Why are cities always having to dodge knock-out punches? Cities are continually fighting to provide services to a community with the funds made available to them, and of course, the public shuns any type of tax increases. The present national debt situation has seriously jeopardized future revenue sharing payments. In Illinois the tax base is eroding due to company failures or companies moving to the sun belt area. To add to all the above problems, the insurance industry is now in their down cycle causing them to avoid insuring accounts with multiple exposures such as cities. Many cities are being cancelled mid-term or not being renewed, and if a city can secure renewal coverages the premiums are drastically higher. In most cases the coverages are reduced and the limits are lower in spite of the higher premiums. Cities are having to accept the situation just to get the coverage. Many of the insurance carriers that were leaders in the cash flow underwriting parade now are dropping cities coverage like a hot potato. A firm out of Bloomington, Illinois that specialized in writing cities and other governmental subdivisions is even having difficulty in continuing coverages on their accounts. They have been forced to non-renew or cancel governmental type risks mid-term because their companies are withdrawing from writing governmental accounts. Governmental risks are definitely in trouble when firms that specialize in writing governmental risk can't place them.

The situation is not new to cities. They experienced the same problems in 1969 and 1975 the last down cycle for the insurance industry. This time, however, the experts believe the down cycle will be longer and deeper. They believe the situation will continue for the next three or four years. Many insurance company executives are convinced they have learned their lesson and future insurance practices will not involve cash flow underwriting. (At least this is what they are saying now!)

In the past three to four years, insurance companies wrote business with as much as 60% or more deviation just to bring in premium dollars for investments. The concepts of underwriting were abandoned. Many insurance companies are having problems because they have very young and inexperienced underwriters. It will take years to train underwriters so they can properly analyze risks. With the severe losses generated from the past few years, insurance companies have been forced to cut their staff to cut their expenses just to come closer to profitability. Therefore, insurance companies are caught in the position were they need more staff and more experience but yet they must avoid this situation to lower their expenses. Simply, the insurance industry in the past, present, and we believe in the future has not, does not and will not understand how to

September 1985 / Illinois Municipal Review / Page 21

underwrite cities. This situation means that cities must act to solve their own problems now!

First of all, a city must get their own house in order. If in the past you depended on the insurance company to solve all your problems, you must reverse this type of thinking and learn to solve your own problems. Someone in the city must be assigned the responsibility of controlling the cities exposure to loss. The elected officials must support this persons efforts a 100%. The city should set aside funds to train a person of their choosing in the techniques of risk management. The risk management field has expanded tremendously and there are many sources available for a layman to learn the proper risk management techniques. Part of any risk management plan is a strong loss control program. The loss control program would include accident investigation, supervisors training, windshield observation reports, and more. If your present insurance company does not offer these loss control services consider purchasing them from a loss control service company. The money spent on this service would be returned many times because it would significantly reduce the dollar spent on claims payments. If a city reduces dollars paid on claims, they will ultimately reduce their overall cost whether they are insured, self-insured, or in a self-insurance pool.

The person in charge of the risk management program should work with the city attorney in reviewing agreements the city may have to sign. They should develop hold harmless agreements for vendors to the city and require certificates of insurance with no less than 500,000 general liability limits with the city named as additional insured. These risk management approaches will transfer some of the risk of the city to the proper parties.

The above activities will greatly reduce many claims a city may suffer. The person in charge of the cities risk management program should closely monitor all claims not avoided by the above. Immediate investigation should be completed on a claim so that fresh information can be assimilated to help mitigate the final payment on the claim. Claims that smack of fraud should be attacked to their fullest extent. Attorneys in your area that have a history of filing suspect claims should be made aware that the city will fight claims of this nature vigorously. The public should also be informed that the city will fight suspect claims vigorously in an effort to protect all the taxpayers dollars. Strong effort in this area will again significantly reduce the cities cost for protection even in a tight insurance market.

The person in charge of the Risk Management program should continually be seeking information on better ways to secure protection for the city. This does not mean seeking insurance bids annually! The city should attempt to develop stability in their insurance program by continuing with a specific program for no less than 3 years. This is providing the program properly protects the city and can be secured at reasonable cost. The city should investigate the concept of self-insurance or if they are too small for an individually self insurance program they should investigate a self insurance pool. Self-insurance pools are very popular and have been extremely successful in providing broad coverages at reasonable cost wherever they have been implemented. If your city can still secure insurance through a standard company, they should consider higher deductibles for property, general liability and auto liability.

The last area the city should address is the area of legislation. As you know, court decisions have removed most of the governmental immunities. The theory has been to involve governmental entities because the government can provide a "Deep Pocket" and be forced to pay many claims. Suits have gone to extreme lengths to involve government to the point of being ludicrous. One city was ordered to pay 1.3 million dollars because it restriped a street increasing the number of lanes and increasing the width to 10 feet. A motorcyclist traveling

Page 22 / Illinois Municipal Review / September 1985

on the street many years later was injured when a car swerved in front of him. Ten foot lanes are accepted as safe in the Caltrans Traffic Manual. In another city, the city was ordered to pay $6 million to a man who ran into the surfers beach, dived in and hit his head on a sand bar suffering injuries which left him a quadriplegic."The jury determined the city should have put up signs warning the public that the ocean undulates creating dangers. Since this case was decided, four similar claims have been filed against the city, shortly after the verdict this cities insurance carrier cancelled its coverage. A number of legislative solutions are possible. Some examples of laws that state legislatures could adopt include raising the minimum insurance a driver must carry and abolishing the deep pocket rule. A proposed law has been developed which would leave the deep pocket theory unchanged when applied to medical bills and lost wages however, for awards for pains and suffering and other non-economical losses each co-defendant would be responsible only to his or her degree of fault. Creating a pool funded by auto and drivers licenses and traffic fines from which public entities can recover payments in access of their percentage or responsibility for an accident. Reinstating traditional immunities to public entities from liability arising from the design of roads.

The above items are only a few areas where cities should join together and work with their association to encourage legislators to see the problems the cities must deal with and to assist them in solving their current problems. Ultimately, the taxpayer will have to pay for claims that exceed the cities protection. It a city is ever put into this type of position, we know that the public will not accept this situation and will cry for changes. Before this happens cities should attempt to solve the situation by becoming active in seeing that legislation is passed that will again at least in part solve the immunity problem.

In summary, the current problems will not simply fade away. A good boxer learns about his opponent and develops a strategy to attack his weaknesses. Cities should learn about its exposures to loss and develop a plan to attack these exposures and give them a knockout punch.

September 1985 / Illinois Municipal Review / Page 23