for Claim Experience
Coverage Year Direct Claim Costs
2018-19 $799,903
2019-20 $496,738
2020-21 $1,119,459*
2021-22 $947,701*
2022-23 $1,611,143*
2023-24 $184,476*
*Actual + Remaining Reserve
Selecting a self-insured retention amount is a matter of risk tolerance. The higher the SIR,
the more responsibility the City has in paying direct claims costs rather than relying on
the CJPIA member pool to share the costs. By taking on that risk, the City saves a portion
of the premiums, or CJPIA member contribution, that would have otherwise been paid.
The savings may be used to build up the insurance fund reserve to pay future claims
costs. Alternatively, a lower SIR entails less risk of unusually high claim amounts being
paid out, but also comes with a higher annual CJPIA member contribution.
It is becoming more common for public entities to se lf-insure a portion of both general
liability and workers’ compensation programs to contain overall costs. Currently, 14 out
of 127 CJPIA member agencies participate in the excess protection program for general
liability, with SIR’s ranging from $150,000 to $1,000,000. This represents approximately
11% of all member agencies, up from approximately 2.4% in FY 2016 -17 when the City
first joined the general liability excess protection program. Given the City’s strong record
of claim management and risk management practices, CJPIA considers the City a strong
candidate for a higher SIR and is supportive of the increase.
During the eight (8) fiscal years the City has participated in the general liability excess
protection program (FY 2016-17 to FY 2023-24), one (1) claim out of 557, or 0.18% of
claims, has risen above the $500,000 self -insured retention, and one (1) additional claim
that is anticipated to fall above that amount is still pending settlement. Across CJPIA
member agencies, claims between $500,000 and $1,000,000 represent 38 claims out of
10,823, or 0.35% of all claims between FY 2019-2024. Therefore, it appears to be low
risk to take on a higher self -insured retention level.
Staff recommends increasing the SIR from $500,000 to $1,000,000 starting in FY2025-
26. The SIR will remain at $1,000,000 until changed by Council. This means that the City
would pay general liability claims up to $1,000,000 before CJPIA begins to pay the
“excess” costs beyond $1,000,000. Making this change would result in a savings of
approximately $292,000 for the member contribution paid to CJPIA in the first year and
ongoing savings thereafter, assuming trends in claim costs remain steady. The new SIR
would apply to claims filed July 1, 2025, or later. Expenses for existing claims that are still
pending would apply to the previous SIR in place on the date of the claim.
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Previous Council or Advisory Body Action
On June 21, 2016, the City Council approved entry into CJPIA’s excess protection
program for general liability with a Self -Insured Retention (SIR) of $500,000 to contain
insurance costs.
ENVIRONMENTAL REVIEW
The recommended action is not a “project” under the California Environmental Quality
Act, because there is no potential that it will result in a direct physical change or
reasonably foreseeable indirect physical change in the environment.
FISCAL IMPACT
Budgeted: Yes Budget Year: 2025-26
Funding Identified: Yes
Fiscal Analysis:
Funding
Sources
Total Budget
Available
Current
Funding
Request
Remaining
Balance
Annual
Ongoing
Cost
General Fund N/A N/A N/A N/A
State
Federal
Fees
Other:
Insurance Fund
N/A -292,000
Total $0 $0 $0 $-292,000
In the first year, there will be an immediate savings of approximately $292,000 in general
liability program costs, due to a reduced CJPIA member contribution. However, if the City
incurs unusually large losses, between $500,000 and $1,000,000, those losses would
reduce or eliminate the savings achieved. For example, if expenses for a particular claim
total $792,000 during FY 2025-26, then the City would break even compared to the CJPIA
member contribution that would have been paid at the current $500,000 SIR.
Staff recommends retaining any accrued savings in the insurance fund reserve to pay
future claims costs and align the reserve more closely with actuarial recommendations.
The City’s Fund Balance and Reserve Policy establishes that the Insurance Fund will
maintain funding to cover 150% of the average claim costs for the past five years , which
would total $1,307,855 for FY 2019-20 to FY 2023-24. The policy also states that actuarial
information will be taken into consideration. Based on the most recent actuarial report
dated November 18, 2024, the City should maintain a reserve of $3,392,000 for liability
claims and $1,578,000 for workers’ compensation claims, totaling $4,970,000, if funding
at a 75% confidence level. Confidence levels, or probability levels, are used by actuaries
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to estimate the probability that funding will be sufficient to cover the costs of current and
potential future claims based on trend data available. The insurance fund reserve is
anticipated to be $2,891,767 at the end of FY 2024-25. This is below the lowest probability
level provided by the actuary, which is 55%, or a reserve of $4,553,000. Higher SIR levels
generally result in higher reserve recommendations.
ALTERNATIVES
1. Council could decide to make no change to the self-insured retention amount.
This would result in a higher member contribution to CJPIA in FY 2025 -26 and future
years. It may also be a lower risk option if the City experiences unusually high liability
claim losses, above $500,000.
2. Council could direct an increase to an alternative self-insured retention amount,
such as $750,000 or $1,250,000. A shift to a $750,000 SIR would result in less
savings and less risk compared to the $1,000,000 SIR, and a shift to a higher self-
insured retention amount would result in more savings and more risk, as discussed
above.
ATTACHMENTS
A - Draft Resolution authorizing a self-insured retention increase from $500,000 to
$1,000,000 for the CJPIA General liability excess protection program.
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R ______
RESOLUTION NO. _____ (2025 SERIES)
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF SAN LUIS
OBISPO, CALIFORNIA, APPROVING AN INCREASE TO THE SELF-
INSURED RETENTION LIMIT WITHIN THE CALIFORNIA JOINT
POWERS INSURANCE AUTHORITY’S LIABILITY EXCESS INSURANCE
PROGRAM
WHEREAS, the City of San Luis Obispo became a member of the California Joint
Powers Insurance Authority (CJPIA) in 2004 for participation in the General Liability
Primary Insurance Program; and
WHEREAS, the City of San Luis Obispo entered CJPIA’s General Liability Excess
Protection Program (EPP) in FY 2016-17 with a Self-Insured Retention (SIR) level of
$500,000; and
WHEREAS, CJPIA’s EPP allows members to select an SIR that best fits their
claims experience and ability to appropriately self-insure; and
WHEREAS, increasing the City of San Luis Obispo’s SIR limit to $1,000,000 will
likely reduce insurance costs when compared to an SIR of $500,000; and
WHEREAS, the City of San Luis Obispo’s current Memorandum of Coverage
delegates claim settlement authority to CJPIA and the City desires for that to continue;
NOW, THEREFORE, BE IT RESOLVED by the Council of the City of San Luis
Obispo as follows:
SECTION 1. General Liability coverage for the City of San Luis Obispo through
the Excess Protection Program of the California JPIA (EPP) with an SIR of $1,000,000 is
hereby authorized and directed effective July 1, 2025.
SECTION 2. The City Manager or their designee is authorized to execute an
agreement with Carl Warren and Company in a form subject to the approval of the City
Attorney for third party administration services for the general liability EPP, and any other
documents required for participation in and administration of the general liability EPP.
SECTION 3. Appropriate officers of the City of San Luis Obispo are authorized to
pay the annual member contribution for the Excess Protection Program (EPP) to the
California JPIA.
SECTION 4. The City Manager or designee shall work with CJPIA to fund the
appropriate trust accounts to ensure claim settlement amounts within the SIR are available.
SECTION 6. The City Manager or designee is authorized to act as the City’s
“Authorized Representative” for compliance with “Medicare, Medicaid, SCHIP Extension
Act 2007” Section 111.
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Resolution No. _____ (2025 Series) Page 2
R ______
SECTION 7. The City Clerk shall certify the adoption of this resolution.
Upon motion of Council Member ___________, seconded by Council Member
___________, and on the following roll call vote:
AYES:
NOES:
ABSENT:
The foregoing resolution was adopted this _____ day of _______________ 20 25.
___________________________
Mayor Erica A. Stewart
ATTEST:
______________________
Teresa Purrington
City Clerk
APPROVED AS TO FORM:
______________________
J. Christine Dietrick
City Attorney
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the official seal of the
City of San Luis Obispo, California, on ______________________.
___________________________
Teresa Purrington
City Clerk
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