Tuesday night at the joint City Council–Financial Advisory Committee meeting, staff announced they had researched several providers of liability insurance and had made a decision on a favorite, an outfit called the Municipal Insurance Cooperative Agency (MICA). There were three red flags when the MICA plan was laid out. One was that we were not allowed to hear from any of the other contenders. A second was hearing that the risk pool is very small, 23 I think they said. The third is that the premium sounds too good to be true: a premium of $1 million per year offered to a city with, currently, a $790,000+ per year indemnity plus legal and administrative costs.
Tuesday night I didn’t know what the red flags meant, exactly, but on Wednesday an insurance expert (who would like to remain anonymous, though I’d be glad to give credit) called me up and clued me in. After digesting the information I crafted an e-mail to the Council, which follows…
Members of Council:
I have some thoughts to share on the selection of a liability insurance provider.
First I would request you bring more transparency to the process in the form of presentations by the other provider-contenders so that we might be educated in insurance matters such as expense ratios and what they mean. MICA’s lies well below the industry standard and even further below the national average. Or, to put it into English, MICA is offering you a deal that sounds too good to be true: an almost dollar-for-dollar exchange between the premium and the city’s indemnity and legal expenses. How is that possible? One way is to employ folks who are gurus at significantly whittling down a city’s annual indemnity (though this suggests they believe DeKalb is badly managed). Another possibility is that MICA invests premiums in high-yield, AKA risky investments that potentially could leave us holding the bag — an indicator of this is the requirement to pay the entire premium up front.
Another municipal insurance company with a similar name went down in flames two years ago. This can and does happen.
So, as you question these companies, please ask for their current insurance industry ratings. With MICA and its tiny risk pool, you might also ask which other municipalities participate, and even more importantly which ones have left in the past few years.
Lastly, I note that MICA is not listed as an Illinois member of The Association of Governmental Risk Pools.
Please consider giving a hearing to the other providers.